Recession Time
Nov 26th, 2007 at 10:38 am by Susie
Economists are traditionally quite bad at predicting recessions - my guess is, they’re well paid and cushioned from the normal economic signs. In any event, I think the recession is already here.
I talk to presidents and CEOs every day in my job, and what I’m hearing isn’t good news. Everyone’s pulling back, rethinking the budget and putting off new hires, which is very different from the Fed’s view of the universe:
Battered stock and bond markets are sending an increasingly ominous signal that a U.S. recession could be near.
The markets, however, haven’t swayed Federal Reserve officials and most private economists from their view that the nation’s economy can escape a downturn and get back on a steadier course.
The disparity between those two views of the economy — one growing bleaker, the other remaining sanguine — stood out starkly last week.
Though it rose during Friday’s shortened trading day, the Dow Jones Industrial Average — at 12980.88 — is 8.4% below its all-time high, set in October. Safe-haven Treasurys, meanwhile, have rallied as investors have lost confidence in a quick resolution of the U.S. housing slump and mortgage crisis, which are behind many of today’s economic worries in both the U.S. and Europe.
But in an economic outlook released by the Fed, the central bank’s policy makers said they expected U.S. economic growth to pick up as housing hits bottom and financial markets gradually resume more-normal functioning. Fed officials see the U.S. economy growing between 1.8% and 2.5% next year, according to minutes from their most recent meeting.
Compare that with these sentiments from a successful NY hedge fund manager:
However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter: “The risk/return characteristics are far less attractive than in the past.”
In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.
“Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.
and yet at the end of the day, the ultra rich get richer
I correspond with some supply-side-type economists, and the funny thing is how they have a theory about how their theories can’t be wrong: if they were wrong, they wouldn’t be paid, and someone less wrong would get the big bucks instead. It logically follows that if they get things wrong, it can’t have been their fault, it was just physically impossible to predict!
This is also their theory about how no professional ever makes a bad investment in the market: if they did, they’d lose money, and shortly after, their jobs, so everybody in the market *must* be the sharpest player possible. It logically follows that there can be no such thing as irrational or mistaken market sentiment, because everybody there is a keen-eyed calculating machine.
All is for the best, in the best of all possible worlds.
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