Time to consider worst case sceanarios ? You bet !
Hi Raymond - First of all I like discussing different viewpoints with everyone on this board : I learn something, an often get a different prespective, which can be very valuble. The opinons on this board have helped me make more money.
I think my defintion of recovery may be different. I think we will NOT recover back to the economy of 2000, 1999, 1998, but more like 1997 post-Asia crisis. We will recover to under 6% unemplopyment, probably from a peak of over 7-8%. I don't think we will even be at the 1997 Q3 & Q4 economic levels. I think that for Q4 of 2001 & Q4 of 2002 we will see a 3-4 % drop in GDP - which is pretty large.
Right now the economy is almost in free-fall, and not just travel & tourism. Auto sales are now down by 1/3, and retail sales , outside of grocery store items, a way down.
Went by Stanford Mall yesterday to take a tour. Outside of the Mommy & Baby stroller brigades, who show up everyday but don't do much buying, traffic was down. Lots of inventory on hand. This mall is one of the most econonmically insensitive malls, it's customers have tons of money.
I have three alternate futures at this time :
1) Liquidity driven recovery in late Spring 2002. Dow touches 5700, returns to 7000-8000 range. Inflation shows up in late 2002. Most currencies weaker, including dollar. Dolar Euro near parity. Argentina , etc. recovery easier with weaker dollar. Prices fall by January, 30 year T-bills go under 4.5 % in early 2002, rise a little later with inflation, but with Nasdaq around 1000, everyone wants a safe haven for their money. , Mortgages under 5.5%, lots of refinancing.
This requires -
1) Economic stimmulation package is loaded up with goodies, and works.
2) Some victories over terrorism before mid Decmeber, additional terrorist attacks not as effective in creating death and havoc.
I think the odds of this are about 40% today.
2) Delayed recovery to Fall 2003 (stealing most of this from your description) This is like the above only it takes longer.
Takes longer for long term rates to fall.
May need to have a Second economic stimulus package.
I think the odds of this are about 40-50%
I think we exit this with modarate inflation of 4-6%, which will persist for about 5 years or more, and stock markets which will move sideways in a large trading range for about the same time.
3) Japan - flatline for 3-5 years. Unemployment to 8% +, Dow under 4000, Naz, 600 ?
the odds of this are maybe 10-20%
This is close to a 1930s period- maybe a 5% drop in gdp, then 2% drop the next year. This scares the s****
out of me.
We may exit this with a war mobilization, strong inflation, or both. Fort a period of time , we could have war, economic stagnation, and inflation, just like the "Stagflation" of the 70's but worse.
Policy makers are trying very hard to avoid #3, and i think we will avoid it. Japan is a very visible example. |
