"Q4 2001 will be the worst quarter Israel has ever known, due to the write-offs everyone will be making. Anyone not making write-offs now is a fool," says Itschak Shrem, a controlling shareholder in the Shrem, Fudim, Kelner group. Shrem, a leading figure in Israeli capital markets, has not granted an interview in quite some time. He told TheMarker "There will be no seachange in the environment, the apparent recovery now is a chimera".

"I don't believe the interest rate story. It won't lead to growth because it is too late," Shrem states. "We are now in a liquidity trap, interest isn't interesting, only the capital. Even if interest rates were zero percent, banks wouldn't be giving credit. There are no good borrowers.

"There isn't a snowball's chance that the entire budget cut will be approved, so Bank of Israel will have no choice but to raise interest on short-term debt, while maintaining a public face that interest rates are low.

"The dollar can never go back down. What kept it down there was the money from high tech and the interest rate gap. Now high tech is over and companies will understand it isn't worthwhile to take dollar loans or invest in shekels. There may not be rapid devaluation, but there will be creeping devaluation". In the interview, Shrem criticized Australian investor Frank Lowy¿s decision to invest in Kardan as that company invets in the controlling stake of IDB Holdings. "I don't get it. If he wants IDB without control, why not by it on the market at 30% less?"

TST Recommends