Posted on 01/09/2008 10:57:10 PM PST by chronic cough 420
The biggest investment bank on Wall Street has a grim prediction about 2008: a recession is definitely on the way.
Goldman Sachs on Wednesday said it believes the housing slump and recent credit market turmoil will spill over into the broader economy this year. And, by the time it's all over, economists believe the Federal Reserve will cut interest rates to 2.50 percent from its current 4.25 percent.
There is a silver lining to the dire prediction, however, since Goldman projects the economy will recover as soon as 2009, making this downturn somewhat "recession-light."
"The recession is likely to last two to three quarters and should be relatively mild by historical standards, with a cumulative decline in real GDP of only about a half percent," Goldman economists' Jan Hatzius and Ed McKelvey said in a research note.
A recession is when the economy shrinks for six straight months, reports CBS News correspondent Anthony Mason. The last time that happened was 2001 after the dot com bubble burst.
Goldman switched to an "outright recession call" following recent economic reports that indicated a spike in the jobless rate, and a decline in home sales and manufacturing. They also expressed concerns that sluggish consumer spending will contribute to a recession.
The economists expect the Federal Reserve will aggressively lower rates to combat the credit crunch, including a half-point cut at its Jan. 29-30 meeting. The contracting economy is likely to push the unemployment rate to about 6.25 percent by late 2008, potentially hurting corporate earnings.
Goldman also expects that Congress and the Bush Administration will push through a temporary tax break later this year as part of a fiscal stimulus plan.
What would all this do to stocks and bonds?
Economists predict that consumer spending will likely post a small outright decline - unlike in the 2001 recession - as the housing downturn contributes to a negative wealth effect and consumers find it harder to obtain credit.
This will put pressure particularly on stocks in the consumer discretionary, financials, industrials, materials and information technology sectors. Sectors that might offer investors some protection in a recession, however, include health care, consumer staples, energy and utilities.
Meanwhile, bond prices are expected to rally as risk-averse investors pull money out of stocks and boost demand for safer, albeit low-yield, investments. Goldman predicts the yield on the 10-year Treasury note - which moves opposite its price - will fall to 3.5 percent by late summer following interest rate cuts. The 10-year yielded 3.78 percent on Wednesday.
All the recession talk has the markets on edge, reports Mason. Stocks rallied Wednesday, but the both the Dow and the Nasdaq are still down more than 10 percent from their recent highs.
Experts are predicting an ugly 2008 as inventories of unsold homes grow and a large number of adjustable-rate mortgages reset, sending more homeowners scrambling to make higher payments and pressuring the already shaky credit markets. What worries industry watchers the most, however, is the possibility that the housing troubles will plunge the economy into a recession.
"I think everyone is expecting the other shoe to fall. There's still some blood to be let," said Jim Gaines, a research economist at The Real Estate Center at Texas A&M University. "And historically, a downturn in the housing market has been a leading indicator of a recession."
If this article has already been posted please pull it. For the life of me I couldn’t find anything recent on Free Republic concerning recession worries. I come to this website so that I can read the informed opinions of Freepers, especially on important subjects like this. I hope these type of stories aren’t purposely kept off the site.
Isn’t Robert Rubin, former Clinton Sec’y of Treasury head of this firm? How much nexus is there to this predition?
Goldman Sachs: “But not in China...keep on investing there!”
While the folks at goldman as some of the best in the business, you cannot predict such things. It’s still just speculation.
what I found interesting was the recent report about how Goldman at the same it was selling CDO’s and other asset backed securities loaded with subprime loans which are now being blamed for a lot of this mess, they were shorting the subprime market.
I find their predictions to be tainted at best.
Citigroup.
Technically, 2 quarters of shrinking GDP but some would say less than that. Maybe a few months. We haven't had that quite yet.
This is going to be a bigger and bigger factor in the coming months. It will shape what happens in the elections. And those who get it will be the victors, those who don't, shouldn't be President anyway.
By the same token, since JFK was President, it has been known that the last thing you want to do is raise taxes during a recession. Clinton's tax hike came during a boom time and lessened its potential. Hillary, Obama, Edwards, and Huckabee ALL want to increase taxes by letting the Bush tax cuts expire. THIS IS A VERY BAD IDEA!!!!
Thank you for posting this economic article--it should be re-posted everyday!
Heavy truck (class 8)sales are always a good indicator of which way the economy is going, they are usually 4 to 6 months ahead of the curve. For the past year they have been in a slump but right now they are picking up. Companies don’t invest 150 thousand dollars in a new truck unless they are sure that they are going to have something to haul with it.
A U.N. report earlier today called a 50/50 shot at a global recession.
what do we do to prepare for recession?.....
but Rubin came from GS to the Clinton administration....
If we have a recession 2008 then the Democratic nominee will without a doubt be the next president.
Meanwhile, the oil rich countries have excessive liquidity and are looking to gobble up anything that looks like a bargain. And that is EXACTLY what they are doing. I'm speaking of NOOR, which will be the worlds largest Islamic bank guided by Sharia law. "Noor will become "the world's ultimate Islamic bank," says chief executive officer Hussain Al QamziArticle here
And more: Noor
If we slip into the official recession, He is the only one who can compete. If we don't slip into official recession, it will be a close call, barely skirting one.
I'm just waiting for the Republicans to jump on the economy. So far, only Romney sees this, and then, not with eyes wide open yet. This will be a general election issue, so we better pick our candidate well!
Point well taken.
robert rubin led the US Treasury's attack on Mexican bank Banamex for Drug Laundering...
AND..... led Citigroups Acquisition of Banamex when he joined the bank after leaving the clinton Admin. _
he knew the company
Thank you very much.
Pray? (A recession is when your neighbor loses his job. A depression is when you lose your job.)
The problem is that they won't tell anybody how much exposure they have. So we keep lurching from one disclosure to the next, a long term process that pulls everything else down with it.
That is what happened in Japan in the early 1990s. The inability to come clean stretched their recovery to over 15 years. Real estate prices dropped 50%.
In an election year we are vulnerable to schemes like Resolution Trust Corp. to buy and bury the bad debt. Gimmicks like that would bury the dollar.
This seems a little disingenuous. Do you know how to use a "search" feature? I just plugged in the term "recession" and came up with many articles posted in the recent past about this same subject.
>>>Meanwhile, bond prices are expected to rally as risk-averse investors pull money out of stocks and boost demand for safer
Well gee, good thing Corzine has made large amounts of bonds available to capitalize on this. (our new toll roads and school debt)
I forgot to add, this article which states 62 economists were polled and “the soft economy might feel like a recession, but isn’t, and conditions won’t deteriorate into a recession” was among the other recession “warning” articles.
http://www.freerepublic.com/focus/f-news/1951173/posts
Interesting name you have....chronic....420. Bet most Freepers don’t know that refers to marijuana.
http://parentingteens.about.com/cs/marijuana/a/420meaning.htm
And nope I don't smoke it..
Rat propaganda produced by Goldman and purveyed by CBS and certainly followed up by the AP.
KERRY, JOHN F
VIA JOHN KERRY FOR PRESIDENT INC
06/11/2004 2000.00 24971364322
Same guy...?
HATZIUS, JAN
NEW YORK, NY 10024
GOLDMAN SACHS/ECONOMIST
DNC SERVICES CORPORATION/DEMOCRATIC NATIONAL COMMITTEE
08/17/2004 1000.00 24971563775
Just search under my name, I've basically been saying this exact same stuff over the past couple of months.
Some one should post their political contribution history.
Talking down the economy for the benefit of “her”.
Not saying everything is honey and sugar , right now. But we are in no way heading into another “worst economy in the last 60 years” like the Rats and the Drive Bys will portray it and get by with it unless the testicular-less GOP and Conservatives allow to which they probably will.
“Coming clean” isn’t as easy as you’d think. How do you value something when there is no market activity of any kind in the bonds you own? Just because someone won’t buy it today doesn’t mean it won’t continue to cash flow and perform until maturity. For many of these assets, there is no way to know there is a problem until it defaults. Until that happens (or unless you have very strong evidence that it will happen in the near future), it wouldn’t be proper to write the entire thing off. That’s why you are seeing these staggered releases of bad news. Its not because the valuations are dishonest. Its because the challenges in valuing many of these assets are very real.
That's the problem with over the counter derivatives. No market, no transparency.
When you're running a confidence game, nothing is more important than confidence.
A lot of threads on the coming recession scroll by every day. They are not deleted.
Cat is down, as is Hal. These are long lead time basics.
I do. :>))
Because of the new emmissions laws CAT is pulling out of trucking, and current sales are trending up above production rates creating factory backlogs. That means production will go up and layoffs will be recalled. At least that’s what’s going on at the factory where I work.
Everybody knows this.
CAT common stock is at 67 now, off its peak of 100 a few months ago. That goes more by quarterly reports than sales, and the whole DJIA is down 1000 or so from its peak. Competition from Asian heavy equipment manufacturers is no doubt cutting the profit line.
If it weren't for the high leverage these whiz kids employed, the losses wouldn't be magnified beyond the original exposure.
Risk premiums were set too low. A 20 sigma event should never happen but it is happening every day now. The leverage was great on the way up. It can be a nightmare on the way down.
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