(September 8 – 13:15 ET) – A couple of independent U.S. analysts predict calamity for the Canadian stock market.
K. C. Grainger, of Grainger Beaulac Inc., and Bob Morrow, of Robert S. Morrow Institutional Advisory Services, suggest that market dynamo Nortel Networks Corp. is vastly overvalued. In an article, Grainger says, “Off the next market top, Canadian Internet giant Nortel Network should experience about a 40% correction.”
Grainger notes that the firm hasn’t had any insider buying in over a year, although insiders have been selling. “It’s a great company but the stock price is too high.”
Such a fall for Nortel, which represents about 30% of market cap of the TSE 300, would devastate the Canadian market. But Grainger and Morrow are concerned about something else that could hit the market where it hurts — the direction of the U.S. dollar. Grainger argues that the crash of 1987 was precipitated by a weakening U.S. dollar, and says it’s a factor to watch now, too.
The analysts maintain that the depreciation of the U.S. dollar between 1985 and 1987 pushed foreign investors to sell U.S. assets, which eventually turned to panic, and a market crash. Now they suggest the dollar is 10% overvalued, and a slide could spark a bear market, if not a full-fledge crash.
“We expect a 40% decline in the stock market next year coming off the next top. Not that it couldn’t be staved off. But it probably won’t be because of political and economic considerations. I’m suggesting that you keep a sharp eye out for the dollar. It will have a tremendous effect on the stock market.”
-IE Staff