For people who think the economy won’t get much worse

CNN8 really, really scary predictions:

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.

Previously:

- How Blagojeviched is real estate?

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5 Responses to For people who think the economy won’t get much worse

  1. fletch says:

    Best investment is a safe, warm, dry place to sleep at night. Who would have ever thought that a house’s value would be measured in its ability to provide shelter? Radical times we live in. Also, investing in some gardening tools and some dirt might pay off, just like my grandparents and the hippies did. Wonder when inflation will kick in to destroy those safe cash havens?

  2. Splashman says:

    I think most of these guys’ predictions are conservative. It’s going to be very bad, until the population at large learns to live within their means, and that sort of lesson isn’t learned quickly. In the short term, people will continue to believe they are the victims of circumstance — greedy bankers, sleazy politicians, “the man,” etc. — rather than the victims of their own poor choices, and that once this temporary downturn reverses, they can get back to life “as usual.” It will take a sustained recession/depression to make people realize their previous “who cares about tomorrow, I want my plasma TV today” lifestyle was foolhardy and unsustainable.

  3. Mikee says:

    I wish all these prognostications had been made a bit more clearly, starting around December 2007.

  4. sally says:

    Nouriel Roubin is not adding anything to the conversation. He offers no material reasons for the problems (besides stating what we already know), he offers not solutions (how do we proceed forward) and he offers not real culprits (besides those everyone else is noting). By the way, he was crying Fire for a long time along with many others. He did not call this anymore that Nostradamus called this economic mess.

    My advice let the losers fail … Citi, GM, etc. We will all be better off sooner rather than later.

    Next we must not look to the old institutions that have failed and lost the public trust to save us. Rather, we need to look to the emerging institutions that offer remedy on assets and trust.

    The markets are being inappropriately characterized by the Fed and Treasury. We need to step back and accept that the problem is larger and smaller than it appears to Ben and Paul. By larger I mean that there are more economic institutions than the big banks regardless of the Percent of the market (assets) they constitute. Smaller because we have been in this shape before in the recent past – LTCM, Enron, MCI, etc. .com collapse, Latin American loan defualt, etc.. The material difference was leadership. Ben and Paul jumped in not understanding what was happening. They then started doing things that made no sense.

  5. Les Jones says:

    “I wish all these prognostications had been made a bit more clearly, starting around December 2007.”

    Are you kidding? By then the meltdown had already begun. I wasn’t exactly on the leading edge and I linked to something back then and noted that Europe was going through the same thing.

    Lots of folks were warning long before then. See Housing Bubble Blog, Dr. Housing Bubble, Patrick.net, and others. Check the house buying advice on the left side of Patrick.net’s home page. He’s been saying those same things for years.

    Skeptical as I was, I thought he was putting down home ownership too much. Now I’m more inclined to agree. In particular, home ownership only makes sense if it’s priced right relative to renting an equivalent property. During the bubble it was much cheaper to rent in many places.

    As far as Roubin, he has lots more to say. See Nouriel Roubini’s Global EconoMonitor or his regular “Doctor Doom” column at Forbes.com.