Wednesday, December 10, 2008

Fortune Magazine's Roubini not optimistic about a 2009 turnaround.

Fortune
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: Known as Dr. Doom, the NYU economics professor saw the mortgage-related meltdown coming.

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...


That "9%" is of course going to be the "official" figure - we have already seen that the real rate of unemployment is already about 16% while the "official" figure is only 6+%. That will make the real rate of unemployment somewhere in the neighborhood of 20-25%, which history buffs may recognize as the unemployment rate of the Great Depression.

As for home values, 25%+15% is roughly 40% (I'm presuming he's thinking of 15% from peak rather than 15% from present levels). We already saw that figure was the likely market bottom, presuming no serious over-correction occurs. So that's not news to us, but it does mean any chance of selling property to get out of debt is becoming slim to none, at least for homeowners. The market for commercial type real estate (and I would include schools in this category) is also falling, making it less and less likely every day that the Chereidi schools have any assets with which to pay all of the millions of dollars in back pay owed to teachers (see last post).

Sigh.

1 comment:

Mberenis said...

Grrrrrrrrrreat blog!!!
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