Tags: recession

Dr. Doom: A 60 Percent Chance of Recession

Thursday, 21 Aug 2008 11:43 AM

Henry Kaufman, known as "Doctor Doom" for his persistently bearish forecasts during his 26-year career as managing director at Solomon Brothers, now predicts the U.S. is facing a 60 percent chance of recession.

Following that period of economic downturn, there is a "reasonable chance that any upturn would be a shallow recovery rather than the typical dramatic recovery" that's followed past recessions.

"We are in a downdraft, the housing situation is far from resolved. There is no financial stimulant that will help the economy pick up quickly," Kaufman told Bloomberg TV.

A "prerequisite" for any economic recovery is a stabilization in home prices for more than two years, says Kaufman, "and there's no immediate indication of this."

In fact, he says, some conventional forecasts suggest another 10 percent decline in housing values.

Add to that mix the fact that consumer income is not moving up much, and financial institutions aren't rushing back to finance housing activity.

"So this area is going to be, at best, stagnant for a while, and that is very hurtful," says Kaufman.

Kaufman supports the government's recent housing bill, which included a backstop plan provision for Fannie Mae and Freddie Mac.

But he called it "a belated recognition by the government of the key role that the housing-financing agencies play in the mortgage market."

According to Kaufman, "If these housing-financing agencies are not supported, the housing recovery is going to be significantly delayed."

In addition, "We're probably going into a period in which corporate profits are going to be under some pressure. And there is no financial stimulant that will pick this economy up very quickly."

Kaufman isn't so much concerned about inflation in 2008. "It's what comes after that. There is a quandary here. The quandary is the economy isn't going anywhere."

He says the Federal Reserve "would prefer to see the recovery in the housing and in the economy, and then become more virile in its attitude towards inflation."

Kaufman says, "My own feeling is there's a creep in the inflationary process. That creep is not going to be recognized by the authorities until we see some lift in the economy of a meaningful kind."

While economic growth is weakening, Kaufman says prices of commodities, which rose an average of 47 percent in the 12 months ended June 30, are starting to retreat.

The Jeffries CRB Index of 19 raw materials fell 12 percent during the past month, easing concerns about inflation.

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Henry Kaufman, known as "Doctor Doom" for his persistently bearish forecasts during his 26-year career as managing director at Solomon Brothers, now predicts the U.S. is facing a 60 percent chance of recession.Following that period of economic downturn, there is a...
recession
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2008-43-21
Thursday, 21 Aug 2008 11:43 AM
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