Mr. Sri-Kumar expects a 6 to 9 month Recession, with the stock market starting it's recovery in April 2009. He is rather bullish on equities, and does not believe we are heading into a Depression. Bearish on oil and bullish on the dollar: Oil $75, Euro $1.25, Gold $700.
However, last week I attended New York University’s financial crisis seminar. This Panel’s views and forecasts were decidedly bleaker than Mr. Sri-Kumar’s.
NYU Panelists:
• Dennis Berman, Deputy Bureau Chief, Wall Street Journal’s Money & Investing
• Mark Patterson, Chairman, MatlinPatterson Global Advisors LLC
• Nouriel Roubini, Professor of Economics, NYU Stern School of Business
• Lawrence White, Deputy Chairman & Professor of Economics, NYU Stern School of Business
• Moderator: Thomas Cooley, Dean, NYU Stern School of Business
• Mark Patterson, Chairman, MatlinPatterson Global Advisors LLC
• Nouriel Roubini, Professor of Economics, NYU Stern School of Business
• Lawrence White, Deputy Chairman & Professor of Economics, NYU Stern School of Business
• Moderator: Thomas Cooley, Dean, NYU Stern School of Business
The NYU Panel’s views:
1. Predicted that the worse is yet ahead.
2. The recession would last 18 to 24 months. The question is whether the recession will be V, U or L shaped. While the word “depression” was not used, the Panel described the economic recession as one of the worst since the Great Depression years.
3. Equities will decline further from current levels and will not have a meaningful recovery for perhaps two years.
4. Housing prices expected to decline further. Housing prices will not recover quickly and will reduce the net worth of consumers to such an extent that it will affect spending.
5. Expect consumer loan defaults and hedge fund failures to add to the financial crisis.
6. The bond default rate is currently at 3%. Its historical average is 4%. The Panel expects it to rise to 10% or higher with the possibility it could reach 25%. The covenant light and toggle loans will delay defaults and bankruptcies.
7. China’s funding the USA trade deficit will become problematic and may require higher interest rates and perhaps a political “quid pro quo” such as Taiwan.
Mr. Sri-Kumar and the NYU Panel are in agreement that:
1.The Financial Rescue Plan was not developed and implemented effectively. The solutions have come late to a problem that was obvious in 2007. The handling of the Crisis by officials world-wide undermined their credibility and the predictability of the Crisis which has exasperated it.
2. “Inter-bank lending” is a key variable.
Click here to access the NYU Panel’s webcast link. Seminar held October 15, 2008. Duration: 97 minutes.
Click on this link for a summary and to access Mr. Sri-Kumar’ October 3, 2008 teleconference call.
