03/18/2010 05:12 am ET Updated May 25, 2011

Watch Out for the Turkeys!

With Thanksgiving Day (November 26) less than a month away, let's talk turkey. No, not the turkey we can't wait to eat, but what some Wall Street professionals regard as the "economic turkeys."

They're the ones operating on the delusional premise that the recession is history and that by mid-2010 the economic downturn, the real estate mess, rising unemployment, falling incomes and bashed banks will begin to become fleeting memories.

Regarded as the more conspicuous economic turkeys,those who have openly signaled the death of the recession, are President Obama, Ben Bernanke and Warren Buffett. Likewise, an editorial turkey, as some economic trackers see it, is Newsweek magazine, which unequivocally declared on an early August cover that "The recession is over."

Turkeys screech gobble, gobble; the economic turkeys, in turn, are spouting dribble, dribble, say the non-believers, some of whom offer compelling arguments why the recession is very much alive and kicking.

One of them is Olivier Garret, the CEO of Casey Research, a national economic consulting service based in Stowe, Vt., who contends that "economically, we're still in the eye of the hurricane." The stock market rebound has people believing we're out of the economic woods, but that's just not true, he says.

As Garret assesses the schizophrenic economic scene, "we're now in a deep recession, if not a depression, that's going to get progressively worse."

Why such a gloomy Gus? Or should I say a gloomy Olivier? For starters, he sees a lot more chaos on the real estate front via a wave of defaults stemming from rate resets on adjustable rate mortgages and growing losses in commercial real estate, which has $3.5 trillion of loans coming due in the next two to three years. Here, values in recent years have tumbled 20% to 50%. In addition, he says, falling income will not let many commercial property owners repay their debt, which he thinks will be a big problem for all banks.

One major economic problem, as Garret sees it, is a tapped-out consumer. Coupled with sharply rising personal bankruptcies, he says retailing will be affected in a big way, in particular, by a rough holiday season.

Speaking of the consumer, Garret sees a great deal more suffering arising from accelerated job losses. As of now, we have a 9.8% unemployment rate, or, if you factor in the government's U-6 measure (part-time workers who can't get full-time jobs and people who have been dropped from the employment rolls because they've been out of work for a long period, say 24 months or more) the jobless rate climbs to 17%.

Many economists see the 9.8% unemployment peaking at 10.3% to 10.5% in the first half of 2010. Not so Garret. Over the next 12 to 18 months, he expects a jump in unemployment to about 15%, with job losses averaging about 200,000 to 500,000 a month. As for U-6, he sees that measurement of the jobless rate ballooning to 23% to 24%.

In arguing his case, he notes that most new jobs are being created by four sectors: retailing, services, housing and technology. Of this group, three, with technology being the exception, are in the job-creating doghouse.

Given his dismal outlook, Garret thinks the 2010 economy will be much bleaker than most people expect. Wall Street's economic consensus calls for GDP growth next year of 2% to 3%. Garret thinks the Street has the numbers right, but, alas, in the wrong direction. His expectation: a GDP decline of 2% to 3%.

Not only that, Garret doesn't see the rebirth of a positive economic environment for at least two years, and possibly five. As you might expect, our economic bear has grim expectations for the stock market, which, based on the state of the economy, he regards as highly overvalued. Not only does he believe that a 10,000 Dow is unsustainable at this juncture, but worse than that, over the next six months, he sees the Dow skidding to below 8,000 and possibly to as low as 7,500.

So where would he have his money? Garret favors cash, gold, commodities and big-cap U.S. companies whose revenue growth is driven by foreign operations that can capitalize on the global recovery.

What about those beaten-up financial stocks, such as Bank of America and Citigroup, that are attracting hordes of bargain hunters? "I would shun the financials," he says, "because of their poor accounting practices and delayed recognition of problem assets. When those assets are written down, he observes, these stocks, which are substantially overvalued, will tumble. What's not being recognized is that there is still a lot of risk in them."

Overall, his bottom line is clear. "People buying stocks now are making an awful mistake." Likewise, watch out for the economic turkeys; they can give you a thick dose of financial heartburn.

Meanwhile, in the market's last four trading sessions, three of them were slammed for Dow declines of more than 100 points. In other words, there are loads of investors out there who think the economic turkeys are for the birds.

Write to Dan Dorfman at