Check Out What The Experts Say Is Ahead Of Us In America

[Mrs. Sharon B. Hodge]

8 Really, Really Scary Predictions Of Total Collapse




Nouriel Roubini

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8 really, really scary predictions
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Dow 4,000. Food shortages. A bubble in Treasury notes.
Fortune spoke to eight of the market's sharpest thinkers and what they had to say about the future is frightening

CNN

http://money. cnn. com/galleries/2008/fortune/0812/gallery. market_...

Nouriel Roubini / Known as Dr.
Doom, the NYU economics professor saw the mortgage-related meltdown coming

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


Bill Gross

The founder of bond giant Pimco warned of a subprime contagion back in July 2007

While 2008 will probably be best known as the year that global stock markets had their values cut in half, it was really much, much more. It was a year in which every major asset class - stocks, real estate, commodities, even high-yield bonds - suffered significant double-digit percentage losses, resulting in the destruction of over $30 trillion of paper wealth. To blame this on subprime mortgages alone would be to dismiss an era of leveraging that encompassed derivative structures of all types, embodying a belief that economic growth was always and everywhere a certainty and that asset prices never go down. As 2008 nears its conclusion, we as an investor nation have been forced to face a new reality.
Wall Street and Main Street are fearful that a recession may be replaced by a near depression

The outcome essentially depends on the ability of the Obama administration to rejuvenate capitalism's "animal spirits" by substituting the benevolent fist of government for the now invisible hand of Adam Smith. Federal spending and guarantees in the trillions of dollars will be required to fill the gap created by the deleveraging of private balance sheets. In turn, lenders and investors alike must begin to assume risk as opposed to stuffing money in modern-day investment mattresses. The process will take time. Twelve months of the Obama Nation will not be sufficient to heal the damage of a half-century's excessive leverage.
The downsizing of private risk positions - replaced by government credit - will also result in reduced profit margins and a slower rate of earnings growth after the bottom is reached

Investors need to recognize these titanic shifts in market and public policies and be content with single-digit returns in future years. Perhaps the most lucrative pockets of value are in high-quality corporate bonds and preferred stocks of banks and financial institutions that have partnered with the government in programs such as the Troubled Assets Relief Program (TARP). While their profitability may be restricted, their ability to pay interest and preferred dividends should be unhampered. Above all, stick to high-quality companies and asset classes.
The road to recovery will be treacherous


Robert Shiller

The Yale professor and co-founder of MacroMarkets called both the dot-com and housing bubbles

We don't currently have anywhere near the level of unemployment that we had in the 1930s, but otherwise there are many similarities between today's environment and the Great Depression, with things happening today that we haven't seen since then. First of all, there's the magnitude of the stock market's move up and down. The real (inflation-corrected) value of the S&P 500 nearly tripled from 1995 to 2000, and by November 2008 was down nearly 60% from its 2000 peak. The only other comparable event was the one in the 1920s where real stock prices more than tripled from 1924 to 1929 and then fell 80% from 1929 to 1932. Second, we've had the biggest housing bust since the Depression. Third, we've seen 0% interest rates. We've actually seen briefly negative short-term interest rates. That hasn't happened since 1941.
There was a period from 1938 to 1941 when we were bouncing around at zero and sometimes negative, but that hasn't happened since

And the list goes on: Our numbers don't go back as far as the Depression, but consumer confidence is plausibly at the lowest level since then. Volatility of the stock market in terms of percentage changes day-to-day is the highest since the Depression. In October 2008 we saw the biggest drop in consumer prices in one month since April 1938.
Another thing is that it's a worldwide event, as it was in the Depression

I'm optimistic that we'll do better this time, but I'm worried that we're vulnerable. One of the lessons from the Depression is that things can smolder for a long time. What I'm worried about right now is that our confidence has been hurt, and that's difficult to restore. No matter what we do, we're trying to deal with a psychological phenomenon. So the Fed can cut interest rates and purchase asset-backed securities, but that only works in really restoring full prosperity if people believe that we're back again.
That's a little hard to manage

In terms of the stock market, the price/earnings ratio is no longer high. I use a P/E ratio in which the price is divided by ten-year average earnings. It's a really conservative way of looking at it. That P/E ratio got up to 44 in the year 2000, which was a record high. Recently it was down to less than 13, which is below the average of around 15. But after the stock market crash of 1929, the price/earnings ratio got down to about six, which is less than half of where it is now. So that's the worry. Some people who are so inclined might go more into the market here because there's a real chance it will go up a lot. But that's very risky.
It could easily fall by half again.