Is The Recession Of 2008 Coming?

[jyl]

Do you think we are headed into the Recession of 2008?

Housing prices and sales are falling hard. Consumer spending is slowing hard. Retailers are missing earnings and inventories are rising. See financials and stock charts for homebuilders, retailers, consumer products companies. Employment growth is slowing, and temp employment has been leading the way. See labor market statistics and employment agency stock charts.

Credit markets remain dislocated, despite Fed injecting several billion $/day. Banks are missing earnings estimates, often big. Wall Street is laying off, probably 10,000 by year-end. See bank and broker stock charts, credit indicies.

Domestic freight volumes are down or slowing rapidly. See trucker, railroad, airfreight stock charts.

Construction is slowing. Residential we already know. But leading indicators of commercial construction are also rolling over, not just in FL but nationwide. Construction equipment companies are seeing slowdowns in their US sales and leaning harder on their international business.

Oil price is soaring. In inflation-adjusted dollars, crude $/bbl is approaching highs of the 1970s OPEC oil shocks.

Large cap stocks are decisively outperforming small caps. Large cap companies tend to have more international exposure and more stable business models. Small cap companies tend to be more fragile and most exposed to the US economy. They are the canary in our coal mine.

3Q earnings are overall below expectations. Even excluding consumer and financial stocks, earnings are merely meeting expectations that have been lowered, with current YOY growth rates one-half of earnings growth entering 2007. And as companies report 3Q, estimates for 4Q are being lowered further.

International growth has been stronger than US growth for some time. China is the poster child, but also India, Russia, Eastern Europe; even Western Europe has been growing well. But housing is rolling over in Europe, with house price declines from Spain to France.

I could go on, but my point is, from where I sit, the Recession of 2008 is forming. I had expected a sharper decline - the Quick Recession of 2007. But it seems like the decline may be more drawn-out, and unfortunately I do not have a good view on how deep or long a 2008 recession may be.

Do you agree? What do you see in your business? What is your outlook/prediction? If you are outside the USA, what are you seeing?

[Tobra]

Yes, I suspect we will have a recession, for a lot of reasons. I probably will not be adversely affected, I am a healthcare provider, not shopping for a home, with a short enough commute that riding a bicycle would be no stretch at all.

[the]

Yes.

[Porsche-O-Phile]

You're telling me you didn't see this coming two years ago?

[nostatic]

so you're saying this isn't the time to leave my job and start a new company?

[the]

depends on what the new company is going to do.

[jyl]

Originally Posted by Porsche-O-Phile

You're telling me you didn't see this coming two years ago?

In early 2006 I expected the US economy to go into a mid-cycle growth slowdown or a full recession (wasn't clear which) with the trough being in 1H07. I thought the stock market would lead the economy by around 3 quarters - putting the trough in the market in mid-2006. So I was short the market in 1H06, then long the market since late 2006.

My expectations have been sort of right but sort of wrong. The economy slowed through 2006 and into 1Q07, with 1Q07 being a growth slowdown rather than a full recession, then picked back up in 2Q07 and it appears 3Q07. Okay, that was as expected. I'm still long the market, though a little short on small-cap stocks.

But it feels - to me - like the economy is slowing again, I mean in a serious way. If that is happening, and the economy rolls over into either a major growth slowdown or a full recession in 2008, then the stock market feels fragile up here at record highs. And indeed the market is acting badly in some ways, despite the highs for the large-cap indicies.

If that is the case, I should go short the market again. That means fighting the Fed. Not something do lightly. But if I was confident enough about a full recession in 2008, I'd be willing to risk it.

Decisions, dilemmas, and doubt.

[Wickd89]

No.

We should all be saving instead of buying everything on credit.
Didn't America already cross over that the average American has no savings (therefore no net worth) and is in debt. THIS IS the new American Way!

I wish I could make more money but we borrow so much money in every way, that we deserve to be a broke nation. Oh yeah, even the poorest guy in the suburbs drives a new Expedition...

Personally I do not think we should bail out the mortgage industry out of principle. Even if it means a recession......

[RoninLB]

I feel there is a worldwide capital reallocation phase going on.

Although the weaker dollar is a serious consideration interpeting job numbers gives me a pretty clear pic of our economy short term..

[nostatic]

Originally Posted by the

depends on what the new company is going to do.

entertainment, baby...

[RoninLB]

savings, spending, credit, and taxes is all noise.


what's important is indivudal, corporate, and etc capital growth. If you're in twice as much debt but your capital has increased 3x, who cares?

[911teo]

We cannot be in a recession this quarter. in macroeconomics, a recession is a decline in any country's Gross Domestic Product (GDP), or negative real economic growth, for two or more successive quarters of a year).

GDP jumped to 3.8% last quarter. Today they will release the Q3 numbers and expected is 3.1% (contraction). For us to be in a recession we'll need to wait for the Q4 numbers.

But all these macroeconomics definitions are really not worth much. I think people measure recession by looking at the things that matter most: behaviour of assets, access to credit, job prospects.

Recently we have had mixed signals from different asset classes. Take the stock mkt... it has recently posted new highs. Usually you do not see this happening in a recession. But this could actually signify a decorrelation between the US economy and the world's economy.

More pertinent to the US situation is the rapid decline of the housing mkt. This could well be a tough hurdle to pass, especially if it will be a prolonged decline.

The second variable (access to credit) is always working against the US economy. The era of free and easy credit for everybody is finished. Everybody (from powerful financial institutions to individuals) will face stiffer conditions for credit. This does not bode well for the economy.

Job prospects: if you look at a national level this has been quite stable. On Friday we'll see the national change in Non-farm payrolls for the month of October. Expected is an increase of 80k jobs (down from an increase of 110k last month). Even though this does not signal a roaring economy we are still creating jobs so the prospects are no so bleak.

I think it is still a very delicate situation. The Fed will announce today if they are going to cut the Fed Funds rates again (they cut 50bp last time) and will issue a statement on the economic outlook....

Today also we have the GDP release for Q3, tomorrow the PCE deflator (it basically tells us if there is inflation in the country) and Friday the job report....

Ask me again on Friday afternoon.... these 3 days are key to the next few months

[Chocaholic]

The sky is falling, doom and gloom. We're all going to die at some point...why not start now? Let's perpetuate it further here...Sheesh. You guys spend too much time on CNN. The stock market is at an all time high and unemployment at an all time low (almost). The ridiculously over-inflated housing bubble is correcting (as it should), and credit card debt is a real and on-going part of our economy, and is good for it in many regards.

Except for me and Teo, I see only one other poster here that's from the eastern 2/3 of the US. You west coasters need to stop wringing your hands and listening to Hillary and Obama set the stage for the upcoming election. A few fires and earthquakes and you think the world is ending. Go get another "grande" frothy double latte at SB's and take a breath.

Again....sheesh!

[turbo6bar]

Originally Posted by jyl

Do you agree? What do you see in your business? What is your outlook/prediction? If you are outside the USA, what are you seeing?

Yes, but I have been expecting a recession for some time. My housing call was awesome, but the stock market hasn't gone my way.

In residential real estate, the market is certainly tanking. Wholesalers are having a much harder time moving fixer properties. Wholesalers usually sell properties at 50-60 cents on the dollar. Financing is becoming tight and investors are growing more cautious.

Personally, I have noticed several local contractors liquidating equipment and supplies. Plumbers and HVAC companies are hurting more than electricians in this area (west Tennessee). It doesn't surprise me as housing starts are down big.

The sector is obviously in recession.

As far as the rest of the economy, I really don't know. Pundits say the consumer will rebound with a rate drop. What the he!!? If a 25 bp cut fuel consumption, I'd say that indicates consumers are on the ropes.

I'm going to stick with advise you tendered earlier. Instead of timing the market, I'm investing in myself and company. I'm buying more equipment, and getting more training. While some companies and investors are scaling back, I'm pushing forward.

Choco, I was recently in Atlanta. I hope that economy is not reliant on housing, because I believe it (housing) is ripe for an implosion. The amount of speculative building is astounding.

[911teo]

We just had GDP.... 3.9%... up from 3.8% kiss the recession goodbye.

[Jims5543]

In Florida?

I am selling my 911 and my Vacation home and getting ready for a rough ride that started over a year ago.

I am moving my office from a $2500 month high profile 1350 s.f. office to a $700 month tucked in an industrial park 800 s.f. office in an effort to keep overhead as low as possible.

2 years ago I had 7 employees (down from 11 three years ago) and now I have 5 and I need to cut back to 3.

I know I am a small corner of the country but I am bracing for 5 years of bad times starting right now.

The good news for me is once the house and car sell (both have offers) I will be 100% debt free including no mortgage payment.

[cashflyer]

Originally Posted by jyl

Domestic freight volumes are down or slowing rapidly. See trucker, railroad, airfreight stock charts.

Oil price is soaring. In inflation-adjusted dollars, crude $/bbl is approaching highs of the 1970s OPEC oil shocks.

These two are directly related, imo.

One of my areas of businesses is heavy trucking. I've been telling my friends and family for some time now that their way of life is going to take a drastic change as transportation costs continue to increase.

Look at how many products rely on transportation - virtually everything, from winter strawberries in Maine to WUR valves for an old 911.

Already, every transportation company is passing along the fuel costs to the customer in the form of fuel surcharges. As fuel continues to go up, end item costs will go up. Some manufacturers are trying to mitigate the damage by shipping less frequently, and by making sure that a truckload is a FULL truckload when they do ship.

No too far into the future, I predict that we will see a decline in businesses that rely heavily on shipping - businesses like Amazon. Already I hear people talking about certain items being cheaper locally than having to pay shipping on an internet order.

[Chocaholic]

From today's Yahoo Finance headlines...

The economy picked up speed in the summer, growing at a brisk 3.9 percent pace, the fastest in 1 1/2 years and an impressive performance...

The RE market will rebound eventually. It grew too fast, was fueled by irresponsible borrowing (intrest only adjustable loans), etc., but no one was complaining then. Now that a S. Cal 1200sf 2 bed 1 bath bungalow is only worth $550k, doesn't mean it's all swirling around the bowl.

IMHO, the single most important threat to the economy is the unchecked cost of fuel. Cashflyer is right on. It effects everything. No one seems to care. Not even an election topic. Huge dollars are changing hands and the political world is (logically) on the take. This is the raping of America. The rest is a by-product.

[The Gaijin]

Originally Posted by the

Yes.

What he said.

[KFC911]

Originally Posted by Chocaholic

...IMHO, the single most important threat to the economy is the unchecked cost of fuel. Cashflyer is right on. It effects everything. No one seems to care. Not even an election topic....[/B]

It's probably been 15-18 months ago, but I couldn't believe my ears when I heard one of Bush's chief economists say something along the lines of (I'm paraphrasing here) "it wasn't that big of a deal" if oil eventually reached $100 a barrel...unbelievable !