Wednesday, January 14, 2009

Notes from an Economic Conference

No one goes broke predicting bad news. By that standard, economics-info company RGE Monitor of New York should be with us for a long, long time to come.

RGE managing editor and lead analyst Christian Menegatti told reporters at a Dow Jones Indexes' annual Global Economic Outlook conference that RGE expects housing prices, by 2010, will have dropped 38% from their January 2006 peak. At minimum, they'll fall 15%. Unemployment will surge past 8% by midyear 2009, a year in which we'll see "technical deflation" to the tune of negative 2%--depending on how much prices fall; if they fall much, we'll have real deflation. In the last quarter of 2008, the economy has contracted 6%--and GDP for 2009 will be negative 3.4 percent.

But Michael J. Woolfolk, known to The Bank of New York Mellon as Senior Currency Strategist, agrees with Menegatti--loosely, that we're all gonna die--but his examples are slightly different. In 2009, Woolfolk expects to see $20- to $30-a-barrel oil and parity between the Euro and the dollar. But he also says that federal reserve chief Ben Bernanke has adequate tools to handle the money supply. Among those tools, he believes, is a hike in interest rates this spring.

Thank goodness that the third speaker was Richard Yamarone, Nostradamus of the financial press, as moderator John Prestbo, executive director of Dow Jones Indexes, put it. However, Yamarone, executive director of economic research at Argus Research Co., offers only a dim glow of hope. He believes that if this recession were going to bring Apocalypse, it would have happened last year.

"It's amazing how the dollar hasn't collapsed," Yamarone says. "It shows how resilient we are."

That's why he says he's "a candle in a hurricane"--an optimist. The economy won't decline by more about 1.3% this year. The worst is over. Commercial paper is cheap.

He also expects this recession to spell the "ultimate death" of manufacturing in this country. America is the land of innovation and ideas. Already 55% of our economic output is goods and services. As for Detroit, once federal life support is gone, it will die forever.

While Woolfolk expects oil prices to fall steeply, Yamarone "wouldn't be surprised" if oil went off a cliff and landed at $10 a barrel this year. Saudi Arabia wants it that way, he says. The Saudis really call the shots at OPEC, and weak prices will demolish the competition, notably Russia and Venezuela, which are in pain already from weakening oil prices.

What won't weaken, though, are prices for goods and services within the United States--CEOs he's talked to recently have no intention of letting prices drop. The "Fab Five" indicators of consumer spending "all surged in November." (The five indicators re gambling, jewelry and watches, perfume and cosmetics, dining out, and women's dresses.)

Wages will stay high too. There's a minimum wage hike coming this July.

That is, a wage, like punditry and prognostication, will be nice work if you can get it.