Forecasts about the economy

[wiegie]

This summary is from Nouriel Roubini's RGE Monitor:

 

U.S. Economy in Recession: Will the Financial Crisis Cause a More Severe and Protracted Downturn?

 

* Since the U.S. economy is already in recession, intensification of financial crisis (and impact of credit tightening on households and firms) might deepen and lengthen (longer than the avg 12 months in past decades) the downturn leading to a U-shaped recession

 

* Roubini: U.S. will suffer worst recession in 40 yrs lasting 18-24 months with unemployment rate rising up to 9%, credit losses hitting close to $3 trillion and home prices falling another 15%

 

* Financial turmoil characterized by banking crisis are associated with severe and (2-4 times) longer downturns with (2-3 times) larger impact on growth (IMF study); unless the ongoing global central bank and govt intervention are effective, a severe financial meltdown, policy missteps, debt deflation, low interest rates might pose risk of an L-shaped recession

 

* Fed's Yellen: Economy might contract from Q3-09 to Q1-09 as financial shock hits every sector of the economy and housing is still far from bottoming out; Bernanke: Marked slowdown in consumption, investment, labor market; continued weakness in housing; economic activity in next few quarters depends on improvement in credit and financial markets

 

* NBER measures for recession in negative territory: personal disposable income declining since June; continuous 9-mo employment decline of 760,000; retail sales, ISM manufacturing contracting since July; contracting and at lowest level since 2001, industrial production declining since August

 

* After stronger than expected growth in Q2-08 boosted by rebate induced consumer spending and export growth, domestic demand and GDP growth will weaken significantly during H2-08/H1-09 as consumption will contract starting Q3 (first time in 17 yrs on rising job losses, falling real wage/asset income, high debt, tight credit), capex will decline in H2-08 and contract through 2009 since residential and even non-residential construction spending are in negative territory (on high borrowing cost, weak corporate earnings, elevated production costs); large inventory liquidation; non-manufacturing ISM stagnating; export orders at 2-yr low, contribution of exports to GDP will soften ahead (on slowing G-7, EM growth, stabilizing USD); correction in home price till 2010 will keep putting pressure on consumers and banks

 

* IMF: Growth forecast lowered to 1.6% in 2008, 0.1% in 2009; looming recession given the size of mortgage market and role of residential investment; need substantially large recapitalization of the financial system to resume lending

 

* Feldstein: Financial turmoil may lead to a longer recession (than avg of 12 months) and greater output loss, higher unemployment rate; recession began in Dec- 07/Jan-08; exports not strong enough and Fed rate cut not effective to support recovery

 

* Merrill Lynch (not online): Growth will be flat in Q3, negative in Q4-08/Q1-09, 2008: 1.6%; 2009: -0.3% with a recovery by mid-2009 at the earliest; 'saucer-shaped' recovery-->longer duration of recovery a bigger risk than magnitude of decline in growth

 

* Morgan Stanley: Economy might contract by 1% or more in the year ending in Q2-09; UBS: growth in contract in Q3/Q4 2008 and Q1-09 growing 1.4% in 2008; 0.3% in 2009

 

* JPMorgan: Growth will be flat in Q3-08 (0%), contract -0.5% in Q4-08/Q1-09; 2008: 1.6%, 2009; 0.6%; Deutsche: GDP will contract in Q3/Q4 growing at 1.4% in 2008, 0.0% in 2009

 

* Goldman Sachs (not online): credit tightening unlikely to ease soon, will impact economic activity causing severe and longer recession, 8% unemp rate by end of 2008 and Fed rate cut of 1% or lower; consumer spending will contract during 3Q08-1Q09 recovering only in 2H09; GDP growth will contract in 4Q08/1Q09 and remain flat in 3Q08/2Q09; GDI (a better indicator) is showing more weakness than GDP

 

* NABE: Credit-market deterioration will push the US economy into recession (-1.1% in Q4-08, -0.5% in Q1-09); without the $700bn bailout plan, growth in 2009 would be 0.75% lower, unemployment rate would be 0.5% higher by 2009-end

 

* IIE: Sluggish consumer spending through 2009, declining contribution of net exports to GDP will lead to 0% or small negative growth in H2-08 and modestly positive growth in H1-09

 

* Alliance Bernstein: Weakening 6-mo diffusion index on leading indicators; slowdown in growth even before financial crisis worsened will impede economic recovery resulting in a longer trough

 

* Wachovia: Continued weakness in labor market implies consumer spending will decline in H2-08; high production costs, low demand will cause corporate profits to decline

 

* IIF: sub-par growth starting H2-07 will likely extend to 2010 with negative consumption, longer and deeper housing recovery, declining boost from net exports

 

* Krugman: U.S. may have an L-shaped recession as home prices are yet to fall to pre-bubble levels; unemployment may continue to rise; growth may remain sluggish till 2010-11 even after official recession is over

 

* Fed revised 2008 GDP growth forecast upward from 0.3-1.2% in April to 1-1.6% in June; kept unemployment rate forecast unchanged at 5.5-5.7%

Pretty hard to find any optimistic forecasts in there at all. This is almost certainly going to be really ugly. Last week I called my brother and sister and told them to prepare for things to get pretty bad and I see nothing in here that would make me want to change my mind (other than to perhaps call them back and stress to them that I was not joking).

[muck]

The sun was shining in KC today.

[muck]

I expect that the Fed can inflate us out of the current malaise, however, the next one they will not be able to effectively address, and THAT one will be the doozy ... the bottom of which will make the current pain seem like a paper cut ... and that bottom will also be the buying opportunity of a lifetime.

 

I am expecting this "doozy" to happen some time before 2020.

Edited October 16, 2008 by muck

[jetsfan]

I expect that the Fed can inflate us out of the current malaise, however, the next one they will not be able to effectively address, and THAT one will be the doozy ... the bottom of which will make the current pain seem like a paper cut ... and that bottom will also be the buying opportunity of a lifetime.

 

I am expecting this "doozy" to happen some time before 2020.

 

2015 would be a good year, seeing as how the market bombs every 7...

[muck]

2015 would be a good year, seeing as how the market bombs every 7...

 

Be careful with numerology and cycles...

 

S&P500": -2.0% annualize return for "every seven years blow up" strategy:

2008 = -38.2% (through today's close)

2001 = -13.0%

1994 = +1.3%

1987 = + 5.2%

1980 = +32.4%

1973 = -14.7%

1966 = -10.0%

1959 = +12.0%

1952 = +18.4%

1945 = +36.4%

1938 = +31.1%

1931 = -43.3%

...no data easy retrieved by me beyond 1926...

 

NOTE: While being out of the market every 7th year would have saved you from losing 2% annualized over these 11 full and one mostly full years, you would have missed out on some hugh years (1938, 1945 and 1980) to the good and some hugh years (1931, 1973 and 2008) to the bad. It would appear that if one "seventh year" is particularly bad, you want to make sure you're invested seven and fourteen years later (i.e., 1931 was bad and 1938 was great and 1945 was great ... 1973 was bad and 1980 was great and 1987 wasn't bad (other than the death-defying drop in October the year still ended up with a gain)). In summary, interesting idea but not enough data points to say whether or not there is a viable theory here. Why don't you just go ahead and say that "every 77 years is really bad"? Except that there is no good reason to start that theory in 1931 (although I am wondering what equity prices did in 1854 and 1777 ... who has some long-cycle data to look at)?

 

"US Small Cap Stocks": -2.7% annualize return for "every seven years blow up" strategy:

2008 = -34.5%

2001 = +1.0%

1994 = -0.1%

1987 = -7.1%

1980 = +33.5%

1973 = -36.5%

1966 = -7.7%

1959 = +17.4%

1952 = +9.1%

1945 = +67.1%

1938 = +39.0%

1931 = -49.7%

...no data easy retrieved by me beyond 1926...

 

NOTE: See 'note" for the S&P500 above.

 

Long-Term Corporate Bonds: -0.1% annualize return for "every seven years blow up" strategy:

2008 = -4.1% (through 9/30/08)

2001 = ...can't find data right now...assume a 0% return for period...

1994 = -7.0%

1987 = -0.3%

1980 = -1.0%

1973 = +1.1%

1966 = +0.2%

1959 = -1.0%

1952 = +3.5%

1945 = +4.1%

1938 = +6.1%

1931 = -1.9%

...no data easy retrieved by me beyond 1926...

 

NOTE: Investing in bonds is typically pretty unexciting; beating inflation isn't too bad of an outcome, frankly... Seriously, what did you expect from looking at bond returns every seven years?

Edited October 16, 2008 by muck

[Perchoutofwater]

I see double digit unemployment this time next year, if Obama's tax plan is implemented. It will be hard enough making the risk of business worthwhile in a recession without increasing taxes on business owners. I don't even want to think of what his healthcare plan will do to employment.

[AtomicCEO]

I see double digit unemployment this time next year, if Obama's tax plan is implemented. It will be hard enough making the risk of business worthwhile in a recession without increasing taxes on business owners. I don't even want to think of what his healthcare plan will do to employment.

 

Yeah, I remember when entrepreneurs were all hiding in closets during the last democratic president's term.

 

Oh wait... no. It was actually better than having the whole economy tank. Weird. It's almost like the country doesn't do better when you shift all the money to the richest 1%.

 

It's like... people... when they have money to spend... actually... spend it. I can't explain it. I'm no economist.

[muck]

I see double digit unemployment this time next year, if Obama's tax plan is implemented. It will be hard enough making the risk of business worthwhile in a recession without increasing taxes on business owners. I don't even want to think of what his healthcare plan will do to employment.

 

Employer: "So, you want a job?"

 

Job Seeker: "Yessir. Anything you have would be great."

 

Employer: "Ok. We're not hiring employees. What we are doing is hiring contract workers."

 

Job Seeker: "Ok. How does that work?"

 

Employer: "We agree on a monthly or hourly compensation, and then we pay you at that rate every two weeks. You're responsible for your own taxes, your own insurance, your own retirement."

 

Job Seeker: "But my last job had great benefits."

 

Employer: "I am offering the job I just told you about. Do you want it or not? There are seven other people waiting to interview for this job. I'm sure at least one of them is as well qualified as you, is as talented as you and may work for less money. I'm busy. You're here first. Do you want it or not?"

 

Job Seeker: "No health insurance? No employer-match of withholdings? No 401(k) plan?

 

Employer: "Nope. If you don't like that, take it up with your elected representatives. We simply cannot afford those types of things given the recent changes to the tax law."

 

Job Seeker: "I guess I'll take it then. When do I start?"

 

Employer: "Great. I'll see you next Monday at 8am. Don't be late and don't piss me off."

[muck]

Yeah, I remember when entrepreneurs were all hiding in closets during the last democratic president's term.

 

Oh wait... no. It was actually better than having the whole economy tank. Weird. It's almost like the country doesn't do better when you shift all the money to the richest 1%.

 

It's like... people... when they have money to spend... actually... spend it. I can't explain it. I'm no economist.

 

I know you're fishing ... but as a reminder to the innocent bystanders just floating through this thread ...

 

GENERALLY, it matters little who is sitting in the Oval Office when determining whether or not the economy will do well right now.

 

If the next POTUS (regardless of who it is) and Congress radically overhaul the tax code, punishing (intended or not) small business owners, the economy will really crap out.

[CaP'N GRuNGe]

http://www.newsweek.com/id/163449

 

Haven't read it yet, but Zakaria is usually a good read...

[Ursa Majoris]

And all the righties run about screaming that the sky is falling. Guess what righties - it isn't. As ACEO pointed out above, the last Democrat presidency was an economic boom. Yes, yes, you can post all you want about how none of it was Clinton's doing but your policies of piling more and more money on fewer and fewer people as well as starting unfunded and unjustified wars are a proven total disaster.

 

Forgive us if we completely ignore you for a while.

[Perchoutofwater]

And all the righties run about screaming that the sky is falling. Guess what righties - it isn't. As ACEO pointed out above, the last Democrat presidency was an economic boom. Yes, yes, you can post all you want about how none of it was Clinton's doing but your policies of piling more and more money on fewer and fewer people as well as starting unfunded and unjustified wars are a proven total disaster.

 

Forgive us if we completely ignore you for a while.

 

I don't think the sky is falling. I know that the Potus doesn't have that much power. I will also say that the first 6 years of the Bush presidency were pretty good for everyone, it has been the last 1 1/2 where things have taken a turn for the worse. My biggest concern for the economy is increasing taxes on business owners and mandating healthcare coverage, or penalizing employers for inadequate coverage. If that does happen you will be looking a much higher unemployment in this recession than you otherwise would, and you probablly will go into a full blown depression. Hopefully congress is smart enough to realize that this isn't a good idea, and just empty promises of a politician trying to get elected.

[Ursa Majoris]

I will also say that the first 6 years of the Bush presidency were pretty good for everyone, it has been the last 1 1/2 where things have taken a turn for the worse.

[wiegie]

If... the economy will really crap out.

the economy is petty much going to crap out regardless

[Avernus]

the sooner we hit rock bottom, the sooner things will get better

[AtomicCEO]

I know you're fishing ... but as a reminder to the innocent bystanders just floating through this thread ...

 

GENERALLY, it matters little who is sitting in the Oval Office when determining whether or not the economy will do well right now.

 

If the next POTUS (regardless of who it is) and Congress radically overhaul the tax code, punishing (intended or not) small business owners, the economy will really crap out.

 

By "punish the small business owners", you are referring to reverting the tax code back... from where it is now when the economy is tanking... to where it was 8 years ago when the economy was good.

 

Seriously. This is dumb rhetoric with no basis in reality.

[AtomicCEO]

I will also say that the first 6 years of the Bush presidency were pretty good for everyone, it has been the last 1 1/2 where things have taken a turn for the worse.

 

Holy schit.

[The Irish Doggy]

the sooner we hit rock bottom, the sooner things will get better

 

That's the spirit!

[wiegie]

I will also say that the first 6 years of the Bush presidency were pretty good for everyone

what are you smoking?

 

Real median household income FELL in 2001 and then fell again in 2002, and again in 2003, and once more in 2004, and then again in 2005; it finally started to rise in 2006 and 2007, but it is still BELOW where it was in 2000.

 

http://www.census.gov/hhes/www/income/histinc/h06AR.html

[dmarc117]

Yeah, I remember when entrepreneurs were all hiding in closets during the last democratic president's term.

 

Oh wait... no. It was actually better than having the whole economy tank. Weird. It's almost like the country doesn't do better when you shift all the money to the richest 1%.

 

It's like... people... when they have money to spend... actually... spend it. I can't explain it. I'm no economist.

 

 

so have those people earn it. dont be a parasite to the successful.

[muck]

By "punish the small business owners", you are referring to reverting the tax code back... from where it is now when the economy is tanking... to where it was 8 years ago when the economy was good.

 

Seriously. This is dumb rhetoric with no basis in reality.

 

I believe you work for a small business ... but are you the majority owner?

[Brewer]

With the current deficit, a war(s), social security looming, Medicare looming even bigger then SS and bailouts, does anyone think that the next POS, regardless of party, will be able to lower taxes? I doubt that either party has the sack to cut spending enough to solve those issues and cut taxes.

[Savage Beatings]

I'm going to start drinking now, and I'm just going to have to keep my buzz fresh for about 2 years. Who's with me?

[Skippy]

what are you smoking?

 

Real median household income FELL in 2001 and then fell again in 2002, and again in 2003, and once more in 2004, and then again in 2005; it finally started to rise in 2006 and 2007, but it is still BELOW where it was in 2000.

 

http://www.census.gov/hhes/www/income/histinc/h06AR.html

I keep thinking it is just all the blue collar people that I know that just don't know how to handle thier money. Thank you for letting me know that I am not crazy. At least not crazy on this subject.

[wirehairman]

A country boy will survive.