Economists call bottom on GFC

[MrBurns]

From Crikey, don't tell me the fun is over already ???

Economists call bottom on GFC

Glenn Dyer writes:

What a turnaround! Just as the gloomsters gather to chortle over our housing crash, a severe recession, and worse, out of the blue the market bear appears to be turning.

Economists at Goldman Sachs JBWere were among the first in the business sector to whisper, then call "recession" last year.

Now, in a major surprise, they have become the first to call an end to the current slowdown.

In a note to clients this morning, Goldman Sachs' Tim Toohey said:

Although we are expecting Australia's economic recovery to be modest by historical standards, our forecasts are now relatively strong by comparison to other forecasters.

In our view Australia is far more advanced into its recession than the single quarter of negative GDP growth indicates and appears far closer to the recovery phase than most forecasters are willing to acknowledge.

The distinctive feature of our forecasts is that we still expect Australia to show a meaningful recovery in economic growth in 2H09.

This view is partly a function of the record monetary and fiscal stimulus being imparted upon an economy that has not been experiencing the type of banking sector stresses and credit rationing evident in other developed nations.

But don't expect job losses to suddenly slow -- employment is a lagging indicator (it held up as we slowed last year and in the first two months of 2009), it will continue to be a drag while the economy recovers.

Though we are looking for the recovery to commence in the June quarter of 2009, our forecasts imply that the unemployment rate will deteriorate by over two percentage points in the first 12 months of the recovery.

This is significantly worse than the June 83 recovery, when the unemployment rate peaked shortly after as well as the September 91 recovery, during which the unemployment rate deteriorated by a further percentage point. This relatively negative outlook is premised on the fact that we continue to expect growth to track below potential for some time during the recovery.

The report came as New Zealand confirmed that its economy shrunk by 0.9% in the 4th quarter, worse than our 0.5% fall, but nowhere near the 1.7% fall in the US or the massive 3.2% plunge in Japan (quarter on quarter). And not as bad as falls in Brazil, Germany, the UK, France and Canada.

In fact, New Zealand, like Australia, seems to be bearing up better than most other economies in the worst slump since the Great Depression.

The fall was the largest in NZ since 1992, but still slightly better than expected with the median prediction of economists in a Reuters poll of a fall of 1%. On Thursday, the International Monetary Fund said it expected the New Zealand economy to contract by 2% this year.

In Australia, quite a few economists are forecasting our slump to deepen as the year goes on, but not the mob at Goldman Sachs.

"In early 2008 we focussed on the combination of declining confidence, falling financial asset values and tightening financial conditions as the forces that would drive Australia into the slowdown. We expect the sequencing of the recovery to be met in the reverse pattern."

So far, financial conditions have eased dramatically in Australia, NZ, UK and more recently in China.

"Allocators of risk capital are again dipping their toes into the water on the basis that the valuation signals look compelling and economic dataflow suggests that the most rapid period of the economic decline is past. An improvement in asset prices ultimately will be crucial in underpinning a lift in business and consumer confidence levels and setting the stage for a more sustainable economic recovery."

The second half recovery will partly result from "the record monetary and fiscal stimulus being imparted upon an economy that has not been experiencing the type of banking sector stresses and credit rationing evident in other developed nations.

"We believe we are capturing the extremely challenging external environment via forecast record declines in export earnings and a relatively sharp decline in business investment through 2009 and 2010. Nevertheless, it is worth noting that there are also some signs of stability emerging in the international dataflow."

In fact, Goldman Sachs JBWere would find itself closer to the views of the Reserve Bank than many other forecasters after being out on their own for a while, then in the pack.

This is not to say there won't be further problems in the next few months with growth slowing further, but this is the sort of guarded hope we have heard from the RBA and Governor Glenn Stevens in recent days.

 

[Stormin_Norman]

economist have picked the last 5 recoveries in this big downturn.

 

[Buddy]

From Crikey, don't tell me the fun is over already ???

Nah, its not over yet Burnsie.
Wait until the mayhem from Eastern Europe makes its mark on West Europe and the rest of the world. Lots more fun to be had.

 

[Sean K]

Nah, its not over yet Burnsie.
Wait until the mayhem from Eastern Europe makes its mark on West Europe and the rest of the world. Lots more fun to be had.

Yep, Eastern Europe has a massive impact on the rest of the world.

 

[basilio]

Just can't believe that somehow the trillions of dollars of disappeared monies, overvalued properties, and huge debts are going to suddenly melt into thin air.

There may be a "recovery" but I can't see the system surviving in its current form.

Came across an analysis which pulls together a number of the threads of what is happening.

The peak oil crisis: pondering the near future
by Tom Whipple

We are faced with three serious problems that are going to bring about radical changes in our lifestyles. In order of urgency, the problems are the great economic recession/financial crisis, the peaking of world oil and other fossil fuel production, and global warming. The opening effects of these problems are already upon us, but it will be months, years, and in the case of global warming, decades before their full impact is felt.

http://www.energybulletin.net/node/48449

 

[Prospector]

I was listening to Shugg from Westpac London Branch who is in Oz at the moment. He has some really scary stories about dodgy debts from Eastern Europe that havent been aired yet, and that the US Banks have probably up to a trillion dollars worth of bad news still to come.

And in Australia, we havent even started yet - unemployment will be our archilles. I am not looking forward to July this year.

And for the first time in my life I hope I am wrong!:

 

[MrBurns]

Well thats more like it, it didnt seem right that thinks were turning good and we havent even had real pain yet.
Someone must be buying up though, surely it's not institutions they should know better ?
Then again they have to be seen to be doing something I guess.....

 

[prana]

Nominally perhaps, but judging by the perception of this being the end of the crisis, perhaps it is now overbought in the short term again and more downside to come. Refer to the thread. I'd like to see the world rejoice over a nominal increase in the index whilst it suffers against gold reserve. Or perhaps if the central banks flood the market with gold..... Sinner ? Sinner? Where art thou?

 

[Nyden]

Nominally perhaps, but judging by the perception of this being the end of the crisis, perhaps it is now overbought in the short term again and more downside to come.

I'm not seeing this though. There's still an absolute ton of permabear-ish negativity amongst this forum, with people each and every day during this rally suggesting that it will fizzle out on that day.

It was mentioned not long ago as well, (I forget by who, sorry) that the bears of this downturn share similarities with the bulls of the previous bullmarket. This time it's different. Mother of all crashes. Still much more to come. , it gets boring, really!

How much more pain do people expect? Even if this isn't the bottom, really - how much more downside can the gloomists see? 1800? What tripe. Markets are forward thinking; which means that markets will recover far sooner than the economy does. If we can all recall; when this whole downturn began, stocks were crashing whilst still taking in record profits. The reverse will be true as well, and stocks will soar with dismal profits.

 

[MrBurns]

Charlie Aitken on Alan Kohlers Eureka newsletter said steel in undervalued so I just bought Blue Scope steel, Charlie hasn't been right much so he's about due.

Yes I've actually bought something............

 

[gfresh]

Someone must be buying up though, surely it's not institutions they should know better ?

I don't think it's local money ...

 

[IFocus]

Yep, Eastern Europe has a massive impact on the rest of the world.

There could be some fall out if the Western European banks that lent $$ to Eastern Europe fall over.............i.e. Austrian banks lent 68% of that nations GDP to the eastern block......................

 

[prana]

I guess the keyword here is nominally.

The problem is that this runup is made up of a huge bulk in credit. Back in 29 it was still gold backed. So with the replacement in credit with dilution of cash, its a rat race of distortion between money flooding versus the 29 situation. In 29, the market was built from a rally of approximately 6 times. Today, our bubble measured from 89 is approx 7.3 times (I havent doubled checked my math) nominally (gold vs fiat). Being that I personally don't trust crash, I'd rather say, take gold as the historic measure.

Nominally the DJI may now rise, inflation (money supply as opposed to asset price) is certainly on my radar. I'll be happy when the DJI is approx 3 oz of gold, wether its the rise in gold, or the further decline in DJI I cannot tell. But with the Feds and just about everyone hot off the press, and the threat of alteration to the reserve currency, I'm rather still cautious - maybe I'll miss out on the large rally, .... it's okay. I don't myself wish for a worst downturn of this recession either so will be happy to be completely wrong.

 

[Uncle Festivus]

How much more pain do people expect? Even if this isn't the bottom, really - how much more downside can the gloomists see? 1800? What tripe. Markets are forward thinking; which means that markets will recover far sooner than the economy does. If we can all recall; when this whole downturn began, stocks were crashing whilst still taking in record profits. The reverse will be true as well, and stocks will soar with dismal profits.

markets will recover - in 'normal' cycles markets do recover. But what if there is an intrinsic, fundamental and fatal flaw in the current system that only now is showing up because it's global & linked, and the cycles of reflation to combat deflation just mightn't work any more? The consumer is consumed & debted out to the max? You have to at least add that possibility to the equation if only to be dismissed if/when it is proven invalid? I'm not sure we have even reached the stage of rejecting the possibility yet, despite the dead cat bounce brought about by the co-ordinated rhetoric from the usual suspects.

I guess the keyword here is nominally.

The problem is that this runup is made up of a huge bulk in credit. Back in 29 it was still gold backed. So with the replacement in credit with dilution of cash, its a rat race of distortion between money flooding versus the 29 situation. In 29, the market was built from a rally of approximately 6 times. Today, our bubble measured from 89 is approx 7.3 times (I havent doubled checked my math) nominally (gold vs fiat). Being that I personally don't trust crash, I'd rather say, take gold as the historic measure.

Nominally the DJI may now rise, inflation (money supply as opposed to asset price) is certainly on my radar. I'll be happy when the DJI is approx 3 oz of gold, wether its the rise in gold, or the further decline in DJI I cannot tell. But with the Feds and just about everyone hot off the press, and the threat of alteration to the reserve currency, I'm rather still cautious - maybe I'll miss out on the large rally, .... it's okay. I don't myself wish for a worst downturn of this recession either so will be happy to be completely wrong.

Yes, this what Marc Faber has been saying - markets may rise but relative to an intrinsically stable asset such as gold they will be still going backwards due to monetary inflation.

 

[Temjin]

I'm not seeing this though. There's still an absolute ton of permabear-ish negativity amongst this forum, with people each and every day during this rally suggesting that it will fizzle out on that day.

It was mentioned not long ago as well, (I forget by who, sorry) that the bears of this downturn share similarities with the bulls of the previous bullmarket. This time it's different. Mother of all crashes. Still much more to come. , it gets boring, really!

How much more pain do people expect? Even if this isn't the bottom, really - how much more downside can the gloomists see? 1800? What tripe. Markets are forward thinking; which means that markets will recover far sooner than the economy does. If we can all recall; when this whole downturn began, stocks were crashing whilst still taking in record profits. The reverse will be true as well, and stocks will soar with dismal profits.

The problem is exactly with this kind of Keynasian economic beliefs that things will usually return to normal again as per business cycles.

And as a matter of act, this time IT IS different. There were no credit freezes back then, there were no major bankrupices back then, there were no trillion dollar bailouts / stimulus packages back then, and global short term interest rates were never reduced to that low back then either. Not to mention the huge build up of public and private debt right across all developed countries.

To say this is a normal recession in otherwise a fundamentally sound, health economy, is not really looking at reality.

And why fear for a great depression? It could be the next best thing the world should have. A lot of the mal-investments could finally be liquidated, debts finally paid off, lower consumption for everyone, removing all of the incompetent companies and bitch-snap everyone back into reality by teaching them to live within their means.

Is it painful? You bet it is! Unfortunately, no politicians would in their right mind to let this happen though. Something must be done!

 

[wonderrman]

The economic crisis cannot be complete until the debt that has created artificial growth is undone and removed. It is as simple as that. We have experienced a period of time were growth has been created by debt, and it stuffs up economies because debt by growth cannot last forever. It has happened before, look at the chart below, growth by debt has expanded economies, but not by this magnitude. The past two occasions that growth has expanded, it has then seen a decline. Obviously the debt base was smaller and economies very different 120 and 70 yrs ago, but the market has not adapted to debt so why would the result be any different today. We still have alot of deleveraging to do before our economies can rebound in a 'pure' fashion.



The only way for this problem to fix itself is for businesses/indviduals to declare bankruptcies so the debt can be wiped off, but this would obviously cause huge problems for economies, we would see unemployment rise a **** load, deflation kick in, most likely wars because of the interconnectness of countries etc.

Or we could see sky high inflation because of mass printing of money so lenders can be paid for the debt. But then because of the mass printing currency is debased and is worthless. At the moment, this is what the US is doing, their following the Zimbabway school of thought which has caused the country to be very impovrishsed. The US is following suite, if something is in trouble they throw money at it, if it doesn't work they throw more. The only way for them not cause defaults is to print, which will lead to this inflation.

We could also get a combination of both, were we first see bankruptcies followed by inflation and currency debasement. This could be what is happening now, but one would expect to see trouble later on because the debt has not be fully removed because we have not experienced extremes of both, just a bit of both.

This is basically what I've been saying on this forum in my posts, just in different words. It is quite obvious if you dig hard enough and you want to actually learn the truth.

What tripe[/B]. Markets are forward thinking; which means that markets willr ecover far sooner than the economy does.

Yes that's all well and good mate, markets are forward thinking. But what happens when economies are crap for a long period of time. It can't be all rosey and well on the stock market for two years when economies are by their waist side.

how much more downside can the gloomists see? 1800? What tripe.

Of course markets can fall that low, if they can go real high what stops them from going real low. Not saying they are though. Don't close your mind to what is reality. People said One.Tel, HIH, FMG etc. won't fall and will keep on going.

This doesn't mean you can't be in the market though. Charting is the way, there is always opportunities in any market. Fundamental analysis is stupid because you're looking three, four, five years out, the company could be very different by then and the market place could change a lot. Hello the internet and how that has changed businesses. Technical analysis relies on price patterns and trends, and it has proved to work. The trend is your friend.

 

[Glen48]

I guess if porker's of Oz/USA can have a few bottoms there is no reason why Mr. Market can't with house prices rising in USA by selling foreclosed houses at huge discounted price but they are selling lets not get too picky.
The Dow yet to reach 10,000 and the experts telling us its over let rejoice....until Monday morning anyway.

 

[alwaysLearning]

If this is the end of the 'recession' or bottom....Then watch what happens to those poor suckers who went out and bought a new home recently. See how they go after their 3 year fixed interest rate goes variable.

Also note what happens if commodities sharply rise again.

You could be in a horrid situation where you have unemployment rising and commodities rising...e.g more expensive at the pump to fill car.

Then you get pressure from the RBA to raise the interst rate.

Things get cheaper to import.

Meanwhile our exports will still suffer even more because our Aussie dollar will be so high again.

This will further strain our mining sector.

Don't be surprised if regulation takes the oomph out of an instant reversal on the stock market.

There is still way to much uncertainty at the moment anyway. What is all this talk about the SDR basket currency. That could spell trouble if it gets out of hand.

Furthermore there is still the issue of what to do with the toxic assets. AND what to do given that the Gilts are not selling at the moment..and now we have the Fed having to buy its own debt.

I don't know...I think this thing has bear market rally written all over it.

Gold could be an intersting investment when the USD eventually gets obliterated.

I also wonder if other currencies will hyper inflate along with the USD due to inflation/printing of money. (aka quantitative easing)

 

[dhukka]

From Crikey, don't tell me the fun is over already ???

Apart from Whiskers, economists are the best contrary indicators known to mankind. Recovery in the June quarter, that is funny.

 

[Uncle Festivus]

Apart from Whiskers, economists are the best contrary indicators known to mankind. Recovery in the June quarter, that is funny.

LOL.....I thought it was always the 'second half recovery'