What next? Economists divided on the future (this has something for everyone)

[HughMoran]

Wall Street’s bulls and bears have rarely been so at odds on outlook

By Bernard Condon
updated 6:31 p.m. ET, Sun., March. 7, 2010

NEW YORK - If you're confused about the outlook for the economy and stocks one year after the market hit bottom, then you've got good company — the Wall Street economists and strategists who are supposed to have this all figured out.

Rarely have the experts seemed so divided about the future.

We're either beginning the type of robust recovery that typically follows a deep recession, or we're on the cusp of another contraction, the dreaded double dip. Prices could climb fast as they did in the U.S. during the 1970s, or fall to devastating effect as they did in Japan during the 1990s.

Stocks? We're on the verge of a long bull market a la the 1980s. Then again, maybe not. To hear some tell it, the present is more like the 1930s, when stocks were viewed less as vehicles to riches and more as a boring source of dividends.

...

Consumer confidence plunged unexpectedly in February. But last Thursday retailers posted their biggest sales increase in more than two years. The so-called fear index, the VIX, which measures expectations of future stock market volatility, is hovering at a 1 1/2-year low, suggesting calm seas ahead. But new home sales have fallen to their lowest level in nearly five decades.

The experts can't even agree on what to make of a single number. Pessimists see bad news in good news and optimists vice versa.

...

http://www.msnbc.msn.com/id/35751553/ns/business-stocks_and_economy/

_____________________________________________________________________

Well, apparently we on DU aren't the only ones who can't agree on what the future holds - for the time being, we're all correct - lol.

[jody]

1. I'll take door #2 "cusp of another contraction, the dreaded double dip". n/t

[NYC Democrat]

2. over the next few year we have job growth things will return to normal and then in a few more years

we will have another dip wash rinse repeat.

[HughMoran]

3. ...assuming this is a 'normal' economic cycle

There are those arguing that the cycles have been dipping lower and lower and that we may not bounce back to 'normal'. I hope we do, but I can't be 100% certain.

[AllentownJake]

5. Not this time

The mess is still sitting around from the last time and it is on a timer to go off...this isn't like 2001.

This time we pretended nothing happened and tried to pull the plane up with shot engines.

We are in reality gliding at this point. There is no recovery in private lending, the only real lender out there is the US government.

[AllentownJake]

4. Bank balance sheets

The repeal of mark to market has ensured that the assets are overvalued and when they come up for refinancing there will be a default and a loss.

Each FDIC siezed bank has had losses of 25% to 40% of assets, this should never happen.

This crisis started as a liquidity crisis in banking, based on overvalued balance sheet assets, it ends with a liquidity crisis with banks with overvalued balance sheets.

Right now, people are hoping that the asset values catch up to the valuation, seeing that the asset values were created in a bubble, this can only been done after years of growth or through inflation. Inflation sets of the CDS timebomb and wipes everyone out instantly. The assets start being refinanced next year.

The only solution is pain. The question is who feels it and when.

[AllentownJake]

6. You there Hugh?

You asked for my input...you got it.

[HughMoran]

7. Assuming I don't understand the details of the repeal of 'mark to market',

would you mind expanding on your reply to include the topic of this post - namely will we survive this 'crisis' of which you speak with or without a 'double-dip'? How critical is this issue to the overall health of the economy and when will we know if we have eked our way through this second 'liquidity crisis'? I'd like to know the time-frame window for this issue and how will we know we've survived it.

[AllentownJake]

8. If you believe that the economy is fueled by credit

The health of your banking system is critical.

The way you know you survived it is when the FDIC stop siezing 5 banks a weekend at $1 billion total losses to the US taxpayer and you see the default and deliquent statistics in residential and commercial real estate decline for about a 6 month period to a normal default rate. They are increasing. The list of troubled banks on the FDIC watch list increased substantially this quarter.

Everytime a mortgate whether it was done on a house or a commercial building is deliquent or defaults, that is less liquidity the bank who held the loan has to lend, if they do not have the liquidity for normal operations, they are siezed by the FDIC.

Would you like for me to explain a commercial real estate loan to you and why the loss is larger than a residential loan when it defaults?

[HughMoran]

10. Will the failure of many smaller banks cause a double-dip in your opinion?

The health of your banking system is critical.

The way you know you survived it is when the FDIC stop siezing 5 banks a weekend at $1 billion total losses to the US taxpayer and you see the default and deliquent statistics in residential and commercial real estate decline for about a 6 month period to a normal default rate. They are increasing. The list of troubled banks on the FDIC watch list increased substantially this quarter.

OK, but this rate (well, actually 3 failures/week) appears to be in line with expectations:

The F.D.I.C. expects 2010 to be the peak year for bank failures as a result of the financial crisis. Last year, 140 banks failed, compared with 25 in 2008.

(form another source - At the current rate, in 2010 we can expect over 150 banks to fail and require the guarantees of insurance for their Depositors that are provided through the Federal Deposit Insurance Corporation.)

The F.D.I.C. has said it expects the total bill for bank failures to reach $100 billion for the period of 2009 through 2013.

http://www.nytimes.com/2010/01/30/business/economy/30fdic.html?ref=business

Compared to the wars and the bailout/stimulus, $100B seems like a relatively small amount of money spread out over a 4 year period. Are you expecting failure rates to balloon in a way not expected by the FDIC?

Everytime a mortgate whether it was done on a house or a commercial building is deliquent or defaults, that is less liquidity the bank who held the loan has to lend, if they do not have the liquidity for normal operations, they are siezed by the FDIC.

Would you like for me to explain a commercial real estate loan to you and why the loss is larger than a residential loan when it defaults?

No need to explain why commercial property failures are worse, I'll take your word for it. Here, let me do YOUR work for you and post a few more alarming paragraphs from the February, 2010 COP report:

...
A significant wave of commercial mortgage defaults would trigger economic damage that
could touch the lives of nearly every American. Empty office complexes, hotels, and retail
stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families
out of their residences, even if they had never missed a rent payment. Banks that suffer, or are
afraid of suffering, commercial mortgage losses could grow even more reluctant to lend, which
could in turn further reduce access to credit for more businesses and families and accelerate a
negative economic cycle.

It is difficult to predict either the number of foreclosures to come or who will be most
immediately affected. In the worst case scenario, hundreds more community and mid-sized
banks could face insolvency. Because these banks play a critical role in financing the small
businesses that could help the American economy create new jobs, their widespread failure could
disrupt local communities, undermine the economic recovery, and extend an already painful
recession.

There are no easy solutions to these problems. Although it endorses no specific
proposals, the Panel identifies a number of possible interventions to contain the problem until the
commercial real estate market can return to health. The Panel is clear that government cannot
and should not keep every bank afloat. But neither should it turn a blind eye to the dangers of
unnecessary bank failures and their impact on communities.
...

Here's to hoping they can manage this issue & not have it spin out of control - agreed?

[AllentownJake]

12. Nope

I think however, that if the assets are overvalued on the little ones using Mark to Market to cover it up...Wells Fargo, CitiGroup, JPMorgan, and Bank of America are sitting on a much larger pool of shit.

Mathematically, I don't believe it can be managed.

You can transfer debt from the banks onto the Federal Government, however, the debt still exist. All you have done is taken a private debt and made it public. It must be paid either through tax increases or spending cuts. Judging by US tax collections in the past year and their declining nature and that the only two places you can go to cut spending enough to pay for this is the Military and Social Security...nope, the only way statistically you pay that back is by inflating the currency which causes interest rates to rise and that 500 trillion of CDS (why do you think they are called credit default swaps) that is sitting out there explodes and leaves a crater the size the meteor left that killed the Dinosaur.

To use the Star Trek analogy Kobyashi Maru.

The world's financial system like the polar ice caps is living on borrowed time. There comes a point in any situation where what happens will happen. Ask Al Gore about that.

I believe we have reached that point.


On a long enough time line, the survival rate for any system is 0. This system, wasn't designed that well to begin with. Borrowing more than you have and consuming more than you produce was rather silly to begin with.

[HughMoran]

13. Well, your opinion is noted

I give it more weight than the average neerdowell who says the sky is falling (every day). Knowing the extent of the problem is half the battle in my opinion, and it's not as if the COP is not seeing the world as it is. Based on some of your posts, one might get the impression that you were the only person who can see the pending dangers. The more you prod me to investigate, the better I usually feel about the situation. Knowledge is power and, as we used to say at work all the time, there's no use complaining, nobody cares about you anyway; cynicism and seeing the potential worst case scenario as a possibility does NOT have to lead to negativity or anger or depression. "May you live in interesting times" - I relish the thought...

[AllentownJake]

14. I will have an OP tonight

It is called...there will be more pain.

Laws of physics and mathematics demand it. The question is only who feels the pain and when.

[HughMoran]

15. Just don't forget the expression "you can catch more bees with honey"

It's easy to get the lemmings to K&R!!11!! your threads, but wouldn't you rather draw in a few people to actually think about what you're saying (versus turning off at the nega-language)?

[AllentownJake]

16. I like the reality based community

If you want something up beat and happy I can send you one of these everyday.

http://www.youtube.com/watch?v=X2F4EFYM_MA&feature=related

[HughMoran]

17. Silly kid

You'll grow up some day.

[AllentownJake]

18. Funny

Everyone in the real world says I have an old soul....

[HughMoran]

20. If that means curmudgeonly...

:rofl:

Sorry, I was just explaining to my dad this weekend how old curmudgeons succumb to the fear pedaling by Republicans & always show up to vote.

[AllentownJake]

21. There is no such thing as a free lunch my friend

Every action has a reaction. Consequences exist for everything, it is generally the unintended ones that bite you in your fucking ass.

[AllentownJake]

9. BTW

There are 4 stages of grief

Denial - Where you are

Anger - Where I was till about 3 days ago

Depression - Where I am now

Acceptance - Where I will be in about a week.

I'll be very intrigued to see how you handle anger.

The current happy thoughts movement has the sole purpose of keeping people in denial as long as possible. A little reality will move you to stage 2, and you'll be much better off for it.

[HughMoran]

11. Jumped the gun while I was posting a most realistic view of the problem above

Relax, dude!

[Mike 03]

19. Excellent and Important Topic

Yeah, I am also hearing all these opinions and attempting to make sense of them.

At this point, I am going to err on the side of assuming the future is not bright. I am preparing for contingencies, remaining largely in cash, looking for safe opportunities in the market.

There are too many Red Flags out there now, which I have posted about here before, that are alarming enough to make one wonder whether or not there will not be another leg down in this global economy. These are not merely U.S. signals, but signals from all over the world, from Portugal, Ireland, Italy, Greece, Spain to a number of South American nations and weakness in Europe. Then we come to the UAE and the Ukraine... This is serious, and these rosy predictions by some economists do not give me hope.