2009 Economic Forecasts...what will happen, when?

Discussion in 'Business & Economics' started by joepistole, Jan 23, 2009.

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  1. kmguru Staff Member

    Another book worth reading - Meltdown by Paul Mason. He has several interviews available on the net.
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  3. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    “July 22 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market. Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify “problem” mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that “some have suggested”
    the commercial market “may even dwarf the residential mortgage problems” in the U.S. *…

    It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today, while noting no proposal on the subject has emerged.

    U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35** percent since the market’s peak, Moody’s Investors Service said in a report this week. Commercial properties in the U.S. valued at
    more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, … Yesterday, more than a half-dozen members of the House panel mentioned or asked Bernanke about the topic, with Chairman Barney Frank saying there’s a “great deal of fear” that a wave of commercial defaults will produce economic problems similar to those caused by residential mortgages.

    “As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices -- and so, more pressure on commercial real estate,” Bernanke said yesterday. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.”
    One of the main issues for the industry is that
    the market for debt backed by commercial mortgages “has completely shut down,” the Fed chief said yesterday.
    From: http://www.bloomberg.com/apps/news?pid=20601087&sid=a2mAhkgbWDXc
    *The second shoe is starting to fall now, right on top of those “green shoots.” Unlike homeowners, the commercial owner quickly walks away when equity turns negative, (can't sell for mortgage balance) and still rented offices do not cover the mortgage + insurance cost. - This "snow balls" rapidly compared to residential units as lenders reposes more commercial property and dump it on a decling market before the value can drop more.

    Except by jumping off roof top etc. a person must keep his identity but a company can just cease to exist (bankruptcy) and a newly named corporation can be created by same owners. Some restaurants do this every year or so to stick their meat etc. suppliers with unpaid bills. The suppliers will soon be selling meat to the new company, with the same cooks and waiters at the same location in a few months!- I do not understand why but they do as the salesmen want the commissions from the sales, I guess.

    **Billy T notes residential prices nationally are down 33% from peak and the total of commercial mortgages is ~1/3 of the residential total. Credit card default rate is at all time high - will try to find that link again. (Due to jobless rate being at high of last decade and greater use of credit cards than earlier, mainly.) Only by accounting tricks are some banks doing better.
    ---------------- More of the same from different source:

    The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US GDP, could be a significant hurdle on the road to recovery. Colm Kelleher, Morgan Stanley’s chief financial officer, said he did not see the light “at the end of the commercial real estate tunnel yet”, after the bank reported a $700m writedown on its $17bn commercial property portfolio in the second quarter. “Peak to trough, you have already had a pretty nasty correction in the market but it is still not looking very good at the moment,” he said after Morgan Stanley reported its third straight quarterly loss.

    Wells Fargo saw non-performing loans in commercial real estate jump 69 per cent, from $4.5bn to $7.6bn in the second quarter as the economic downturn caused developers and office owners to fall behind in their mortgage payments.

    From: http://www.ft.com/cms/s/0/3a1e9d86-76eb-11de-b23c-00144feabdc0.html (but you may need to register to read all - it is free.)
    Last edited by a moderator: Jul 22, 2009
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Bad times coming indicators:

    More Banking Trouble: The government's stress tests were not adequate or there are more bad loan boogeymen looming about, then we are right back where we started with this mess.
    Accelerating Jobless Claims: Weekly report of new jobless claims starts growing again instead of shrinking The unemployment rate looks like it will reach around 10-11%. Not good a sign if we shooting past that mark.
    Deflation: Goods getting cheaper. It sounds nice on the surface, but it's a deadly economic disease as people wait to buy whne prices are lower. As in Japan during the 1990's which they call the "Lost Decade".
    Runaway Inflation: Government pumped too much money out to fight slow economy and deflationary spiral. Normal inflation is around 2-3%. Creeping up to 5%+ then that could signal things are getting out of hand.
    General Economic Weakness: US consumer are 70% of the economy, so deteriorating retail sales are a very bad sign. Also manufacturing activity and sentiment indicators moving down spell trouble.

    Above Billy T condense from today's Zack’s Email. PS No corresponding good times coming list was given. Wonder why?
    "{sales} Revenue at 143 companies in the S&P 500 reporting this week, many of them bellwethers for the American economy, fell on average 10 percent from a year ago, according to Bloomberg data. Seventy managed to top the analysts’ consensus for sales, while 107 did so for earnings per share.

    The economy probably declined 1.5 percent in the three months ended June 30, marking the fourth straight drop and the longest such streak since quarterly records started in 1947, according to the median of 66 economists in a Bloomberg survey.

    ‘Shrinking Your Way to Profitability’

    “The real theme is the divergence between earnings and revenues,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “We know companies are cutting costs at a record pace, and that is helping earnings. But you can’t keep on shrinking your way to profitability. Eventually, you do damage to your end users. ..."

    From: http://www.bloomberg.com/apps/news?pid=20601087&sid=a8SqhtHkyfL4 - An article with title: "Sales Fail to Keep Pace With Profits as Economy Stays Sluggish"

    Not much reading between the lines needed to understand that companies are firing workers, ordering less from their suppliers, etc. to cut costs and boost profits despite decreasing sales. How long do you think that can last? And more importantly: Note it is negative feed mechanism driving economy lower.
    Last edited by a moderator: Jul 25, 2009
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  7. Baron Max Registered Senior Member

    You did know that the Dow was up last week, right, Billy?

    Baron Max
  8. Carcano Valued Senior Member

    Its possible inflationary and deflationary forces will cancel each other out...both camps will be wrong and Bernanke will look like a genius!

    The biggest coming problem is the second wave of mortgage defaults associated with the Alt-A and Option Adjustable contracts.

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  9. kmguru Staff Member

    Well if government keeps pumping money to cover citizen's income losses - then you have a problem.
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Yes, but seldom am I concerned with movement of less than a month's duration. I did however on Friday take advantage of the recent rise to further reduce the small exposure I still have in my tax deferred retirement accounts to equities by moving $10,000 more into Vanguards "TIP like" fund (VIPSX). Now less than 5% of all the tax deferred retirement is in TIAA-CREF or Vanguard's TIP like funds (or in the first case some in TIAA's guaranteed returns "bond like" fund)

    I have about 6 times the value I put in over 30 year working carrier, which was the max allowed every month. I now am forced to take out each year so government gets taxes, but as that 6 shows the tax free compounding helps saving grow. (Also I have long been concerned with dollar so most of the funds I applied in during the 30 years were oriented to non-US investments - I got all of the great relative increase of the foreign vs. dollar growth.) I don't have any use for the money I take out, but to invest it. But now it is not going into equities as I have POV that the worst is yet to come and am keeping funds to invest later. (If I am wrong I am too old for that to matter, to me and it is sort of a wash for my grand children in that if wrong and the US economy prospers that is good for them. If I am right they will inherit much more.)
  11. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    To Carcano:

    Most mean "deflation" to be about the value of money increasing but when this is true it is generally a period of very reduced economic activity. I tend to mean that when speaking of deflation.

    Thus I do not expect that inflation and deflation will cancel each other out. I expect that there will be a run on the dollar, probably trigger by relatively small but significant holder of Treasury paper, like Korea or Kuwait, who can dump its bond with only a 10% or less decrease in their value being caused.

    When "K" gets out (into some gold but mainly ownership of real assets, like farms and coal etc.) then others will rapidly follow, but Japan will be among the last to dump the dollar and thus get hurt the most. China is rapidly as it can reducing the relative percentage of its reserves in dollars by buying real assets now, mainly in the Southern Hemisphere.

    Thus I expect near "run-a-way" inflation as the dollar falls in value AND depression (in the economic collapse sense).

    The so called "exit strategy" has 5 legs the main one being that the FED will soak up the excess of dollars it has printed when the velocity of the dollar begins to get up off the floor. The deficit due to stimulus will continue as unemployment will be >10% but probably be only 1/2 a trillion annually for the FED to print and then try to soak up with its interest paying paper. I.e. with low confidence in the future purchasing power that interest will be double digits.

    Thus, the "exit strategy" is a shell game. The fiscal deficit will be large by normal standards (far more that GDP growth can support) so debt to GDP ratio will exceed unity in about two years (assuming as I do that China needs about three years at least to convert to a domestic market economy instead of an export one) so is still buying at least short term T-bills for next two years. I.e. both the FED and the Treasury will be pumping out new money to hid (shell game) or counter the effect of recovery of the velocity of money.

    Bernanke is an expert on the 1929 depression. He knows the governmental mistakes of that era very well. About six months ago he said: "He would not make those mistakes - he wanted to make his own mistakes." He is, but really had no other options to cope with the unavoidable depression producing condition GWB and Republican "trickle down" theory made for him. (That "trickle down" built the more modern than US factories in China. E.g. W. Buffet owns 10% of the BYD hybrid car maker, expected to make 400,000 cars this year that have greater all electric range than GM's volt, look equally good or better, and cost half the price.) These factories will be better than those in the US for more than a decade.
    Last edited by a moderator: Jul 26, 2009
  12. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I post the following (blue text) in this economic thread, instead of the "BRIC news" or "Do you think China will overtake the US" thread as I see (and years ago noted) the economic significance of the tension between China and Taiwan.

    I.e. I have long ago noted that although one, perhaps the main, reason that China willing accumulated huge dollar reserves was to keep their Yuan undervalued for exports there was another reason, which I called "China's economic gun." China and all know there is no way they can overcome the US seventh fleet if it does protect Taiwan from a Chinese invasion to reunify Taiwan with the mainland. All have knowledge that the preferred way to achieve this re-union is by peaceful means, and that over the last decade this path has been advancing, making forceful reunion less likely.

    The "Chinese gun" was to offset the power of the Seventh fleet. I.e. if the peace approach to reunion failed then China would tell the US, if you interfere with the occupational reunion of Taiwan we will dump the accumulated dollar assets and destroy the dollar. That would of course be very economically painful for China, but the US could not be sure the Chinese would not bear that pain. (They have a history of great self-inflicted pain due their idology, until recent switch to a market economy. For Example the cultural revolution destroyed the universities, & Mao's drive to have "backyard steel production" did the same for their industry.) If defending Taiwan did mean the destruction of the dollar and the US economy, and it could, then the US would think twice about the need to defend Taiwan.

    Many times in the past the US has "cut and run" leaving those who trusted it not to do that on their own, when the cost of defending them became too high. For example, in WWII, MacArthur pulled out of the Philippines with only the promises "I will return." Not even that was given when the Helicopters took the Americans off the roof tops in Saigon leaving local people who had aided the US to be executed. After "black hawk, down" US abandoned their local supporters to the war lords in Somali, etc. etc. Given this consistent history of cutting and running, the Chinese might well have believed that when push came to shove, the US would tell the Taiwanese: "Good luck & good bye."

    Fortunately it now is almost certain that peaceful reunion will happen. China can put cement in the barrel of that Chinese gun; will not need to suffer great economic pain by dumping lots of Treasury bonds. I.e. Over the next three or four years China can use those bonds to buy real assets, as it is now rapidly doing in the Southern Hemisphere. - Their "Gun" offsetting the power of the seventh fleet is no long needed. Here is the latest very significant step towards peaceful re-union:

    "… The presidents of Taiwan and China exchanged direct messages Monday {today} for the first time since the two sides split 60 years ago — the latest sign of their warming relations. …

    Chinese President Hu Jintao congratulated Taiwanese President Ma Ying-jeou on his election Sunday as party chairman, …"I hope both our parties can continue to promote peaceful development in cross-strait relations, and help bolster mutual trust between the two sides in political affairs," Hu's telegram said.

    In return, Ma called for both sides to work on peace. "We should continue efforts to consolidate peace in the Taiwan Strait and rebuild regional stability," Ma said.

    From: http://news.yahoo.com/s/ap/20090727/ap_on_re_as/as_taiwan_china

    And more at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aZhFyEN5h.0k including the suggestion of a face to face meeting may occur between Hu & Ma.
    Last edited by a moderator: Jul 27, 2009
  14. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    All agree "protectionism" extended and made worse the 1929 depression, but we don't learn:

    "... At issue for {the G2} traders are the substantial subsidies that China provides its domestic industries, which allow Chinese firms in some sectors to sell at low prices, ... To counteract dumping, the WTO mainly allows injured countries to restrict imports and impose countervailing tariffs. This could lead to escalating trade conflicts between China and some OECD countries. ...

    Beijing has poured hundreds of billions of dollars in subsidies and preferential loans ... {E.g.}

    --In the 2009 investment plan, some 130 billion renminbi in budgetary allocations and bank loans are to be poured into large SOEs, represented as 'technology upgrade and innovation.'

    --Many local governments have also rolled out subsidies and preferential buying policies {"buy Chinese" is as destructive "Buy American"} to help local industries ...

    --As a growing number of U.S. and European manufacturers come under pressure from their well-financed competitors in China, they can be expected to pressure their governments increasingly to impose anti-dumping tariffs. ..."

    From: http://www.forbes.com/2009/07/28/pr...business-oxford.html?partner=daily_newsletter

    SUMMARY; The downward spiral of trade continues and will accelerate for G2 trading.
    Last edited by a moderator: Jul 29, 2009
  15. kmguru Staff Member

    And no one seems to have any idea how to solve this. So everyone trying to use sledge hammers to hammer 2 penny nails....
  16. nirakar ( i ^ i ) Registered Senior Member

    Certainly protectionism was harmful but if my unexpert understanding history is correct then the blaming of the great depression on protectionism and government failures was revisionism to deflect blame from where it had been correctly placed at the time of the depression which was on a extreme business cycle made extreme by to much easy credit.

    Both in the run up to the great depression and in the run up to this recession loans were made to consumers, and loans were made to investors that should not have been made. The lenders got too excited about what looked like easy profits for lenders and they forgot to be cautious which created bubbles which when popped turned into oversupply and panics.

    All the developed nations have played games and protected or enabled certain businesses to be stronger competitors than they could be without government support. It becomes hard to ask China not to engage in these games when Japan and the EU and the USA and other nations have certain kinds of government support for favored businesses and agriculture grandfathered into the WTO and GATT rules.

    Every subsidy paid for and every cheaper or better part not imported creates some burdens for the nation that subsidizes products and creates obstacles to imports. These burdens may partially offset whatever advantages are gained by a nation who's government rigs markets. If the government market riggers make poor choices as to which markets to rig they will actually handicap their nation's economy.
  17. kmguru Staff Member

    Quotes from Ben Bernanke in Kansas City:

    In 1929 - people think the Depression was created by the stock market crash. It wasn't. From 1929 to 1931, it was a normal recession. Then in 1931 a huge bank in the middle of central Europe collapsed and that created a global financial crisis which then made the recession into a Great Depression. I was not going to be the Federal Reserve chairman who presided over the second Great Depression, and for that reason, I had to hold my nose and stop those firms from failing. I am as disgusted about it as you are, and I think it's absolutely critical as we go forward that we put in a new system that will make sure that when a firm does not succeed in the marketplace, that it fails. That is absolutely critical and I support that 100 percent.

    I learned -- I did spend a lot of my career studying the Great Depression and other financial crises. And I didn't expect it would be so helpful, so useful, as it has been. But I learned three lessons from my work on the Great Depression, and you identified two of them. The first one was monetary policy has to be supportive, not restrictive. In the 1930s, the Federal Reserve allowed the money supply to collapse, allowed prices to fall, and that was a major force -- a major factor in the Depression. So this time the Fed was aggressive in cutting interest rates, providing supportive monetary policy, and getting, you know, that part going.

    The second thing I learned from looking at the Depression was, as I mentioned before, that allowing the financial system to collapse -- and we had several thousand bank failures here in the United States in the 1930s which the Fed could have stopped, or at least most of them. Letting the financial system collapse is also a very, very bad thing to do, and it contributed very considerably to the collapse in the credit markets and, again, to the Great Depression. And for that reason I have taken the approach that we want to make sure that the financial markets are as stabilized as possible, that we don't have a financial collapse because we know what the consequences of that can be for the broad economy.

    But the third thing I learned was this - that the Federal Reserve in the 1930s was completely orthodox. It did things today we think are wrong, but it was doing it based on what at the time were the standard policies, the standard approaches. They didn't use anything unusual. And I think what I learned from that is that when you're in a situation like this, a perfect storm, sometimes you've got to do something a little bit outside the box, a little bit more aggressive. And so when the Federal Reserve got interest rates down to zero, we couldn't cut it anymore and so we had tried to address a lot of the other problems, like fixing the credit markets in the ways that you described.

    Now, your point is absolutely right, and someone else mentioned this before. We can't do that forever. Eventually the credit markets have got to go back completely into private hands, the private sector needs to be allocating credit. We are trying to support the markets now, in a period when I think the economy still needs help and when I don't think inflation is a near-term problem. But you're absolutely right that as the economy begins to show strength, then we're going to have to gradually unwind, pull out those special programs, and let the economy do what it's supposed to do, which is allocate credit to the best uses.
  18. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    To nirakar:

    I have no significant disagreement with you, but never said protectionism CAUSED or blamed it for the Oct1929 crash or he depression which followed. – “Protectionism” only extended it and made it worse. You are very correct about the causes - they are much, if not exactly, the same as has been happening and will cause a worse one soon.

    One additional thing about why it lasted as long and grew worse is seldom discussed:

    Less than a year after the crash, England went off the gold standard. Back then the British pound was at leas as important as the dollar so this had global effects. I.e. The Brits began to do what every economically significant nations is doing already now. Namely lower the real value of their currency to aid their exporters. – This is sort of the flip side of protectionism. Other nations, including the US reacted to this "unfair trade advantage" that fiat money gave the Brits by making more and higher tariffs or going off the gold standard also so they could do the same for their exporters.

    Now the world is already deep into this flip side protectionism - part of why the coming depression will be much worse and when it hits (a run on the dollar) it will crash harder and faster to the bottom.

    However with fiat money the government will, as doing now, print away their dept and convert depression into run-a-way inflation. As there are more debtors than lenders, that will be politically popular. However, it will not be a healthy economy, with jobs etc. – Sort of the worse “stagFLATION you can imagine. (I made the inflation part of that word all caps to help you imagine what it will be like with no job and gas at $50/gallon due to the Chinese and Indian demand plus “peak oil”)
  19. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    “… The U.S. economy shrank at a better- than forecast 1 percent annual pace in the second quarter as a jump in government spending masked a deeper retrenchment by consumers.

    At the same time, today’s report showed that consumer spending … shrank more than twice as much as forecast last quarter; analysts anticipate it will take months to recover as job losses mount…

    Consumer spending, which accounts for more than two-thirds of the economy, fell at a 1.2 percent pace following a 0.6 percent increase in the prior quarter. Purchases were forecast to drop 0.5 percent, according to the survey median. … {dropping more than twice as fast as expected}

    The economy has lost 6.5 million jobs since the recession began in December 2007, and economists surveyed by Bloomberg this month forecast the jobless rate will exceed 10 percent by early 2010. …

    The “cash-for-clunkers” trade-in program begun this month has spurred 16,351 new-vehicle sales so far, the Transportation Department said on July 29. The plan, which set aside $1 billion, ran through the money six days after it began …

    The Standard & Poor’s 500 Index and Dow Jones Industrial Average are up 12 percent since July 10 on better-than- anticipated earnings …"

    From: http://www.bloomberg.com/apps/news?pid=20601087&sid=abhZi396CE7A

    Billy T comments:
    SUMMARY: Profits and stock market are up (making GDP drop less than expected, but still decreasing) as corporations cut cost (fire more workers, mainly). These jobless, and those fearful they will be next to lose job, are not buying as they did. (Consumer spending down 1.2% - after brief blip up last quarter, when compared to 4Q08 disaster, and down considerably more than a year ago.) Government (your tax dollars) spending is trying to replace the drop in customer spending (went thru 1 billion in “cash for clunkers” in six days probably more as filing claims takes a few days)*.

    The effect of these job layoffs made brief decrease in the rate of economy decline, GDP drop rate slowed, but will make it accelerate downward soon. Especially as foreclosure are still increasing and the commercial real estate foreclosures are just starting to explode. – Banks or tax payers to be stuck with more losses. Government will ask for an get new stimulus package – forcing dollar printing presses into overtime.

    At some point, Kuwait or S. Korean (or ?) will bail out of the dollar and then the run on it will start with US and EU economic collapse following in about a month. It is all going pretty much as I forecast nearly five years ago**, except happening faster. We will not make it to the end of my predicted six year window (Halloween, Oct. 2014). Depression of economic activity in US and EU will arrive before that with run-a-way inflation and probably a new “red/white/ blue” dollar replacing the old green ones at 10 old for one of new by Halloween 2014.
    *By edit: 2 billion dollars more just added by congress.

    **GWB's needless wars; go-it-alone, arrogant, foreign policy; tax relief for the already wealthy (under Republican "trickle down" theory - that did - to build modern factories in China etc. and close many in the US) are why I knew this was all coming more than three years before the end of GWB's disastrous term as POTUS.
    Last edited by a moderator: Jul 31, 2009
  20. NiccolòBrioschi Registered Member

    The only answer is... Nobody knows.
  21. hypewaders Save Changes Registered Senior Member

  22. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Here is a 70 old forecast likely to come true again for some before halloween 2014, IMHO:

    1939 film Gone with the Wind's Vivien Leigh declaring, "If I have to lie, steal, cheat or kill ... as God as my witness, I'll never go hungry again!"
  23. kmguru Staff Member

    Everybody thinks it will be December 2012. Billy T is too kind....

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