04/10/2009 05:12 am ET Updated May 25, 2011

Scary Surge Seen in Jobless Rate to 20%

Halloween, which falls on October 31, is a little over 7 ½ months away. The National Press Club in Washington, however, will be celebrating that holiday, replete with its traditional array of ghosts, ghouls and goblins, much earlier, March 19 to be precise, and on a much more frightening note. That's the day it will hear a pre-Halloween economic tale of terror from veteran investment advisor Martin Weiss, a modern-day combination of Godzilla, Frankenstein and Dracula, all bundled into one.

In a chat the other day, the 62-year-old skipper of Weiss Research in Jupiter, Fla., aptly dubbed Wall Street's Grim Reaper, filled me in on his latest thinking. What he had to say would scare the dickens out of anybody.

Why so? For starters, he now predicts that one out of every five working Americans, or 20%, will be unemployed within a couple of years in a progressively weakening economy. That's more than a doubling of the jobless rate, which struck a 25-year high last month of 8.1%, heightening the number of unemployed to some 12.5 million people. During the depths of the Great Depression, the unemployment rate shot up to 25%.

Given his ominous outlook, members of the Washington press corps who will be hearing the Grim Reaper might well bring along some Maalox or Pepto-Bismol, especially if they're invested in the stock market.

Weiss's view: "We're well beyond a recession; we're now in the Great Depression, Part 2," he flatly tells me.

His premise is that the crises on the banking, credit and housing fronts will get significantly worse before they get better; he also points to continued deterioration in consumer confidence, the high probability of a sharply accelerated slowdown in consumer spending and an out-of-control budget with an estimated deficit this year of $1.75 trillion. He further argues that "the Administration's entire budget is based on "pretty fraudulent and erroneous data."

What about President Obama's stimulus package? Weiss belittles it, describing it as "99% hope and 1% fact." Even if it has an impact in the second half, you would need 5% growth in that period to offset the economic damage done earlier in the year, he observes. And there's no way, he argues, the economy can turn on a dime.

To Weiss, it all adds up to another enormous decline in stock prices this year, following a drop of more than 52% from the Dow's October 1987 high of 14,164. "I would get the hell out of almost every sinking stock, and that's almost every stock in the market," he says.

Based on his record in recent years, Weiss, though a merchandiser of fear, surely merits a respectful hearing. For example, between 2005 and 2008 and prior to their coming to pass, he accurately predicted a series of ultra-gloomy events -- namely the onset of a severe recession, a housing bust, a major credit crisis, a series of bank failures and a collapse in stock prices.

Among the banks he predicted would fail were Citigroup, Wachovia and Washington Mutual, each of which has been either bailed out or bought out.

No one's perfect, though, and our Grim Reaper goofed last year when he advised investors to get more aggressive in foreign markets, such as China, India and Brazil, each of which subsequently took a drubbing.

So what's next on the economic home front? Ugh! Weiss expects the current quarter to produce another wicked GDP setback of between 6.2% and 7%, following a hefty 6.2% drop in the fourth quarter of 2008, which was the steepest decline in 26 years. "A repeat of the fourth quarter is about the best anyone can expect at this point," he says.

Importantly, he points out, his projected GDP decrease for the present quarter has momentum, spearheaded by a continued slowdown in construction spending, sharply rising unemployment and further economic contraction globally. As a result, Weiss looks for second quarter GDP to post about a 5% to 7% drop. For all of 2009, he figures, GDP should slide between 6% and 8%.

Told that his projections for this year were way out of line with those of both private economists and the White House -- they're projecting respective declines of 2% and 1.2% -- Weiss fired back: "Those numbers you mention are pipe dreams. They're just out of sync with reality."

Turning the clock back to the kickoff of the Great Depression in 1929, Weiss notes that year produced financial shocks smaller than those that occurred last year. In 1930, 1931 and 1932, GDP dived 8.6%, 6.4% and 13%, respectively. "It's reasonable to expect similar declines over the next three years," he says.

Asked about his earnings outlook, he chided me, saying that's the wrong question. The right one, he explains: How do you contain the losses? His dismal profit expectation: "Overall net of U.S. corporations could wind up in the red during the current depression."

Where does all his chaos leave the stock market? The next step, as Weiss sees it, is a 5000 Dow by mid-year or sooner. But that's not his projected bottom, he's quick to note. "If this depression is as severe as its 1929 forerunner," he observes, "it implies a stock market decline of 90% from peak to trough, or 1,500 in the Dow."

What about bonds? Weiss says he would unload virtually every corporate bond, especially so high-yield or, as they're called, junk bonds.

Any sunshine out there? "There are some silver linings," Weiss says. "The dollar is getting stronger, we still have relatively strong banks, although they're the smaller ones, both gold and the greenback offer money-making opportunities, and this crisis is not the end of the world."

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