Wall Street's Wild Ride: Analyst Predicts Hope For Tech

Analysts and media outlets attributed the huge sell-offs to anxiety and panic, but Peter Schiff with Euro Pacific Capital sees the problem differently.

K.C. Jones

October 10, 2008

3 Min Read
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U.S. stocks extended their losses as the Dow Jones industrial average closed down for the eighth day in a row, but the Nasdaq closed up slightly as tech stocks fared slightly better than others.

The Dow closed down 1.49% or 128 points to close at 8,451.19. This after a roller-coaster day that saw a 700-point drop in the morning, before swinging wildly for the remainder of the day. The Dow returned to positive territory three times in the last half hour before the final downturn that kept it in the negative for the last 12 minutes of trading.

Most stocks recovered from their morning lows, but the Dow fluctuated 1,000 points for the most dramatic intraday swings in history. The Dow closed down 18% this week.

The Nasdaq Composite served as a minor bright spot, closing up 0.27% at 1,649.51, but that hardly demonstrates a significant rally after a week of devastating losses. The Nasdaq fell 15% this week.

Analysts and media attributed huge sell-offs to anxiety and panic, but Peter Schiff, president and chief global strategist for Euro Pacific Capital, said the real problem isn't that people lack confidence. They lack money, he said.

"The stock market is reflecting the problems in our economy," Schiff said during an interview Friday. "You hear the president talk and say they want to keep Wall Street's problems on Wall Street, but the real problem is on Main Street. Wall Street is in trouble because they engineered trillions of dollars in loans to Main Street, and Main Street is too broke to pay them back."

He said that the only way to deal with the situation is to tell Americans: "The borrowing is over. The consuming is over, and the whole phony economy is gone."

Schiff, who predicted a market crash in his 2007 book Crash Proof (Wiley; 2007), said people will have to adjust to buying only what they can pay for because credit will not be available -- for small purchases or for things like cars and education.

He predicted a "horrific period" in which a lot of companies in several sectors -- including retail, transportation, and financial services -- will fail entirely after their earnings collapse.

Although corporate spending fuels technology company profits, Schiff's view of technology companies is a bit brighter. Tech stocks trade high and there will be compression, he said. Since many technology companies don't have a heavy debt load, and many do business internationally, many will survive, he said.

"I wouldn't buy technology companies' stocks, but I think the people who work for them are going to have jobs," Schiff said.

President George W. Bush attempted to calm fears by giving a speech that warned, "Anxiety can feed anxiety," and G7 leaders prepared to meet in an attempt to deal with a global economic crisis. Neither of those events seemed to calm investors.

Shares of a several tech companies closed higher Friday. They include Amazon.com, Apple, Cisco, eBay, Google, and Oracle. Decliners included Dell, IBM, Research In Motion, Sun Microsystems, and Yahoo.

Schiff warned against whole market index funds but added that it is possible to pick a couple of extremely cheap companies -- as long as investors are very specific and cautious.

"They're throwing a lot of babies out with the bathwater, but there aren't a lot of babies," he said.

He predicted a bounce next week but saw no meaningful rallies in the near future.

"We're not out of the woods yet," he said. "There's really no reason for people to own U.S. stocks now. We're going to be in the worst recession of our lifetime."

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