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Thread: Goldman Sachs, Merrill Lynch Predict 2008 Recession

  1. #1

    Goldman Sachs, Merrill Lynch Predict 2008 Recession

    This isn't good...

    [QUOTE]
    Goldman Sachs sees recession in 2008
    Wed Jan 9, 2008 5:04pm .

    NEW YORK (Reuters) - Goldman Sachs on Wednesday said it expects the U.S. economy to drop into recession this year, prompting the Federal Reserve to slash benchmark lending rates to 2.5 percent by the third quarter.

    In a note to clients, Goldman said real gross domestic product would contract by 1 percent on an annualized basis in both the second and third quarters. For all of 2008, the investment bank said GDP would rise by 0.8 percent.

    The unemployment rate will rise to 6.5 percent in 2009 from the current 5 percent, it said.

    The weakening economy will force the Fed to lower policy rates by an additional 1.75 percentage points from the current 4.25 percent. Starting in September, the Fed cut rates at the last three meetings of the Federal Open Market Committee, reducing the target rate on loans between banks by 1 percentage point from 5.25 percent.

    Goldman strongly advises fund managers to overweight health care, consumer staples, energy and utilities. They are significantly underweight consumer discretionary, financials, industrials, materials and information technology.

    The three most significant changes to their sector recommendations are the reduction in the financial sector weighting by 300 basis points to 14 percent, the information technology weighting by 400 basis points to 15 percent, and the increase in their health care weighting by 300 basis points to 17 percent, the firm said.

    Their reduced allocation to financials reflects weak fundamentals and their declining weight in the S&P 500. The reduction in information technology reflects that the group has been the second-worst performing sector in both the six months leading up to a recession and during the first phase of a recession, Goldman said.

    The health care weighting change reflects strong performance of the group during the six months leading up to and during the first phase of a recession in addition to an attractive valuation, Goldman said.

    On Monday, Merrill Lynch economist David Rosenberg said the jump in U.S. unemployment in December confirmed that the economy was entering a recession.[/QUOTE]

  2. #2
    Just in time for the Democrats to come in and raise taxes

  3. #3
    [QUOTE=MnJetFan;2310246]Just in time for the Democrats to come in and raise taxes[/QUOTE]

    Yeah, things have been going so great with the Republicans in power, too bad they can't continue.

  4. #4
    Honestly, I donít really have an opinion on whether or not we are headed for a recession. I havenít been convinced, either way. But I read this article the other day that says we are not. The author explains that of the five economic indicators that determine a recession, not one has shown any signs of recession. Thatís not to say they will remain that way, but it is encouraging.
    [URL="http://www.philly.com/inquirer/opinion/20080102_Is_recession_looming_on_horizon_in_2008_.html"]http://www.philly.com/inquirer/opinion/20080102_Is_recession_looming_on_horizon_in_2008_.html[/URL]
    [QUOTE]Is recession looming on horizon in 2008?

    Mark J. Perry
    is a professor of finance and economics at the University of Michigan in Flint

    As the U.S. economy enters its seventh year of expansion, many are predicting a recession in 2008.

    Don't believe it. The U.S. economy is strong, healthy and stable, and it will continue expanding well into the new year.

    [B]The National Bureau of Economic Research, the nation's leading authority on business cycles, closely watches five economic variables to determine when the economy officially goes into a recession. You might be surprised, but the bureau doesn't look at any of the economic variables that get all of the attention in the media, like the subprime crisis, the falling dollar, foreclosures, the stock market, and rising oil prices.

    The only variables that really matter for determining when a recession starts are payroll employment, production measured by real gross domestic product and industrial production, real personal income, and real sales activity.
    Despite all of the economic gloom and doom you've heard on the news, not one of these variables has started to show any signs of weakness. It's actually just the opposite: All five are showing continuing strength and vitality.[/B]

    For example, payroll employment is at a record level and has increased in each of the last 51 months, the longest continuous period of job growth in U.S. history. Industrial production has increased in each month since June 2003, and reached a nine-month high in November. Real GDP grew almost 5 percent in the third quarter of 2007, the strongest growth in four years, and we can expect growth of 2.5 percent during the fourth quarter.

    Record retail sales and consumer spending through November suggest that American consumers remain upbeat and optimistic, and real compensation growth for U.S. workers in the third quarter of 2007 was the highest in seven years. In other words, all of the key economic-recession indicators suggest a very healthy economy at year end, not an economy on the edge of falling into recession in 2008.

    There are some challenges ahead for the U.S. economy, but they will not be serious enough to cause a recession in 2008. The biggest threats are the subprime-mortgage crisis and rising home foreclosures, but the resilient U.S. economy can easily absorb that kind of shock.

    Remember the S&L crisis of the mid-1980s, which caused almost 1,500 banks to fail? Even that banking meltdown didn't cause a recession, and the economy and banking system are much stronger and more stable today. In fact, never in U.S. history has the banking system been more stable. Only three banks out of a total of 8,500 have failed during the last three years, an unparalleled record of banking stability.

    If the economy of the late 1980s could handle a major banking crisis without going into recession, the bigger, stronger Goldilocks economy of today can easily handle the subprime-mortgage crisis and a weak real estate market.

    Just the enormous size of the U.S. economy ($14 trillion), diversified across a large number of industries and an enormous geographical area, provides a high degree of economic stability and will insulate the economy against recessionary pressures. A $14 trillion economy can take a lot of shots and remain standing, and it will take more than a subprime-mortgage crisis and housing troubles to knock Goldilocks down.

    Even in the unlikely event of a 2008 recession, the U.S. economy will continue to survive and prosper. Make a New Year's resolution to give the U.S. economy a little more credit, appreciation and respect this year. Recession or not, it's still the greatest wealth-generating, prosperity-producing, job-creating economy in the history of the world.
    [/QUOTE]

  5. #5
    [QUOTE=Oakliusmaximus;2310289]Honestly, I donít really have an opinion on whether or not we are headed for a recession. I havenít been convinced, either way. But I read this article the other day that says we are not. The author explains that of the five economic indicators that determine a recession, not one has shown any signs of recession. Thatís not to say they will remain that way, but it is encouraging.
    [URL="http://www.philly.com/inquirer/opinion/20080102_Is_recession_looming_on_horizon_in_2008_.html"]http://www.philly.com/inquirer/opinion/20080102_Is_recession_looming_on_horizon_in_2008_.html[/URL][/QUOTE]

    The last unemployment report seems to directly contradict his thesis that not one of his five factors is negative.

    That said, the mortgage crisis is a new sort of financial clusterf#ck, so who knows how it turns out. I tend to think Goldman Sachs and Merrill Lynch are pretty good judges of this sort of thing, though.

  6. #6
    [QUOTE=nuu faaola;2310293]The last unemployment report seems to directly contradict his thesis that not one of his five factors is negative.

    That said, the mortgage crisis is a new sort of financial clusterf#ck, so who knows how it turns out. I tend to think Goldman Sachs and Merrill Lynch are pretty good judges of this sort of thing, though.[/QUOTE]
    Yeah I donít disagree (except for the unemployment report Ė I havenít seen anything about it so I donít have an opinion), Iím not sure how certain factors will eventually effect those indicators. And recessions are a natural part of an economic cycle which is why Iím not sure what will happen. I just think itís a reason to be optimistic for now, thatís all.

  7. #7
    [QUOTE=Oakliusmaximus;2310310]Yeah I donít disagree (except for the unemployment report Ė I havenít seen anything about it so I donít have an opinion), Iím not sure how certain factors will eventually effect those indicators. And recessions are a natural part of an economic cycle which is why Iím not sure what will happen. I just think itís a reason to be optimistic for now, thatís all.[/QUOTE]

    These things are cyclical, and not every recession is severe, so who knows? The last one (2001-2002) was pretty shallow and short.

    The only thing I know for sure is that the experts at Goldman and Merrill know more than I do.

  8. #8
    A recession will come - the question is when. People knew in 1997 that the tech sector was overvalued. It didn't bust until years later. Anyone who didn't think housing was overvalued from 2003 on wasn't paying attention. It just started to unravel this year. These things take time so don't start shorting the market now.

    Economists have predicted 9 of the past 5 recessions. They know a lot but no one knows when a recession is coming. Even Bernanke, who will undoubtedly unleash another reckless rate cut which will do more harm than good.

  9. #9
    [QUOTE=Big Blocker;2310255]Yeah, things have been going so great with the Republicans in power, too bad they can't continue.[/QUOTE]

    Yeah, because raising taxes is the answer right now.

  10. #10
    Jets Insider VIP
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    The unemployment problem is specific to a couple of industries. It is not across the entire economy right now so I'm not putting as much reliance on that number as I usually would. Right now, home building/construction and financial services (from mortgage lending to banking) are the 2 areas being hit by layoffs. If it spreads as the economy slows I'll be more concerned.

    My 2 cents - we'll have a relatively shallow and short recession. Shallow meaning only slightly negative GDP growth and short meaning 2 quarters, maybe 3 at the most. We'll see...

  11. #11
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    [QUOTE=BrooklynBound;2310472]Yeah, because raising taxes is the answer right now.[/QUOTE]

    Exactly.

    Raising taxes during an economic slowdown is like trying to put out a fire by pouring gasoline on it!

  12. #12
    In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.

    As long as the roots are not severed, all is well. And all will be well in the garden.

    There will be growth in the spring!

    [IMG]http://www.needlenose.com/i/swopa/SellersChance.jpg[/IMG]

  13. #13
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    [QUOTE=BrooklynBound;2310471]

    [B]Economists have predicted 9 of the past 5 recessions. [/B] They know a lot but no one knows when a recession is coming. Even Bernanke, who will undoubtedly unleash another reckless rate cut which will do more harm than good.[/QUOTE]

    huh?

  14. #14
    [QUOTE=sect112row36;2310915]huh?[/QUOTE]

    Itís a joke. It means people remember when economists are correct but not when theyíre incorrect. Also, you can find credible economists on both sides.

    Remember, the market can remain irrational longer than you can remain insolvent.

  15. #15
    [QUOTE=bitonti;2310819]In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.

    As long as the roots are not severed, all is well. And all will be well in the garden.

    There will be growth in the spring!

    [IMG]http://www.needlenose.com/i/swopa/SellersChance.jpg[/IMG][/QUOTE]

    The problem is, when the govít and the fed distort the market Ė they disrupt the natural business cycle. They created this mess by cutting rates too low and when the chickens come home to roost what do they do? Keep cutting. Awesome, guys. Awesome.

    I know a recession isnít politically favorable Ė but weíre going to have pain either now or later. Iíd rather not prolong it and just move on.

  16. #16
    [QUOTE=BrooklynBound;2310922]
    I know a recession isnít politically favorable Ė but weíre going to have pain either now or later. Iíd rather not prolong it and just move on.[/QUOTE]

    i agree, you can't have an endless summer

    for those who don't know the above quotes were from "being there" an amazing underrated film - watch it!

  17. #17
    Merrill Lynch should not even be mentioned in the same article with Golden Slacks. I can't wait to see the writedown they have for the 4th Q of '07 - $15 Billion. Ouch.

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