Is the world heading into recession?

**GooMaiRoo** · 16-01-2008, 12:43 PM

Originally Posted by Whiteshiva

Define "resession".

I think you were making light of a misspelled word, but you got me thinking. In macroeconomics, recession generally defined as a decline in a country's gross domestic product (GDP) for two or more consecutive quarters. There are several problems with this definition. First of all, governments play with statistics. For example, in the USA hedonic indexing will add the increased processing power of purchased tech products to the GDP so that every dollar spent can sometimes count as a two or more dollar increase in GDP. There is also the problem of reification, treating an abstract concept like a national economy as being more real than it is. For example, if the Sultan of Brunei had a good year with his family businesses, the GDP of Brunei would increase even if the large majority of its households got poorer. In my opinion, a recession is when the majority of households in a country experience a loss in their standard of living over an extended period of time. From what I've seen in the USA, the majority of families are still hanging on to their accustomed lifestyles, but they are doing it with credit cards and creative financing of their homes. That house of cards is finally starting to come down and one-by-one these families are falling into financial distress. This trend is accelerating at a frightening pace with increased foreclosures and bankruptcies. It seems inevitable that the USA will be in recession soon (or worse) because living on credit is unsustainable if there's no increased productive capacity on the horizon to dig out of such debt. Regarding the US economy, an old saying keeps spinning though my mind: panic before everyone else does.

**Whiteshiva** · 16-01-2008, 01:39 PM

Originally Posted by floorpotato

Originally Posted by Whiteshiva

Define "resession".

I think you were making light of a misspelled word, but you got me thinking. In macroeconomics, recession generally defined as a decline in a country's gross domestic product (GDP) for two or more consecutive quarters. There are several problems with this definition. First of all, governments play with statistics. For example, in the USA hedonic indexing will add the increased processing power of purchased tech products to the GDP so that every dollar spent can sometimes count as a two or more dollar increase in GDP. There is also the problem of reification, treating an abstract concept like a national economy as being more real than it is. For example, if the Sultan of Brunei had a good year with his family businesses, the GDP of Brunei would increase even if the large majority of its households got poorer. In my opinion, a recession is when the majority of households in a country experience a loss in their standard of living over an extended period of time. From what I've seen in the USA, the majority of families are still hanging on to their accustomed lifestyles, but they are doing it with credit cards and creative financing of their homes. That house of cards is finally starting to come down and one-by-one these families are falling into financial distress. This trend is accelerating at a frightening pace with increased foreclosures and bankruptcies. It seems inevitable that the USA will be in recession soon (or worse) because living on credit is unsustainable if there's no increased productive capacity on the horizon to dig out of such debt. Regarding the US economy, an old saying keeps spinning though my mind: panic before everyone else does.

Thanks for a great post FP - and the misspelling was actually my fault (!)

Definitions of recession vary, but you are right - the most common definition I have come across is, as you state, when you have two consecutive quarters or more. Which then means, by definitions, that you will not know for sure if you are in a recession until more than half a year or more has passed. And it will take equally long to determine if you are out of a recession.

The US mortgage crisis is serious, but hardly enough to cause a world-wide recession (I am finally learning how to spell it!). With regards to the mortgage-backed derivatives market - strictly speaking, the net losses and gains should cancel out - so again it should not have a major impact. What is a worry is the uncertainty as to where the losses will be, and since all parties fear that they (or someone owing them money) will be taking the loss, the market loses confidence.

Hence, we may already be in a recession without knowing it (or being able to prove it), so arguing about it is kinda pointless. Also, when/if the figures show two executive quarters of GDP drop, the recession may already be over.

It is like worrying about yesterdays weather, IMHO.

**Driventowin** · 16-01-2008, 01:54 PM

Originally Posted by keda

In my next life I'd like to be a financial institution, to either make good decisions and generate lots of loverly profit to keep my stakeholders happy, or make the wrong decisions and get bailed out with public money.

Yeah funny how that works huh? Let you or I try to find some credit to dig us out if we miss a single fcuking payment and pay massive interest on top of it..It'll never happen...

Buuuuutttt.... They lose billions and people with money come banging down the doors.. What hypocricy, if they did that for the average Joe in the first place when this all broke out than likely none of it would even exist now..

**Butterfly** · 16-01-2008, 03:13 PM

Very good analysis Floor, and agree entirely, it's not because the rich get richer, that the economy is doing better, and by that definition alone we could say that we have been in a recession for the last 25 years (except for the dot boom era when "real" wages, not nominal, started to increase again the first time in decades)

**Hootad Binky** · 16-01-2008, 04:03 PM

Originally Posted by Butterfly

well the market was brutal yesterday, down almost 300 points

THB to USD is 33 now,

everyone is waiting for the next bad news or someone to blink and draw the guns,

Add to that oil:

World leaders queasy over record oil prices

LONDON, Jan 15 (Reuters) - World leaders are becoming increasingly uncomfortable with oil near $100, saying prices at these heights pose a threat to their already vulnerable economies.

Many analysts say oil prices are likely to stay near current levels, which when adjusted for inflation sparked a deep recession in the 1970s.

In Riyadh, U.S. President George W. Bush complained on Tuesday about "very high" oil prices and promised to raise his concerns with his Saudi host King Abdullah.

French President Nicolas Sarkozy on Monday said the real price of oil should be around $70 a barrel, blaming speculators for the extra $30.

Even Venezuelan President Hugo Chavez, who is normally a price hawk, said he hoped the price of crude oil wouldn't go beyond $100 a barrel but admitted it probably would.

Leaders are worried that high oil prices will push the world economy, already shaken by a credit crisis and a battered dollar, into a recession.

Feed Article | Business |

...and inflation:

Inflation is becoming a worldwide phenomenon, and it is getting worse as the US and European economies slip in recession.

Thus far, the developed world is not thinking with an inflationary psychology, but such a psychology is gripping the developing world.

As Hamlet said "...there is nothing either good or bad, but thinking makes it so." With inflation this is especially the case. Inflation can be moderated or exacerbated by the psychology of consumers. An example of inflationary psychology is that when prices are expected to rise, people buy and hoard. They tend to buy more raw goods, finished goods as well as fixed assets like gold and other commodities, and if interest rates and prices are low they buy real estate.

SOME RECENT NEWS ITEMS

* Russian inflation was 11.9% in 2007.
* Ukraine's inflation was the highest in seven years.
* China's inflation is accelerating, causing some political unrest due to higher gasoline diesel and
food prices.
* The Chinese government institutes price freezes on key goods including fertilizer, food energy
and etc.
* Inflation in Latin America ranged from 3.3% to the high teens in 2007.
* The Chinese agree to let their currency rise faster than in 2007 to combat inflation.

FEAR AND LOATHING IN GLOBAL MARKETS

People fear that the Fed will not lower rates fast enough due to the fact that the Fed knows it will eventually have to raise rates in order to slow down the rise in commodity prices. The Fed may be slow in lowering rates, but they will undoubtedly be slow raising rates later when they try to slow price inflation. This should give inflation plenty of time to take root.

Recession: Stocks, not commodities, to be hurt

**chinthee** · 16-01-2008, 04:07 PM

Asian Stock Markets Plunge

HONG KONG (AP) -- Asian stock markets plunged Wednesday on growing speculation the U.S. economy -- a vital export market -- is sliding into a recession that could lead to a global slowdown.

Investors dumped stocks after an overnight sell-off in U.S. markets and on news that Citigroup Inc. had lost nearly $10 billion in the fourth quarter as it wrote down bad mortgage assets. Weak U.S. retail sales figures also added to the gloom, sending the Dow Jones industrial average down 277 points, or 2.2 percent.

Asian Stock Markets Plunge: Financial News - Yahoo! Finance

**Spin** · 16-01-2008, 04:07 PM

Originally Posted by Whiteshiva

The US mortgage crisis is serious, but hardly enough to cause a world-wide recession

I'm not so sure about that, the worlds markets reacted badly today to the USA Christmas retail figures. Hong Kong Hang Seng dropped nearly 1400 points or a little over 5%. That Index has now dropped 23% since Oct 30 2007, officialy defining a bear market.
I've seen enough evidence to suppport a world wide recession from the sub-prime mess. I'm getting out out this market, other than shorting the obvious like US real estate and banks.

**John** · 16-01-2008, 05:33 PM

The made recession? If the media report every day that the whole world will go under people will believe it and act accordingly. They will get careful and spend less. The media will report about a higher risk of a recession. The people will get more careful and... What was the evidence so far for a recession. Nonfarm payrolls going from 44 (September), 159 (October), 115 (November) to 18 (December). To me this is not a recession - this is a reporting scandal what nobody is talking about. Want to take the GDP in 2007? Q2 3,8 Q3 4,9. Not many countries have such a GDP... We might get a recession - if this talking about doom in the media will not stop. But I am afraid they do this on purpose...and their friends might be well positioned on the financial markets for the turnaround. At least this is my feeling about what is going on.

**AntRobertson** · 16-01-2008, 06:25 PM

Originally Posted by John

The made recession? If the media report every day that the whole world will go under people will believe it and act accordingly. They will get careful and spend less. The media will report about a higher risk of a recession. The people will get more careful and...

I believe what's known in the financial biz as the: 'Chicken Little Theory'

**Ban Saray** · 16-01-2008, 07:34 PM

Citibank/Citicorp annual loss of 11 million or billion announced today??? Half of which they attributed to the sub-prime mess.

**GooMaiRoo** · 16-01-2008, 07:50 PM

If the world is headed toward recession, is there anywhere to hide financially, short of burying gold in your back yard? It seems like Pacific Asia and Western Europe will fall with the USA. Some of the smaller stock markets like Russia and Indonesia seem to have lives of their own. I'm no economist and would like to know (without being too intrusive) how forum members with financial assets are preparing to survive a worldwide recession. Personally, I've been shifting my modest assets into precious metals mining stocks and Swiss Franc, Japanese Yen and Swedish Krone currency funds. Not too creative, but I've been heading for the exits for over a year.

**Texpat** · 16-01-2008, 08:13 PM

Buy and hold. Diversify. Hold your age in bonds (roughly)

Markets always go up and down. If you're a smart investor, you won't have to change much.

**Bluecat** · 16-01-2008, 08:17 PM

Originally Posted by Texpat

Hold your age in bonds (roughly)

You mean in %tage I guess.
Quite a good advice actually.
Especially when you get over 60...

**Butterfly** · 16-01-2008, 09:10 PM

Originally Posted by WSJ

Consumer prices increased 0.3% in December, as prices excluding food and energy jumped 0.2%, indicating continuing inflation pressures. Still, the inflation data isn't likely to stop a Fed rate cut. 8:59 a.m.

Fuck me !!! 0.1% monthly difference when oil went 100% in 1 year ? you got to be joking, those stats are a joke, are they giving too much weight on consumer electronics to compute that kind of garbage ?

Originally Posted by WSJ

J.P. Morgan Takes Subprime Hit
J.P. Morgan Chase's net dropped 34% in the fourth quarter, as the bank reported $1.3 billion in subprime-related write-downs and credit-loss provisions increased. CEO Jamie Dimon said the bank remains "extremely cautious as we enter 2008." 8:45 a.m

**Hootad Binky** · 18-01-2008, 03:38 AM

STAGFLATION: Helllooo 1970's!!!

‘Stagflation’ fear grows

Stocks plunge on economic woes

Wednesday, January 16, 2008 - Updated 1d 15h ago

Stocks took another beating yesterday after a wave of bad economic news - including higher-than-expected inflation, brutal results for Citigroup and weak retail sales - heightened fears that a possible “stagflation” recession lies ahead.

The day started off shaky, with the Department of Labor announcing that wholesale inflation soared last year by 6.3 percent, the largest amount in 26 years.

Citigroup then added to worries the economy is headed for a recession when it revealed it would take an $18.1 billion mortgage-related write-down and lay off about 4,200 workers due to disappointing results.

Combined with soft retail sales reports, investors reacted as if a recession was almost a foregone conclusion. The Dow tumbled 277.04, or 2.17 percent, to 12,501.11.

Democratic leaders in the U.S. House began laying the groundwork for an economic stimulus plan of about $100 billion that likely will include tax rebates to help stave off a possible recession.

By early April Congress could enact a plan designed to boost spending by consumers, who account for about two-thirds of the U.S. economy, said Rep. Barney Frank of Massachusetts, following a meeting of senior Democrats with House Speaker Nancy Pelosi of California.

The specter of stagflation - or stagnant economic growth combined with inflation - is a growing concern among economists.

The last time the U.S. economy went through a severe bout of stagflation was in the late 1970s and early 1980s.

Steve Andrews, vice president of capital markets at Sovereign Bank in Boston, said he’s not convinced yet that stagflation will occur. But he said if it does, it will “really knock the economy on its heels.”

He said he believes the Federal Reserve will first move aggressively to stimulate the economy - and then deal with inflationery pressures later.

‘Stagflation’ fear grows - BostonHerald.com

**Hootad Binky** · 18-01-2008, 03:42 AM

Erm... make that the 1930's:

Citigroup's bad news: Banks' worst period since Great Depression?

Posted Jan 15th 2008

Bloomberg News reports a blizzard of bad news about Citigroup (NYSE: C). Its management team does not know what's going on with its Collateralized Debt Obligation (CDO) portfolio, and loan losses on the consumer side of its business are climbing fast.

I am most concerned about Citi's inability to quantify the CDO damage. According to DealBreaker, the conference call did not go well, with Citi's CFO "having to admit many times that he either wouldn't comment or didn't know the answer to detailed questions about credit market exposure. Merrill's Gary Moskowitz asked about what the original par value of the CDO portfolio. Crittenden said he didn't know. How about specifics on modeling versus market tests? Nope, just more hand-waving!"

Another analyst, Jon Fisher, who helps manage $22 billion at Minneapolis-based Fifth Third Asset Management said, "There are probably issues on their balance sheet that the management team, who's only really been running the company for about a month, doesn't even know about."

As I mentioned yesterday on CNBC, problems are starting to crop up in consumer lending. Today, Citi announced it was bitten by this bug. It set aside $5.2 billion to cover lending losses, including credit-card and auto loans, where delinquencies increased. And if CIBC analyst Meredith Whitney is right, this problem will get worse -- she estimated additional charges or loan losses at Citi of between $5 billion and $10 billion.

Bloomberg thinks this fourth quarter may be the worst earnings period for the financial industry since the Great Depression. With the combined deterioration of worthless securities -- the CDOs -- a deteriorating consumer lending portfolio, and risks in corporate bonds, I wonder if it could end up being worse.

Citigroup's bad news: Banks' worst period since Great Depression? - BloggingStocks

**Muadib** · 18-01-2008, 05:45 AM

Originally Posted by watterinja

Is the world heading into recession?

No shit?!??! A deaf, blind, mute can see this coming...

Putting all my $$$ in gold...

**Butterfly** · 18-01-2008, 08:45 AM

More good news this morning...

The Dow industrials plunged 306.95 points, or 2.5%, to 12159.21 following more write-downs by banks and signs bond insurers' credit ratings may be slashed. All 30 Dow components dropped. The Russell 2000 index of small stocks is 20% below its recent peak, the traditional threshold of a bear market. 5:46 p.m.

Housing Starts Hit 16-Year Low
Housing starts plunged 14.2% last month to their slowest pace in 16 years amid a rise in delinquent construction loans. Builders have been scaling back for awhile, but some said the end of 2007 was the bleakest period yet in the slump, forcing sharp cutbacks. 8:23 p.m.

**keda** · 18-01-2008, 08:48 AM

^^ may be a good idea but not all, never all

**chinthee** · 21-01-2008, 05:32 PM

By CARL FREIRE, Associated Press Writer 10 minutes ago

TOKYO - Asian stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.

India's benchmark Sensex stock index fell as much as 10.9 percent in afternoon trading, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent to 23,818.86, its biggest percentage drop since the Sept. 11, 2001, terror attacks.

Markets in South Korea, Australia, Singapore, Taiwan and the Philippines also sank.
"People are certainly nervous about a potential recession in the U.S. spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.

Asia stocks sink amid US recession fears - Yahoo! News

**Mid** · 22-01-2008, 01:42 AM

thunderlounge.com

**Spin** · 22-01-2008, 01:53 AM

Dow futures right now are trading 548 points down at 11500 a 4.5% drop.
S&P500 is down 32 to 1292 a drop of 2.34%.

It doesnt look good, maybe we'll see a crash this week?

Theres certainly gonna be some heavy selling when the US market opens tomorrow after todays holiday.

**Thormaturge** · 22-01-2008, 05:10 AM

Funny thing all of this but I did post on Ajarn about a year ago explaining why there would be a collapse in house prices. Nobody believed it, mostly because they didn't want to.

Why is this all happening?

Too much wealth in the hands of people who are not generating it.
In the west rising house prices and asset values generally have created a large number of wealthy retirees who do not need to work, often from age 50.

With the reduced birthrates we have less people working to provide the goods and services those lucky retirees want.

The macro economy requires more workers and the way this is achieved is through a reduction in the perceived wealth of the retirees so that some are forced back to work. When enough people have been forced to postpone retirement, or come back from early retirement , asset values will level out. There will be a time lag, however, so asset values will fall further than necessary, and then appear to rise fast again. There will be money to be made from another short bull market if you time it early enough.

It's called a market economy. Thatcherites will love it.

My old apartment in Docklands will now be worth less than what I sold it for. Sad really as the buyers wanted it for an investment property.

**chinthee** · 22-01-2008, 07:56 AM

Across America, there are growing signs that consumers are worried about the weakening economy, which could slip into recession. While some say Americans are not famed for their belt-tightening tactics, there are signs that people are trying to improve their personal balance sheets so they're ready for tougher times.

Mark Zandi, chief economist at Moody's Economy.com, said the economic signals "are flashing yellow," suggesting that consumers need to take care.

Jobs are getting harder to find, while the crisis in the mortgage industry has made it more difficult for homeowners to borrow against their houses, closing down what has been a major source of extra cash in recent years. Consumers' budgets have been squeezed by rising food and fuel prices.

Consumers retrench as economy weakens - Yahoo! News

**Hootad Binky** · 22-01-2008, 09:31 AM

Uh-oh...

Panic sparks plunge in global markets

Global equities plunged on Monday as investor concerns over the economic outlook and financial market turbulence snowballed into a sweeping sell-off.

Tumbling Asian shares - which continued to fall early on Tuesday - led European stock markets into their biggest one-day fall since 9/11 as the prospect of a US recession and further fall-out from credit market turmoil prompted near panic among investors, who rushed to the safety of government bonds.

About $490bn was wiped off the market value of Europe's FTSE Eurofirst 300 index and $148bn from the FTSE 100 index in London, which suffered its biggest points slide since it was formed in 1983. Germany's Xetra Dax slumped 7.2 per cent to 6,790.19 and France's CAC-40 fell 6.8 per cent to 4,744.45, its worst one-day percentage point fall since September 11 2001.

"September 11 aside, I can't remember a day like this. It was carnage," said Jimmy Yates, a dealer at CMC Markets in London. "It's been a really good four or five years but it looks like the end of the bull run."

US markets were closed for the Martin Luther King Jr Day holiday, but the futures market suggested the S&P 500 index would fall more than 4 per cent when it resumes trading on Tuesday.

Traders said that the prospect of a sudden decline in US stocks could prompt the Federal Reserve to cut interest rates before its scheduled meeting on January 30. The Fed said it did not comment on speculation.

"What we are seeing now has the hallmarks of both a financial shock and the beginning of a [US] recession, or at least of growth grinding to a halt," said Credit Suisse's fixed income strategy team in a research note.

Despite the dramatic falls, many believe there may be worse to come. "We believe the trough is not reached yet," said Teun Draaisma, European equity strategist at Morgan Stanley.

Fears of fresh writedowns from financial institutions and downgrades of bond insurers - so-called monolines - are unnerving markets. The cost of insuring the debt of 125 investment-grade companies in the iTraxx Europe index leapt 10 per cent.

"The news that some monoline insurers have seen their ratings lowered, potentially with more to come, has opened up a very nasty scenario," said Andrew Milligan, head of global strategy at Standard Life Investments. "Financials may very well face another hefty round of write-offs, which would reduce their future potential to extend credit to businesses, thus causing a vicious spiral to develop."

In Asia, Indian shares on Monday ended 7.4 per cent lower; Hong Kong closed down 5.5 per cent; and Japan's Nikkei average slid nearly 4 per cent, falling a further 4 per cent in early trading on Tuesday while South Korea's Kospi index lost a further 3.9 per cent.

"In the past few weeks, the froth had been knocked off the markets but we haven't seen real pain - until today," said Ian Harnett, managing director of Absolute Strategy Research.

Panic sparks plunge in global markets - Financial Times - MSNBC.com

And today was a public holiday in the U.S.

Wonder what's gonna happen when NYSE opens tomorrow?

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