Unemployment:
One common theme has been that estimates of unemployment have been absurdly optimistic.
Just 14 months ago, the White House was predicting that unemployment would remain very tame:
The Bush administration's top economists see annual unemployment remaining just below 5% through 2013, meaning an extended period when the jobless rate would top the full-year average in six of the last 10 years.
The annual outlook of the president's Council of Economic Advisors, released Monday, also projects that the economy will keep growing this year and avoid a recession. In fact, real gross domestic product is forecast to rise by a healthy 2.7% when comparing the fourth quarter of this year to a year earlier.
But the report projects the full-year unemployment rate will rise to 4.9% in 2007, up from 4.6% each of the last two years. And it expects the unemployment rate will stay at the 4.9% rate in 2009 before starting to retreating slightly to 4.8% in each of the following four years.
Well, they were wildly wrong. And that wasn't the only time. They have been wrong again and again and again ever since. In fact, from then right up to today, there is precious little that I am aware of that economists have gotten right. Yet people continue making market decisions based on economic predictions that are consistently wrong? If they've been wrong all along, what makes anybody think that this time they will get things right?
More recently, the Fed predicted that there was less than a 10% chance that their "adverse scenario" unemployment figures would be reached in 2009. Well, those figures have already been exceeded. And, keep in mind that the banking stress tests were based on far more optimistic assumptions and predictions.
I think eventually, we will have to face facts, and those facts will show that the banking sector is far more insolvent than people think, and will require another $1 or $2 trillion just to remain more or less afloat, by the time all is said and done. And, that might only forestall the inevitable.
So I predict that the realization of just how deathly ill the financial sector is will lead to a marked deepening of the recession, and will send the stock markets to new multi-year lows, and that this will happen within the next 6 months.
How the market eventually finds a bottom and begins to recover is another story entirely, but I suspect that day is MUCH farther away than almost anybody imagines, probably including me. I think when the market finally does find a bottom and begins rebuilding, that will not be apparent at all. There will be no V-bottom rally like we had in March. There will be a meandering market that gradually chugs uphill for months before anybody ever begins to suspect the bottom has occurred.
.....all IMHO of course.
WS |
