08/11/2010 11:58 am ET Updated May 25, 2011

Wait Till 2012, Or maybe 2013

It's the time-worn battle cry of the sports losers: Wait till next year!

That, in fact, is the wail we may soon be hearing from two athletic greats--Tiger Woods and Roger Federer.

Look for a similar cry, one from Wall Street, at least as far as economic forecasters go, but with a very significant variation: Wait till 2012! Worse, that may have to be qualified with a maybe.

Call it a long overdue date with the harshness of economic reality. Or as one former Federal Reserve governor recently told a money management giant in Boston: "Up from here right now is fantasy. It's down or if we're lucky, sideways."

His remark zeroes in on a growing and painful recognition, notably that the widely projected spirited recovery at this stage is largely a function of hope than reality. In other words, the economic bulls were touting their buoyancy from a mythical place called kookoo-land.

But the real world is that we now face the prospects, at best, of slowing growth. Or more likely, as some others see it, another year and-a-half of economic anemia, a renewed economic downturn or maybe that dreaded double-dip recession.

The numbers tell the sad story. In recent months, expectations were widespread that the economy would exhibit more pep, in turn enabling GDP growth to run slightly above 3% in both 2010 and 2011. No more. Those predictions are rapidly going the way of the hula hoop. Now, the forecast is increasingly under 3% growth, if not under 2% or even 1%.

Why the downgrades? Because Wall Street's economic fraternity has been confronted by a rising number of unpleasant surprises--the latest and most worrisome being disappointing second quarter GDP growth of 2.4% (which may well be lowered to around 2%) and a shortfall in new private job creations in July.

As a result, they're addressing a growing number of economic soft spots by cutting their forecasts in increasing numbers.

In effect, they're reversing the unfounded outburst of optimism we've seen in recent years. In mid-2008, for example, amid a rapidly deteriorating economy, the battle cry among economists was wait till next year. But by year-end 2008, it was obvious that was nonsense and the new cry became wait till the second half of 2009. That, too, turned out to be a pipe dream.

Now, though, with the second half of 2010 increasingly suspect as is a 2011 recovery, given the failure of government stimulus to revitalize the sagging housing and jobs markets and encourage Americans to spend more, the growing message now is wait till 2012.

One fella sounding that battle cry is Scott Brown, chief economist at Raymond James Financial, who has just chopped his economic projections for the next couple of quarters to 1.5%-2% from 2%-2.5%. And for all of 2011, he has cut his GDP forecast to 2.3% from 2.5%.

As Brown sees it, the economy will continue to suffer from a number of headwinds, such as the ratcheting down of the federal stimulus, a slowdown in consumer spending, strains in state and local budgets, lingering problems in residential and commercial real estate and expiration of the Bush tax cuts.

"The economic outlook won't be clear for some time," he says, which suggests to him choppy, sideways market action for the rest of the year.

Making matters worse, Brown indicates his outlook for a 2012 economic rebound may be overly sunny, given his belief that it could take another six to seven years before the unemployment rate gets back down to a more respectable 5%-6%. Further, he thinks it may take another five to six years before housing bottoms out.

In other words, his wait till 2012 battle cry is accompanied by a distinct maybe. Or given the uncertainty, perhaps a more appropriate cry might be: Wait till 2013 or later!

Peter Morici, an economics professor at the University of Maryland, has also lowered his economic forecasts, knocking down his current quarter's GDP growth rate to 2.8% from 3.2% and full year growth in 2010 and 2011 to 2.6% from 2.8%.

"I don't see any economic growth until after the mid-term elections," says Morici, who describes President Obama as "a one-man economic wrecking crew whose policies scare the bejesus out of business."

One astute economist who has been razor sharp in her crystal-ball gazing is Madeline Schnapp, economics chief of West Coast liquidity tracker TrimTabs Research.

Citing among other factors the end of the inventory- rebuilding cycle, sluggish consumer demand and waning government stimulus, she, too, has slashed her GDP growth numbers.

They now stand at 2.2% in the current quarter, 2% in the fourth quarter "if we're lucky," she says, and 2% for all of 2011 if the Bush tax cuts expire. Such an expiration, she points out, would be equivalent to a $500 billion overnight tax increase.

Another big worry, according to Schnapp, is the estimated retirement over the next 10 years of 78 million baby boomers, or roughly 25% of the population. These are savers, not spenders, she says. Further, she notes, it's frightening that they'll retire with an estimated average of just $50,000, and some as little as $10,000.

What does all of this worrisome stuff you've just read mean? In simple terms, the economy will continue to reel. And if so, the most propitious market strategy, as some see it, might well be: Don't wait for a fire to head for the exits.

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