Move sideways for many years on stocks?
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Still bearish after all these years
By Philip Coggan
Published: April 25 2003 12:18 | Last Updated: April 25 2003 12:18
Tony Dye is a contented man. In the late 1990s, he became known as Dr Doom for his statements on the prospects for the stock market and his deep scepticism about the technology sector. As the dotcom bubble inflated, it led to Dye's abrupt departure as chief investment officer of Phillips & Drew, the fund management group, in February 2000.
Among the bad news that Dye believes could happen is the collapse of a financial institution. "It has to be a strong possibility," he says. "It almost happened in 1998 but LTCM [the US hedge fund] was baled out." The problems could arise in the over-the-counter derivatives market, which Dye says is "completely opaque". He quotes the size of the market at $130 trillion (£83,000bn) and says that, if only part of that market turns sour, there could be significant problems.
But the main issue is economic. Dye believes the US economy will suffer the sluggish growth period he has long been expecting, probably over the next five years. This will not be particularly good news for equities or for the housing market. "We could easily see 20-30 per cent off house prices in the UK," he says.
A big problem for stock markets is that valuations are not yet attractive despite the falls over the past three years. "You can make a weak case for European equities because dividend yields have moved towards the long-term average," he says.
However, Dye says a big crash may not be necessary. The Japanese example shows that the Tokyo market had a big fall when the bubble burst but then spent a long period trading in a volatile range. Markets in the US and the Europe could spend a lot of time trading at around current levels until dividends and profits grew sufficiently to make them highly attractive.
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posted by Dil at 3:44 PM 