Enough already of all those silly, unduly sunny and unrealistic economic predictions that are proving to be as accurate as those woefully inept forecasts we get from the local weatherman.
One of the latest such nonsensical predictions, a declaration by General Electric's CEO, Jeffrey Inmelt, that "the (economic) crisis is over," couldn't have come at a worse time, judging from the bum tidings that followed his glowing forecast.
Abraham Lincoln once said "Tis better to be thought a fool than to speak and remove all doubt." Maybe Inmelt ought to take note of that observation.
Judging from Thursday's dismal economic disclosure--higher than expected June layoffs of 467,00, the 18th consecutive month of job losses--the GE boss is obviously way off base. Those layoffs boosted the unemployment rate to 9.5%, the loftiest level in 26 years, and the number of unemployed Americans to 14.7 million.
Also raising serious questions about Inmelt's rosy outlook are several other harsh economic facts that he ignored--namely:
--The rising number of foreclosed and abandoned homes, now at roughly 2 million.
--The ongoing surge in credit card defaults and delinquencies, prompting credit card companies to curb consumer borrowing.
--Falling incomes and stagnation in wage growth, leading to sharp cutbacks in consumer spending.
--Sharply declining values and mounting delinquencies in commercial real estate. The shoe, it's widely felt, has already dropped in this area, based on the mushrooming number of empty and boarded-up retail outlets and restaurants and the ballooning amount of vacant office space.
Judging from the market's immediate reaction to the jobs news--a wicked 223-point dive that day in the Dow Jones Industrials--obviously a lot of investors are signaling that they, too, believe Inmelt is all wet in his positive economic outlook. Importantly, those job losses--which are widely expected to head higher--raise renewed doubt about the widespread bullish argument that all the bad news is already discounted in the marketplace.
For some thoughts on where we stand now, I rang up veteran investment adviser Martin Weiss, who made some super economic forecasts last January, among them warnings of massive job cuts, much steeper real estate losses, major financial problems at the giant banks and an inevitable Wall Street meltdown. His current outlook--if he's right again--suggests Inmelt, economically speaking, could probably use a seeing-eye Lucky or Lucy.
Weiss, 62, known in Wall Street as the Grim Reaper and head of Weiss Research in Jupiter, Fla., concedes there has been a temporary economic stabilization in some sectors. But he hastens to note that's by no means unusual after the precipitous economic declines of 6.3% in the fourth quarter of last year and 5.5% in the first quarter of this year.
The economy, as Weiss sees it, "is at a high between the storms," a prelude, he believes, to a good deal more economic anguish.
Why more anguish? For starters, Weiss, author of the Ultimate Depression Survival Guide, currently on the New York Times' best seller list, contends the administration--in its efforts to revitalize the economy--is addressing the symptoms, not the causes, such as the housing crisis, the shortage of liquidity and the excess debt in the world economy. The government may be pumping liquidity back into the system and has said it would back millions of dollars of credit, but the fact is, says Weiss, "the credit and liquidity crises have not been resolved."
Making matters worse, he says, are the next time bombs. For starters, he points to the remaining toxic asset problems, notably the bad debts on the books of financial institutions. "They haven't removed all the garbage, which is still poisoning the economy," he says.
Weiss is by no means alone in his worries about toxic assets because the extent of this problem is still an unknown at many banks, in turn leading to more cautious lending practices and an unwillingness to take risk despite Uncle Sam's billions of dollars of bailout money. Alarming here is said to be the threat of more--or perhaps substantially more--bank writeoffs
The financial plight of California, a $1.8 trillion economy which is unable to come up with a working budget, is defaulting on its short-term obligations and is broke, is viewed as another time bomb. As such, Weiss sees a rash of downgrades of the state's credit by the credit agencies, which will make it either extremely expensive or impossible for California to roll over its maturing debt. Weiss also raises the risk that California's financial woes could spread to other state governments.
Yet a couple of other ticking time bombs, according to Weiss, are the prospects of a big selloff in insurance stocks, followed by a slew of industry bankruptcies, and falling long-term Treasury bond prices, a reflection of the burgeoning deficit and increasing concerns about the credit of the U.S. Treasury and the stability of the dollar.
Wall Street estimates, factoring in the stimulus package, call for the GDP to grow 0.5% in the current quarter following an expected 2% decline in the second quarter, and gains of 2% in the fourth quarter and 2%-2.5% in the first period of next year. Too exuberant, our bear says. Given his worries and bleak outlook, Weiss expects a resumption of a large economic decline later this year or in early 2010 on the order of about a 6% GDP retreat.
What are the implications for the stock market? Weiss's outlook: another bloodbath, with the Dow Industrials tumbling to about 5,000 later this year or in early 2010. Describing the market as grossly overvalued on current price-earnings multiples, which Weiss notes are totally inconsistent with those at the bottom of bear markets, he thinks investors would be well advised to sell into every rally. "And I would do it before it's too late and time runs out," he says.
"It ain't over till it's over" was one of Yogi Berra's more colorful Yogi-isms. That's precisely Weiss's view when it comes to the sagging economy and the falling market. He takes it one step further, predicting a lot more chaos before it's all over.
Dandordan@aol.com