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. Last Updated: 07/27/2016

Guru Predicts U.S. Market Will Plummet

FRANKFURT -- Market guru Elaine Garzarelli, best known for predicting the October 1987 market crash, said in a magazine interview that she still believes Wall Street could drop 15 to 25 percent by the end of the year.

Garzarelli, in an interview published on Monday in Germany's Der Spiegel, said she expected the market drop to occur after the Nov. 5 U.S. presidential election.

"Since 1990 my computer program was always giving buy signals. Since the end of July, I began receiving other signals. I would expect that the index will crash 15 to 25 percent this year," Garzarelli said in the interview.

Garzarelli said she expected little movement in the Dow index before next week's election between Democratic President Bill Clinton and Republican challenger Bob Dole.

But after that, she said "the risky period will occur," saying that expectations for the Federal Reserve to raise interest rates and for a decline in expectations for corporate profits to weigh on the market.

"Investors think that American businesses next year can post earnings growth of an average 13 percent. But actually the average will drop about five to 10 percent," Garzarelli said.

"Economic growth will also slow because consumers are simply too much in debt," she said.

Garzarelli said the U.S. market would be pleased with a Clinton victory. But she noted that typically in the first year of a presidential term the market fell 90 percent of the time.

She also said the U.S. Federal Reserve was "unsettled" by the high level of the U.S. stock market.

"They worry about a speculation bubble because consumer debt is so high. They would therefore rather raise rates than lower them," she said.

Garzarelli, who controls some $800 million in investment funds, said she has put her money into two-year government debt and short-term money market accounts, as well as energy and food industry stocks.