8 really, really scary predictions

[Crewleader]

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.

By Beth Kowitt, Jon Birger and Brian O'Keefe

NEXT: Bill Gross

http://money.cnn.com/galleries/2008/fortune/0812/gallery.market_gurus.fortune/index.html?

[Stardust]

1. K & R (and bookmarked)! Thanks (I think...) : ^ {

[leftofthedial]

2. "unemployment rate peaking at around 9% by 2010"

Unemployment has been over 12% for years now.

Even the propaganda number from the government will hit 15% before this is over.

[formercia]

3. Phony government 'statistics.'

Junior and gang have been playing fast and loose with the numbers for a long time. Will Mr. Obama set the record straight?

[MadMaddie]

25. I think when the real numbers come out about everything

War Casualties
Any and all Statistics dealing with the American economy
Health in America


The list goes on and on....I don't think Americans will be in a forgiving mood.

[BeFree]

4. Gosh

I have a $100 to invest. Where should I put it?

Seriously, gas prices are going down, food prices are stable, rents are high, electricity is going up, wages down, interest down, bushco skates, Obama takes the heat, new bank buildings are going up left and right, people are being fired/laid off, newspapers going broke, car dealers closing, retail stores going bankrupt, house sales are lower and going lower, the air more polluted, water too, bushco getting away scott-free (what does scott-free mean ie where does the term come from?) GM is cracking up, and what else is on the move? And what's stable?

Where best to invest my $100?

[Hatchling]

8. My suggestion for investment:

:popcorn:

All we can do is sit back and watch the horror movie unfold.

[Warpy]

19. That's been my advice to myself, at any rate

I realized the flood into treasury notes was a bad idea, too, since the Fed isn't all that stable these days of bailouts running up the debt beyond anybody's ability to pay.

When the flood goes the other way, I'm afraid the end of it will see those notes devalued to the point their holders should have just stayed where they were and ridden it out.

There is no right way or wrong way to do an economic collapse. Only time will tell which of us has chosen wisely. Right now, all we can do is watch it all fall down and hope we can rescue enough from the rubble to survive it.

I'm just glad my parents aren't here to see another one.

[riderinthestorm]

27. So Warpy, you are out of the market?

I'm not sure what you think the poster should do with his $100. Sit back and "watch"? (which is... put it under the mattress?)

Or ... what? You're right, nobody knows what's the right course of action. I'm just curious what you think and are doing.

[Warpy]

30. $100 needs to be kept aside in a place that's very difficult to get to

as an emergency cash stash. Make it even more than that if you can. Just put it someplace that requires a ladder and flashlight. Most thieves won't look there.

I'm staying in the market because that's where my income is coming from. The value will never decline to zero and while people still eat, drive, and heat their houses, I will have some income. I have no debts, and that makes a big difference.

Ten years from now, if I'm still alive, I'll tell you whether or not that was the right thing to do.

[Jim Lane]

9. I have no investment advice, but I can at least explain "scot-free"

Centuries ago, in England, the scot (only one "t") was a form of tax. To go "scot-free" was to avoid paying the tax. As a figure of speech, its meaning is now more general. According to , it means "to get away without penalty; to beat the rap".

Which, alas, is indeed what bushco will do.

[Vanje]

24. Couple of cases of Spam . nt

[anigbrowl]

29. In a class at your local community college, or some books

Learning or developing a skill never goes out of style.

[GliderGuider]

5. None of them understand how bad the situation really is

I read their capsule comments. As far as I can tell, not one of them understands the true nature of our predicament.

When the only tool you have is a hammer, every problem looks like a nail. These are eight financial gurus who -- despite their awareness of our financial problems -- have no clue what's going on outside their domain. As a result, they are going to be as surprised as Joe Sixpack when the world falls on them.

Here's a link to my take on why it's worse than they realize: http://www.paulchefurka.ca/New_Normal.html">The New Normal.

This isn't simply a financial crisis. The economy is just one of three crisis elements that are converging on us at the same time. The other two are energy shortfalls (aka Peak Oil) and ecological problems which will manifest as food shortages. These three storm fronts (energy, ecology and economics) are all interconnected and amplify each other. Trying to fix one may make the others worse.

Focusing on any one of these three crises in isolation will do no good at all.

[Festivito]

6. Their comments seem cushioned by their current wealth.

They know they can't fall into hunger, so their wording cloaks the actual situation which they express only to be read between themselves, not yet to educate the unwashed masses.

As soon as they see that they need workers, they'll start to speak more openly.

[GliderGuider]

7. I'm not sure this is an inability or unwillingness to speak the whole truth

I suspect it's more an inability to comprehend the full nature of the beast. Understanding the predicament requires one to take a system-level view. You need to recognize that each sector of civilization (not just of the economy) functions to its own rules that are different from one sector to another. One sector, like agriculture, can't be wholly analyzed in terms of the rules of some other sector like transportation, energy, economics or politics, even though those other sectors may have a dramatic influence on the one under consideration. For example, you can't fully analyze agriculture using an economic model, even though economics has an important influence on agriculture.

In order to arrive at any realistic comprehension of the situation, an analyst needs to know to some extent how the different domains interact. For example: how will the economic situation impact energy supplies; how will constraints on energy supplies feed back into the economic situation; how will oil supplies and the economic downturn impact agriculture; how will climate change impact agriculture; how does government policy impact energy supplies; how will changes in agricultural output affect national economies; the list of interactions is endless.

Trying to decipher what's going on by looking at just one sector of civilization, as these gurus are doing with their financial analysis risks ignoring huge swathes of crucial influences. I'm not saying I do much better -- I don't have the background in any field to make authoritative detailed analyses. Most of my thinking is based on reading to a certain level in a variety of fields, then trying to connect the dots across domain boundaries.

But I've found you don't need to cross-connect the issues in very many disciplines before it dawns on you that the problem we're facing is a whole lot worse than just the sum of the individual problems. Our civilization appears to have hit the wall in a number of domains simultaneously, and the interactions between them have created a dilemma almost beyond comprehension. It's certain, however, that just analyzing derivatives, unemployment rates and the Dow Jones Industrial Average won't even get you close -- and that's the fatal flaw in these eight pronouncements.

[Festivito]

10. They have an inkling, they WON'T look.

This whole using leveraged money as un-leveraged money in order to make more leveraged money is so stupid that they are, aside from scared, embarrassed at how simply dumb they will look as they order their $5 lattes. They won't look. They don't want to know.

These eight are giving their ideas on how to invest money while this story unravels. Hey forrest, where are the trees? Conspicuously missing is any reference to real needs: food, shelter, health care. They live in a world where they see themselves being above all that. Now it's crashing around them and they still can't admit it. They won't look.

If they actually looked they might see that the only real way to save retirement accounts and a way of life that includes living, ahem, is to take a look at each and every wealthy person and readjust all their individual wealths ridding everyone of these bad-boy-banker papers. (Oh yeah, let their Cayman accounts just plain old die.)

Instead they want to look at each and every poor and middle-class person to see if they can continue to pay for their overpriced house at the overpriced value, eat that, or take bankruptcy and eat that. Heaven forbid we should look at the real value of that house, readjust the value and the mortgage and make the bank eat the loss along with the insurance companies WHO by the way CREATED THIS MESS. Oh no, that would hit the rich people! Oh my! Oh no!

But, maybe I'm just mad.

I listened to a panel discussion at the same site and was incensed.

[DemReadingDU]

11. So true

For Paulson, Bernanke, their cronies, they must think it is far worse for them to admit they leveraged money to make more money (maybe fraudulently, maybe spend a few years in prison), than it is to see the whole world collapse around them.

[Festivito]

14. Good addition. Could be fear of prison as well. /nt

[Citizen Number 9]

12. According to the headline

These are supposed to be really scary predictions.

Am I to understand that y'all believe things will be substantially worse than any of these guys forecast?

[GliderGuider]

15. Yes, things will be much worse than they predict.

I find these predictions to be pretty tame and one-dimensional, actually.

For an example of what and how I think, here's a link to an analysis I did of the unfolding situation in Africa over the next few decades: Africa in 2040. This projection was completed in February, before the current financial collapse really got rolling. It's safe to say that events since then have not made my projections any rosier.

A similar system-level approach to the situation in North America would reveal near-term threats out of all proportion to what has these purported doomsters all in a lather.

[Festivito]

16. Reports are: .7T$, 7T$, and 70T$. Which is it?

How much:
700-billion, 7-trillion, 70-trillion? What do we do, pick one?

Where are they:
Are they in portfolios in Merril-Lynch-style banks now like poison-gassed fox holes, in retirement accounts waiting like time bombs, we know they're in China, Brazil, India's portfolios from trade deficits from where they can be tossed at us like grenades, and are they in the Cayman Islands ready to return at every Obama action like a threat of mega-bombs/MOAB, in order to discredit Obama and control our government while not even holding office -- certainly not elected office.

These guys are just saying what to do if you're them, guys living off people who invest.

[HamdenRice]

17. Isn't it the least bit possible that these experts are right and you are wrong?

I've read your web site, and while I don't claim the expert status of the authorities referenced in the OP, I do have some advanced training and global experience.

Your website seems to be to be composed of little more than "word salad". It's about the level of analysis I get from guys on the subway who say that aliens are communicating to them through their dental fillings.

In your cognitive world, do you allow for any possibility that Nobel level economists might be right and you might be wrong? Or in your world, is that impossible?

If you agree with the latter statement, then mightn't you want to do a reality check about the probabilities of correctness based on training and access to data?

[GliderGuider]

18. There's enough agreement on my side of the fence to give me confidence in my opinions.

You're under no compulsion to agree, and i know you're not shy about publishing your own opinions.

I don't think a Nobel prize in economics confers any irrefutable authority on someone, especially if they're dealing with a cross-disciplinary problem.

Of course, it they are right and I'm wrong, how exactly is that a comforting situation?

[HamdenRice]

20. "if they are right and I'm wrong, how exactly is that a comforting situation?"

Uhhh...

Because they are predicting tough economic times for a few years and you are predicting the end of the world? Maybe?

If they are right, I've lived through the recession of the 70s, the recession of 81-82 and my parents and grand parents survived the Great Depression.

In neither case was there population collapse and mass die off, so I suspect there won't be one coming up. I find that quite comforting -- and eminently logical and believable.

[GliderGuider]

21. I'm not predicting the end of the world.

Even in my darkest speculations I only suggest the world population might fall back to the level of 100 years ago. That's hardly predicting the end of the world, though to you it might feel like it.

I'm suggesting that it's possible we're in overshoot and may be heading for a permanent adjustment of the human experience. If I turn out to be wrong, and the financial gurus (or "ostriches" as I like to call them) are vindicated, then any people I've convinced to prepare for permanently straitened circumstances will have gardens and close-knit circles of friends. On the other hand if I'm right and the ostriches are wrong, a lot the people they have convinced to ride out what they see as a temporary downturn may be dead through lack of adequate preparation. It seems like a worthwhile question to ponder, given the trends we're seeing unfold all around us.

Some people are constitutionally unable to look at the world in such uncompromising terms, though. To them I may seem a disconnected and fearful character. I'm anything but -- I merely have strong opinions that are different from theirs.

[HamdenRice]

22. Oh, just the deaths of 4 billion human beings. Ho hum....

no biggie, right?

<1908 world population = 1.7 billion>

"Some people are constitutionally unable to look at the world in such uncompromising terms..."

No, some people are constitutionally unwilling to entertain silly, counter-factual, unfounded, and frankly stupid nihilistic fantasies.

[GliderGuider]

23. What makes our current population levels sacred?

In historical terms, especially considered over the span of 80 or 100 years, the death of four or five billion people is no biggie. Think of it this way -- during the course of human history over 100 billion people have died, and there are now only 6.7 billion survivors. I don't see human death as anything terribly unusual or fearsome.

My conclusions are based on plenty of fact, actually. I define the counter-factual position as the one that claims this downturn will be just like all the others, despite the fact that our circumstances are radically different -- despite the resource depletion and CO2 generation that has happened since then, despite the population growth that's happened since then, despite the fact that all significant trends in climate, ecology and economics are now simultaneously negative, and that there are blessed few positive trends to be seen anywhere aside from the election of St. Barack the Hopeful. Declaring an expectation of a positive outcome in the face of all that seems, well, silly and unfounded.

Remember the statement printed on every mutual fund prospectus: "Past performance is not a guarantee of future performance." It applies to societies and civilizations equally as much as to the stock market. Clinging to the past or the present and resisting change is a recipe for suffering.

One last point -- it may not be obvious to those not versed in the minutiae of beliefs outside the mainstream, but I'm not a nihilist. I'm an anarcho-primitivist (which is what the flag in my avatar is all about). There's a world of difference. Nihilists tend to believe in nothing. I on the other hand believe very strongly in something, but not the same thing as you.

[anigbrowl]

28. People's demonstrated desire to carry on living, mostly

Most of the people on earth are going to die during this century, just because it's got 92 years left to run. On past form, they'll be repaced. You're talking about the population dropping by 4-5 billion, which implies that the death rate should double. There's not much evidence to think this will happen.

Resource depletion and environmental degradation are enormous problems, but this isn't the first time we've faced them. there have been resource depletion crises in the past, long before the advent of oil or industrial scale coal mining. Your argument assumes that things such as wind or tidal power etc. etc. are doomed to failure. However I think it's highly unlikely that our current problems are going to result in the death of 80% of humanity. I was a lot more worried about the possibility of a nuclear exchange during the cold war, since that had the potential to bring about its effects within the span of a day or two. Our current situation is more like being in a house where you can't pay the mortgage AND you've got a troubling case of damp...as opposed to waking up to find the entire house on fire and the roof collapsing on you.

I can't take anarcho-primitivism very seriously, not least because I've lived with a lot of them. You're using a computer to direct us to wikipedia, which is both collectivist and depends massively on leveraging modern technology. Frankly, I think it's mostly an excuse for crusties to get laid. Strangely, every self-professed anracho-primitivist I've ever known (which is quite a few people) LOVES the internet.

[GliderGuider]

31. Population, wind power, pollution and anarcho-primitivism

You're talking about the population dropping by 4-5 billion, which implies that the death rate should double. There's not much evidence to think this will happen.

I depends on what your definition of evidence is. Yes, the world population is still growing, by about 75 million a year. Right now there are no global pandemics brewing, and starvation is still confined to the usual areas. However, if you step back and take a look at trends -- in energy supplies, food supplies, rainfall pattern shifts, glacial melting, the implications of financial collapse for foreign aid, social disruptions etc. -- the picture isn't nearly so rosy. I understand that trend projections are probably not the "evidence" you're looking for, but for those interested in understanding the range of possibilities we face, the trends are assuming more and more relevance.

Resource depletion and environmental degradation are enormous problems, but this isn't the first time we've faced them. there have been resource depletion crises in the past, long before the advent of oil or industrial scale coal mining.

In past cases of resource shortage, there were still other places on the planet we could either move to or get resources from. This is no longer the case. Mankind is now fully globalized, and virtually all accessible resource bases are being exploited. There's nowhere else left to go. Even the search for new oil supplies has shifted to tar sands, deep water and the forlorn hope of the Arctic basin, all of which are high cost in economic, environmental and net energy terms. The same thing applies to resources as diverse as copper and potash.

Environmental degradation has reached the point where CO2 is melting virtually all the world's glaciers, 90% of the big fish in the oceans are gone, and much of the surface of the Pacific is covered by man-made plastic detritus. We're at the absolute limits of what the planet can provide and absorb. In the past when this happened we usually moved on. Now there's nowhere left to go.

Your argument assumes that things such as wind or tidal power etc. etc. are doomed to failure.

I don't think they are necessarily doomed -- we're going to be deploying them like mad over the next couple of decades. However, their success in keeping the good times rolling is by no means assured. These technologies face significant problems in terms of capital requirements and the fact that they require significant fossil fuel inputs in the construction phase. Capital is draining out of the world economy at a frightening pace, and there is enormous competition for oil supplies, just as the production rate may have plateaued.

This doesn't mean the technologies are doomed, but if they fail to materialize as planned, the consequences will be frankly enormous. My assessment is that the probability that they will not materialize as planned is a lot higher than their proponents are willing to admit, and the consequences of that failure would be so severe that we should at least be considering the possibility.

I can't take anarcho-primitivism very seriously

The problem with any label is that as soon as you use one people assume they know your position. I use A-P as a descriptive philosophy, not as a prescriptive one. I think people like John Zerzan, Derrick Jensen, Daniel Quinn and Charles Eisenstein (though the latter doesn't call himself A-P) present a very coherent analysis of how and why humanity got into this predicament. Their observation that the human presence on the planet was sustainable up until a few thousand years ago is persuasive to me, as is their critique of how things have gone wrong since then. That obviously implies that I think things have "gone wrong" and indeed I do.

I part company with them when they get prescriptive, assuming that because we were sustainable during the Paleolithic that getting us back to that state would solve our problems. The arrow of time is unidirectional, and we will go on from here -- you can't go backwards. There are lessons from the past that we can take forward with us, though. Those lessons include the idea that humanity's relationship to nature is one of partnership rather than ownership, that egalitarian societies tend to be better than hierarchic ones, and that we should be very cautious about anything that encourages either a separation of Man from Nature or the elaboration of our hierarchies.

As far as using the Internet goes, I have no problem with that -- it's part of my ecological niche, along with automotive transportation and government bureaucracy. As I said, I embrace A-P as a critique of civilization, but I reject its prescriptive aspects that might imply I shouldn't be a fully participating member of my society. It's a secular philosophy, after all, not a religion. I try not to let myself be defined by the symptoms of civilization, and accept that they are as impermanent as everything else in the human experience.

[Tuesday Afternoon]

13. K and R, Bkmarking.

thanks for the link.

[HCE SuiGeneris]

26. Wall Street looting, and the Iraqi war, have siphoned off

the ability of this country to fend off hard economic times. We are approaching the brink... similar to the demise of the USSR after their prolonged engagement in Afghanistan.