kent nickell
Well-known member
I thought it would be interesting to relook at these predictions that were made 4 months ago. At this point I think a lot of very good moves have been made to try and get the economy back on track but I think the enthusiasm is overdone. The worst may have been avoided but I think that we're in for a few very tough years. When this starts sinking in and people realize that things are still bad even with all that has been done I think there will be a very large negative psychologic effect....
A lot of this psychology seems to be tied to the DOW which has now rallied to about 8000. If that starts slipping back to 6000 that will make people very nervous...
Nouriel Roubini: Things are going to be awful for everyday people. U.S. GDP growth is going to be negative through the end of 2009. And the recovery in 2010 and 2011, if there is one, is going to be so weak - with a growth rate of 1% to 1.5% ((and here he was predicting unemployment at 9% while now it is expected to go to at least 10% and housing has probably been worse than he thought))
Jim Rogers: For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes. ((there will eventually be a very good time to get back into the stock market))
Meredith Whitney: We'll also have a wholesale restructuring of our banking system, probably toward the end of 2009. I think the overall economy will be worse than people expect. The biggest issue will be consumer spending. If 2008 was characterized by the market impacting the economy, then 2009 will be about the economy impacting the market. It's already started. ((think credit card bubble and commercial real estate bubble))
Wilbur Ross: homeowners have now lost $5 trillion, and 12 million families have mortgages in excess of the value of their homes. Therefore the economy will not stabilize until mortgages are adjusted down to the value of homes, with affordable payment schedules, and until new mortgages become available across the home-price spectrum. Till then, the poverty effect of falling house prices and unemployment moving up toward 7% will hold consumer spending back from its former 70% contribution to our economy. A pre-negotiated bankruptcy may be necessary in order to implement the auto restructuring, but both the industry and the economy are too fragile to withstand the domino effect that a free-fall bankruptcy would have on a car company, its dealers, and its suppliers. ((note that he was talking 7% unemployment))
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This article has interviews with 8 people discussing their outlook for the future. These are largely people that saw at least some of this coming and have suggestions with dealing with it....
http://money.cnn.com/galleries/2008/fortune/0812/gallery.market_gurus.fortune/index.html
excertps
8 really, really scary predictions
Dow 4,000. Food shortages. A bubble in Treasury notes. Fortune spoke to eight of the market's sharpest thinkers and what they had to say about the future is frightening.
Nouriel Roubini: We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years. It's the bursting of a huge leveraged-up credit bubble. There's no going back, and there is no bottom to it. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to muni bonds. You name it. And it's all reversing right now in a very, very massive way. At this point it's not just a U.S. recession. All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we're having a global recession and it's becoming worse.
Things are going to be awful for everyday people. U.S. GDP growth is going to be negative through the end of 2009. And the recovery in 2010 and 2011, if there is one, is going to be so weak - with a growth rate of 1% to 1.5% - that it's going to feel like a recession. I see the unemployment rate peaking at around 9% by 2010. The value of homes has already fallen 25%. In my view, home prices are going to fall by another 15% before bottoming out in 2010.
For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cashlike instruments such as short-term or longer-term government bonds. It's better to stay in things with low returns rather than to lose 50% of your wealth. You should preserve capital. It'll be hard and challenging enough. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.
Bill Gross: While 2008 will probably be best known as the year that global stock markets had their values cut in half, it was really much, much more. It was a year in which every major asset class - stocks, real estate, commodities, even high-yield bonds - suffered significant double-digit percentage losses, resulting in the destruction of over $30 trillion of paper wealth. To blame this on subprime mortgages alone would be to dismiss an era of leveraging that encompassed derivative structures of all types, embodying a belief that economic growth was always and everywhere a certainty and that asset prices never go down. As 2008 nears its conclusion, we as an investor nation have been forced to face a new reality. Wall Street and Main Street are fearful that a recession may be replaced by a near depression.
Sheila Bair: We will dig out of this. And when we do, I hope for a back-to-basics society - where banks and other lending institutions promote real growth and long-term value for the economy, and where American families have rediscovered the peace of mind of financial security achieved through saving and investing wisely.
Robert Schiller (The Yale professor and co-founder of MacroMarkets called both the dot-com and housing bubbles.): Some people who are so inclined might go more into the market here because there's a real chance it will go up a lot. But that's very risky. It could easily fall by half again.
Jim Rogers: For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes.
John Train: And when should you buy? In or near what I call the Time of Deepest Gloom, if you can spot it.
Meredith Whitney (The Oppenheimer & Co. analyst was among the first to warn that the big banks had big problems.): What happens in 2009? Frankly, it's hard for me to predict what's going to happen next week, never mind next year. What I will say is that I expect all these banks to be back in the market looking for more capital. We'll also have a wholesale restructuring of our banking system, probably toward the end of 2009. There will be banks getting smaller, banks going away, and banks consolidating. At the same time, though, I think you'll see more new banks created. We've already seen more applications. And it's a great idea: You start with a clean balance sheet and make loans today with today's information. Plus, right now you've got a yield curve that's good for lending.
I think the overall economy will be worse than people expect. The biggest issue will be consumer spending. If 2008 was characterized by the market impacting the economy, then 2009 will be about the economy impacting the market. It's already started.
Wilbur Ross (The billionaire chairman of W.L. Ross & Co. specializes in turning around troubled companies.) We are clearly in a serious recession, and more aggressive action is needed to turn things around. The federal government initially underestimated the scale of the mortgage and housing crises and later panicked into an ever-changing series of ad hoc measures that at best dealt with some of the effects of the original crises. But homeowners have now lost $5 trillion, and 12 million families have mortgages in excess of the value of their homes. Therefore the economy will not stabilize until mortgages are adjusted down to the value of homes, with affordable payment schedules, and until new mortgages become available across the home-price spectrum. Till then, the poverty effect of falling house prices and unemployment moving up toward 7% will hold consumer spending back from its former 70% contribution to our economy.
I'm optimistic about the choices that President-elect Obama has made for his economic team, and I've got some suggestions for what they should do. Hopefully the new Treasury Secretary, Tim Geithner, will incentivize lenders to restructure mortgages by guaranteeing half of the reduced principal amount and sharing among the government, homeowners, and lenders any subsequent appreciation. Lenders would gain liquidity by selling the Treasury-guaranteed portion of the loan, and government would receive annual insurance premiums to further protect it against loss. That would cost taxpayers nothing now and probably little or nothing in the future.
Addressing unemployment is paramount. Detroit needs government support in order to implement independently verified concessions from all stakeholders - not just labor - which are sufficiently large to permit profitable operations even if auto sales remain as low as 11 million cars per year. A pre-negotiated bankruptcy may be necessary in order to implement the restructuring, but both the industry and the economy are too fragile to withstand the domino effect that a free-fall bankruptcy would have on a car company, its dealers, and its suppliers.
In addition, to avoid reversal of the 242,000 jobs created by state and local governments in the past 12 months, Washington should provide or guarantee funding for sorely needed infrastructure projects that would create immediate construction jobs and meaningful amounts of permanent jobs.
A lot of this psychology seems to be tied to the DOW which has now rallied to about 8000. If that starts slipping back to 6000 that will make people very nervous...
Nouriel Roubini: Things are going to be awful for everyday people. U.S. GDP growth is going to be negative through the end of 2009. And the recovery in 2010 and 2011, if there is one, is going to be so weak - with a growth rate of 1% to 1.5% ((and here he was predicting unemployment at 9% while now it is expected to go to at least 10% and housing has probably been worse than he thought))
Jim Rogers: For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes. ((there will eventually be a very good time to get back into the stock market))
Meredith Whitney: We'll also have a wholesale restructuring of our banking system, probably toward the end of 2009. I think the overall economy will be worse than people expect. The biggest issue will be consumer spending. If 2008 was characterized by the market impacting the economy, then 2009 will be about the economy impacting the market. It's already started. ((think credit card bubble and commercial real estate bubble))
Wilbur Ross: homeowners have now lost $5 trillion, and 12 million families have mortgages in excess of the value of their homes. Therefore the economy will not stabilize until mortgages are adjusted down to the value of homes, with affordable payment schedules, and until new mortgages become available across the home-price spectrum. Till then, the poverty effect of falling house prices and unemployment moving up toward 7% will hold consumer spending back from its former 70% contribution to our economy. A pre-negotiated bankruptcy may be necessary in order to implement the auto restructuring, but both the industry and the economy are too fragile to withstand the domino effect that a free-fall bankruptcy would have on a car company, its dealers, and its suppliers. ((note that he was talking 7% unemployment))
---------
This article has interviews with 8 people discussing their outlook for the future. These are largely people that saw at least some of this coming and have suggestions with dealing with it....
http://money.cnn.com/galleries/2008/fortune/0812/gallery.market_gurus.fortune/index.html
excertps
8 really, really scary predictions
Dow 4,000. Food shortages. A bubble in Treasury notes. Fortune spoke to eight of the market's sharpest thinkers and what they had to say about the future is frightening.
Nouriel Roubini: We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years. It's the bursting of a huge leveraged-up credit bubble. There's no going back, and there is no bottom to it. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to muni bonds. You name it. And it's all reversing right now in a very, very massive way. At this point it's not just a U.S. recession. All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we're having a global recession and it's becoming worse.
Things are going to be awful for everyday people. U.S. GDP growth is going to be negative through the end of 2009. And the recovery in 2010 and 2011, if there is one, is going to be so weak - with a growth rate of 1% to 1.5% - that it's going to feel like a recession. I see the unemployment rate peaking at around 9% by 2010. The value of homes has already fallen 25%. In my view, home prices are going to fall by another 15% before bottoming out in 2010.
For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cashlike instruments such as short-term or longer-term government bonds. It's better to stay in things with low returns rather than to lose 50% of your wealth. You should preserve capital. It'll be hard and challenging enough. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.
Bill Gross: While 2008 will probably be best known as the year that global stock markets had their values cut in half, it was really much, much more. It was a year in which every major asset class - stocks, real estate, commodities, even high-yield bonds - suffered significant double-digit percentage losses, resulting in the destruction of over $30 trillion of paper wealth. To blame this on subprime mortgages alone would be to dismiss an era of leveraging that encompassed derivative structures of all types, embodying a belief that economic growth was always and everywhere a certainty and that asset prices never go down. As 2008 nears its conclusion, we as an investor nation have been forced to face a new reality. Wall Street and Main Street are fearful that a recession may be replaced by a near depression.
Sheila Bair: We will dig out of this. And when we do, I hope for a back-to-basics society - where banks and other lending institutions promote real growth and long-term value for the economy, and where American families have rediscovered the peace of mind of financial security achieved through saving and investing wisely.
Robert Schiller (The Yale professor and co-founder of MacroMarkets called both the dot-com and housing bubbles.): Some people who are so inclined might go more into the market here because there's a real chance it will go up a lot. But that's very risky. It could easily fall by half again.
Jim Rogers: For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes.
John Train: And when should you buy? In or near what I call the Time of Deepest Gloom, if you can spot it.
Meredith Whitney (The Oppenheimer & Co. analyst was among the first to warn that the big banks had big problems.): What happens in 2009? Frankly, it's hard for me to predict what's going to happen next week, never mind next year. What I will say is that I expect all these banks to be back in the market looking for more capital. We'll also have a wholesale restructuring of our banking system, probably toward the end of 2009. There will be banks getting smaller, banks going away, and banks consolidating. At the same time, though, I think you'll see more new banks created. We've already seen more applications. And it's a great idea: You start with a clean balance sheet and make loans today with today's information. Plus, right now you've got a yield curve that's good for lending.
I think the overall economy will be worse than people expect. The biggest issue will be consumer spending. If 2008 was characterized by the market impacting the economy, then 2009 will be about the economy impacting the market. It's already started.
Wilbur Ross (The billionaire chairman of W.L. Ross & Co. specializes in turning around troubled companies.) We are clearly in a serious recession, and more aggressive action is needed to turn things around. The federal government initially underestimated the scale of the mortgage and housing crises and later panicked into an ever-changing series of ad hoc measures that at best dealt with some of the effects of the original crises. But homeowners have now lost $5 trillion, and 12 million families have mortgages in excess of the value of their homes. Therefore the economy will not stabilize until mortgages are adjusted down to the value of homes, with affordable payment schedules, and until new mortgages become available across the home-price spectrum. Till then, the poverty effect of falling house prices and unemployment moving up toward 7% will hold consumer spending back from its former 70% contribution to our economy.
I'm optimistic about the choices that President-elect Obama has made for his economic team, and I've got some suggestions for what they should do. Hopefully the new Treasury Secretary, Tim Geithner, will incentivize lenders to restructure mortgages by guaranteeing half of the reduced principal amount and sharing among the government, homeowners, and lenders any subsequent appreciation. Lenders would gain liquidity by selling the Treasury-guaranteed portion of the loan, and government would receive annual insurance premiums to further protect it against loss. That would cost taxpayers nothing now and probably little or nothing in the future.
Addressing unemployment is paramount. Detroit needs government support in order to implement independently verified concessions from all stakeholders - not just labor - which are sufficiently large to permit profitable operations even if auto sales remain as low as 11 million cars per year. A pre-negotiated bankruptcy may be necessary in order to implement the restructuring, but both the industry and the economy are too fragile to withstand the domino effect that a free-fall bankruptcy would have on a car company, its dealers, and its suppliers.
In addition, to avoid reversal of the 242,000 jobs created by state and local governments in the past 12 months, Washington should provide or guarantee funding for sorely needed infrastructure projects that would create immediate construction jobs and meaningful amounts of permanent jobs.
