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Esther J. Cepeda

Esther J. Cepeda

Posted January 12, 2009 | 12:47 PM (EST)

Rational Exuberance: Executives' Club of Chicago Economic Forecast 2009


By the time Robert Froelich, chairman of investor strategy for Deutsche Asset Management took the mic at the Executives' Club of Chicago annual Economic Forecast Luncheon Thursday, Sun-Times Columnist Terry Savage and Diane Swonk, Chief Economist at Mesirow Financial had already primed me and the other 1,600 suits in attendance for some serious indigestion after our chicken lunch.

Savage's savage red-lined, bottom-busting charts were breathtaking in their horror as she walked us through the financial tragedies that the nation has been through in the last year. She made a crack about the predictive power of our government officials who'd been dead wrong about the severity of the downturn, "I don't know what they were smoking in Washington!"

"The money," some jolly soul heckled.

Swonk, who I can assure you stood humbled by her own lapses in crystal-ball-gazing - she only mentioned it about ten times in the first few minutes of her talk - was the dourest of the bunch.

"I blame myself for not seeing the depth and breadth [of the crisis]," she mourned, as if she could have personally done anything to avoid it. Also good was a reference to the creativity companies are using to rebound: "[Some companies] are using balance sheets in ways never imagined, I'm not sure of the legality but they're doing it and that's important." (Huh?!)

In her steely cadence, Swonk noted that "just a few months ago we were wondering if a trillion dollar bailout would be too much, now we're wondering 'is it enough?' Are we throwing pillows under the plane before it crashes?"

The crowd, seemingly near tears in some spots of the room, pursed their lips and nodded as Swonk wrapped up with: "I'm living my worst nightmare..." I'll spare you the rest because this was merely the funereal prelude to the crowd-pleasing Froelich.

Bald-headed and booming-voiced, Froelich almost literally shook everyone out of their post-lunch depression with his positively rosy outlook, which I'll share here for your enjoyment and analysis.

"We're closer to the end than to the beginning," Froelich said after recapping his take on the unprecedented convergence of the Wall Street collapse, credit crunch, and the housing bust. "The headwind has turned into a tailwind and we're more than half-way through this crisis."

His take on the good news was that we needn't worry our pretty little heads about inflation or a lack of money: "There is no inflation, there is literally no chance for inflation - rent is not going up and wages will not go up, no one who's employed is going to ask for more money."

Also: "We have money...they're in two pockets: your pockets and sovereign wealth funds," Froelich said. "Investors currently have about 4 trillion dollars on the sidelines and there are about 3 trillion dollars in these government savings accounts that are eventually going to work themselves back into the market."

He told the crowd, which was pretty pumped by the sheer force of his firecracker energy, to invest "right here in the U.S, there is no doubt in my mind our stock markets will lead the global stimulus of the economy...we were the first central bank to start cutting interest rates and we have almost an 18-month head start on the world."

And where?

"Infrastructure. China has a 600 billion dollar stimulus package in the works and they are funding infrastructure projects," Froelich said, sending a chill through my spine because although Obama has put a lot of effort into designing an infrastructure-based stimulus plan for the U.S., we aren't nearly in the position to work it with our current terrible lack of skilled labor and large talent pool of science and engineering professionals.

But that's just me, not being positive. And as the last speaker, Yale Finance professor Robert Shiller, said, "The fundamental causes of the current crisis are really due to psychological causes...our psyches drive the economy more than people think."

I won't go into the rest of his predictions, but here's a highlight: "We may bottom out in 2010 but we have some way to go - the current stimulus proposal will not be enough - because it was a downer and as one Merrill Lynch broker once said, I'm quoting from the current issue of Business Week, "nobody became rich in America by being a pessimist."

So I'll leave you with Froelich's refrain: "At the end of 2009 everything was written down but assets will be written back up again, there's a great upside coming, invest in America."


Esther J. Cepeda believes in the long-term strategy and writes about business and other stuff on www.600words.com