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Morgan Stanley warns of global recession.

muleman

Gone But Not Forgotten
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Morgan Stanley: Global Recession Possible in 2013



Wednesday, 21 Nov 2012 08:15 AM
By Forrest Jones



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The global economy could contract by 2 percent next year, according to a worst-case forecast prepared by Morgan Stanley economists.

On the flip side, the global economy could grow if the United States avoids the fiscal cliff, Europe contains its debt crisis and emerging markets avoid a hard landing.

It’s up to policymakers to save the day.
“More than ever, the economic outlook hinges upon the actions taken or not taken by governments and central banks,” Morgan Stanley said in a report, according to CNBC.

The worst-case scenario sees the United States going over the fiscal cliff — a combination of tax hikes and spending cuts kicking in at the same time next year — and the European Central Bank deciding not to cut interest rates or roll out its bond-buying program, which would lower borrowing costs and ease credit conditions in countries such as Spain.

Investors, meanwhile, need to stay on their toes.

“Importantly, investors should keep an open mind and be prepared to switch between the scenarios as policy developments unfold,” Morgan Stanley economists concluded.

On the flip side, however, the global economy could grow 4 percent next year if policymakers around the world take action, outpacing this year’s project growth rate of 3.1 percent, the bank’s economists added.

Other noted economists worry 2013 could be a bumpy year as well.

Four elements — stalling U.S. growth rates, Europe’s debt crisis, cooling emerging markets, namely China, and military conflict in the Middle East — could combine into one superstorm and bruise the economy next year, says New York University economist Nouriel Roubini.

Even if all four factors don’t collide into one powerful storm, the forecast is still bleak.

“The perfect storm is not my baseline scenario. My baseline scenario is one of low economic growth in advanced economies and recession in some of them — like the eurozone, like the U.K., like Japan — but not recession in the U.S., slower economic growth in emerging markets; that’s the baseline,” Roubini told Bloomberg.

“So even if you do avoid the perfect storm the outlook for the economy and for financial markets next year will be a bumpy and a risky one.”
 

Kane

New member
We can all relax for the time being.

Given the stark division Obama has created for America and within Congress, there is only so much that will be accomplished. The absolute most that will occur is to once again kick the fiscal-cliff-can down the road with a short-term band aid, and then spend the next four years fighting over real solutions.

In other words, nothing much will be accomplished. Rinse. Repeat. Obama has no leadership ability and no plan for recovery. Ten percent unemployment will become the new norm, with a stagnant 2% GDP growth. Hopefully ObamaCare will not present a fatal drag upon the economy as the myriad unknown details and regulations roll out.

It is going to be a long four years. Rinse. Repeat. The markets must accept the reality that nothing changes until 2016 ... under a new Senate, under conservative presidential leadership and driven by a rejection of big government in favor of robust capitalism.

My prediction: America will be begging for an election 2012 do-over.

.
 
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Melensdad

Jerk in a Hawaiian Shirt & SNOWCAT Moderator
Staff member
GOLD Site Supporter
From IBD, an article that, in many ways, mirrors the doom and gloom reflected above:
Fiscal Cliff Least Of Stock Market's Worries: Dent


By TRANG HO, INVESTOR'S BUSINESS DAILY

Posted 11/19/2012 05:57 PM ET


TV talking heads and news headlines are heralding the fiscal cliff's danger to the U.S. economy. But a greater threat lies in wait thanks to the European debt crisis and slowing growth in China, says Harry Dent.

The CEO and founder of HS Dent, a Tampa, Fla.-based economic research and forecasting firm, says we're on the brink of a "global meltdown" once the "debt bubble" explodes, regardless of what happens in Washington. He explains why this is and how ETF investors can protect their money.

Dent developed the Dent Method, which bases economic outlooks on demographic trends.

IBD: What leads you to believe that we face a "global meltdown" and that we're in a "debt bubble"?

Dent: Countries around the developed world have debt ratios to GDP (gross domestic product) ranging from 350% to 550%, roughly twice as high as in 1929 before the Great Depression. This is the greatest and most global debt bubble in modern history.

In addition, almost all developed countries have seen a peak in their Baby Boom generation spending booms, the largest generation in modern history. This generation exaggerated the bubbles in everything from debt to housing to stocks. Now their spending decline will trigger the bursting of all of these bubbles. Every debt bubble in history has been followed by a depression with deflation in prices and many years of austerity.

IBD: What would get Europe out of its debt crisis?

Dent: The only thing that gets any country or region out of a debt crisis is to restructure their debt voluntarily as in a Chapter 11 bankruptcy process in the U.S., or to have a major crisis and banks and lenders see massive losses and debt write-offs, like the 1930s.

Europe has seen some debt forgiveness, but mostly has relied on endless injections of short-term loans to keep their banks from going under and increasing bailouts to countries. This is not the way to get out of a debt crisis. At best it pushes the crisis down the road and increases the total amount of debt rather than restructuring it back to sustainable levels and taking a huge burden off of consumers and businesses.

Japan has been doing this for 17 years and has never come out of its debt crisis or slumping economy. The U.S. went through a major debt breakdown in three years in the early 1930s and came roaring out of that debt crisis.

IBD: What's going on with China's economy and how will it affect the U.S. markets?

Dent: China has generated the largest government capital-expenditure expansion of infrastructures of any country in history. This results in excess capacity of everything — factories, roads, housing, malls, office buildings, etc. — and excess capacity leads to low profits. This is why China's stock market has had the poorest performance by far of any major country (it is back near its late 2008 crash lows) despite having the highest growth.

China is just creating growth for growths' sake to keep rural migrants employed, to stay popular and to reward local crony government leaders. China will be the last to fall, but will have a hard landing when it does and bring down commodity prices and the emerging countries that export them. That means a global downturn, not just in Europe and North America.

IBD: What's in store for the market if we fall off the fiscal cliff?

Dent: It is likely there will be much contention, but it isn't likely we will just fall off the fiscal cliff. If we do we will be in a recession. But we are headed for one anyway with slowing global growth and stimulus that has less and less effect in the face of massive demographic and debt head winds.

You can't cut deficits and debt without austerity, which means cutting expenses and raising taxes. Everyone keeps looking for a magic wand like QE (quantitative easing). There isn't one. Restructuring debt is painful, but the best way to recreate cash flow for struggling households and businesses when demographic trends are unfavorable.

IBD: What leads you to believe the economy is going to crash by 2015?

Dent: We have seen a series of three bubbles and each has been followed by a 1.5 to 2.5-year crash. Why would anyone expect anything else after this bubble, which has been artificially generated by the Fed and has seen even steeper rises in stocks than the last one?

A peak in late 2012 or early 2013 would mean that stocks should at least correct into mid-2014 and perhaps as late as early 2015. Each bubble has taken us higher and each crash lower. Hence, our forecast is that the Dow goes to 6,000 or a bit lower on the next crash. We also have cycles that next bottom around late 2014.

IBD: How should investors position their ETF portfolios for the most possible gains and avoid losses?

Dent: The best ETFs are either long PowerShares DB U.S. Dollar Index Bullish (UUP), short the euro with ProShares UltraShort Euro (EUO) or short stocks through ProShares Short S&P500 (SH).

For hedging a portfolio of dividend-paying stocks or bonds needed for yield, the best ETF is Direxion Daily Small Cap Bear 3X Shares (TZA) as it is three times short the Russell 2000, which is likely to fall faster than the S&P 500.

A 20% TZA position should hedge an 80% portfolio of stocks. We expect one more "risk-on" rally in stocks so investors should wait until year-end or possibly February to start betting on the markets going down or the U.S. dollar going up again and the euro falling.

IBD: What would tell you that you're wrong and make you change your outlook on the market?

Dent: If we do not see any major economic or stock weakness by early 2014, I would have to say that the government has waved a magic wand and likely prevented the next economic crisis or depression, at least for many years.

IBD: Is there anything else I should ask?

Dent: People should also recognize that we have seen one bubble after the next since the mid-1990s such as tech stocks, real estate, emerging market stocks and commodities. The last bubbles are in bonds, especially higher yield, and in gold and silver.

People are rushing into safer assets as the markets get more volatile and harder to trade. This means investors have to be concerned even with Treasury bonds, gold and silver. We see government bonds and all bond yields heading up in the crisis due to rising credit risks, and we see gold and silver crashing, likely starting in early 2013.

There is nowhere to hide when a major debt and asset bubble bursts as in late 2008 and the early 1930s. The U.S. dollar is the best safe haven, not bonds, not gold.
 

AAUTOFAB1

Bronze Member
SUPER Site Supporter
"the global economy could grow if the United States avoids the fiscal cliff, Europe contains its debt crisis and emerging markets avoid a hard landing".

3 things that all have to happen and the odds are not at all good.


counting chicken eggs before they hatch is not a plan that will work out well.
 

Kane

New member
17493
 

tiredretired

The Old Salt
SUPER Site Supporter
The Europeans are still robbing Peter to pay Paul and kicking the can down the road.

The Americans are still robbing Peter to pay Paul and kicking the can down the road.

Our own tax dodging Treasury Secretary says we should lift all limits on the debt ceiling and spend, spend, spend.

Someone, please, explain to me how this could all possibly end well?
 

Dargo

Like a bad penny...
GOLD Site Supporter
Personally, I strongly feel that this recession has never ended! Where I live, it's still slowly going down. I'm able to buy homes for less now than I could in 2008 or 2009 or even 2010. What's worse, our homes never had a "bubble" increase in prices. I'm buying homes at late 60's prices. And our recession has ended?!??? If you actually believe that, go put ALL of your money in the stock market. Obama says he's improving things and all is better and the recession ended on his watch and he prevented a depression. (um, bullshit!) Our recession ended when it moved into a depression. The average citizen in my town doesn't know shit about the DOW. They think it's a company that makes bug killer. Their homes are worth less than ever in their adult life, unemployment is higher than they ever recall seeing it, more people are living on welfare, food stamps, and most every person I get calling about one of my rent houses hand me a stack of forms to fill out so the government can make their rent payment for them.
 

BigAl

Gone But Not Forgotten
SUPER Site Supporter
Personally, I strongly feel that this recession has never ended! Where I live, it's still slowly going down. I'm able to buy homes for less now than I could in 2008 or 2009 or even 2010. What's worse, our homes never had a "bubble" increase in prices. I'm buying homes at late 60's prices. And our recession has ended?!??? If you actually believe that, go put ALL of your money in the stock market. Obama says he's improving things and all is better and the recession ended on his watch and he prevented a depression. (um, bullshit!) Our recession ended when it moved into a depression. The average citizen in my town doesn't know shit about the DOW. They think it's a company that makes bug killer. Their homes are worth less than ever in their adult life, unemployment is higher than they ever recall seeing it, more people are living on welfare, food stamps, and most every person I get calling about one of my rent houses hand me a stack of forms to fill out so the government can make their rent payment for them.

I can strongly agree with your statement . I am surprized that the mining company came in this Winter to Drill Core samples around here . That is a big boost for the local economy .I still have renters like you do ,that want me to turn over my apartments to goverment assisted housing and cannot understand why I have no desire too . Most of those folks tear up the rental places and I require a little bit better moral caliber of people for my places .

I wonder if the west coast is doing a bit better than in your area ?
 

Dargo

Like a bad penny...
GOLD Site Supporter
I can strongly agree with your statement . I am surprized that the mining company came in this Winter to Drill Core samples around here . That is a big boost for the local economy .I still have renters like you do ,that want me to turn over my apartments to goverment assisted housing and cannot understand why I have no desire too . Most of those folks tear up the rental places and I require a little bit better moral caliber of people for my places .

I wonder if the west coast is doing a bit better than in your area ?

I dunno. I rented to some "section 8" renters once because they got me $150 a month more than I was asking. Mistake!!! They bug the shit out of you for EVERYTHING (NO, I do NOT supply your freaking toilet paper! And, I told you if you flush tampons into my septic tank, you'd have shit backing up within a month). It's easier to get rid of bed bugs than those renters too! It's not worth $500 a month MORE than your normal asking price IMHO. It storms, the power goes out, they freaking call and tell me that I MUST get them power NOW! WTF?! Thank God for that one. They finally moved out because I couldn't shit power for them. Aaaargh!

The problem is that many houses that can be had for a REAL bargain are ones that had section 8 renters in them that tore the shit out of the place and the landlord just wants out. I looked at one last week that had iguana shit in the corner of one bedroom that was over 2' high!! And, get this, there was a whole sheet in BOLD letters saying "NO PETS OF ANY KIND". :hammer: It smelled so bad that I wouldn't pay $5k for a house that probably would be worth 30k if just cleaned up and painted.
 

Melensdad

Jerk in a Hawaiian Shirt & SNOWCAT Moderator
Staff member
GOLD Site Supporter
I do some commercial properties and I also act, using a trust serving company, as a private bank where I lend money to people who buy properties to rent out. So far I've had good luck with that strategy and I don't have to deal with lowlife tenents who want to tear up my stuff because I'm acting as the bank, not the landlord. I do think that residential rental is a great place to invest, I'm just not sure that I want to be the landlord, which is why I've been doing the private lender scenario. Given how bad the real estate market is, and how bad the overall economy is, people need nice places to live. I think the ideal market is the nicer rental homes and nicer multi-unit buildings for people who downsize from their McMansions into realistic housing. Those tenents don't tear up their homes.
 
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