The Worst Is Yet to Come": If You're Not Petrified, You're Not Paying Attention

geoffky

The green shoots story took a bit of hit this week between data on April retail sales, weekly jobless claims and foreclosures. But the whole concept of the economy finding its footing was "preposterous" to begin with, says Howard Davidowitz, chairman of Davidowitz & Associates."We're in a complete mess and the consumer is smart enough to know it," says Davidowitz, whose firm does consulting for the retail industry. "If the consumer isn't petrified, he or she is a damn fool."
Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: "The worst is yet to come with consumers and banks," he says. "This country is going into a 10-year decline. Living standards will never be the same."
This outlook is based on the following main points:

• With the unemployment rate rising into double digits - and that's not counting the millions of "underemployed" Americans - consumers are hitting the breaks, which is having a huge impact, given consumer spending accounts for about 70% of economic activity.
• Rising unemployment and the $8 trillion negative wealth effect of housing mean more Americans will default on not just mortgages but student loans and auto loans and credit card debt.
• More consumer loan defaults will hit banks, which are also threatened by what Davidowitz calls a "depression" in commercial real estate, noting the recent bankruptcy of General Growth Properties and distressed sales by Developers Diversified and other REITs.

As for all the hullabaloo about the stress tests, he says they were a sham and part of a "con game to get private money to finance these institutions because [Treasury] can't get more money from Congress. It's the ‘greater fool' theory."
"We're now in Barack Obama's world where money goes into the most inefficient parts of the economy and we're bailing everyone out," says Daviowitz, who opposes bailouts for financials and automakers alike. "The bailout money is in the sewer and gone."

http://finance.yahoo.com/tech-ticker/article/248398/%22The-Worst-Is-Yet-to-Come%22-If-You%27re-Not-Petrified-You%27re-Not-Paying-Attention?

Snooze

Someone hide this before Dopester sees it !!!!!!!!!! :eek:

:shhh:

Rob

tomterm8

Oh. I thought it was about us. But it talks about stress tests...

StevieJ

This is Dopester in a past life Mighty impressive piece of forecasting, almost gothic in feel :eek:
Original thread from 2004 BTW. A good job we had Brownie with his finger on the pulse and the printing machine ready :j

http://forums.moneysavingexpert.com/showthread.html?p=21584235&highlight=#post21584235
"One day there will be an uncontained financial accident. Within hours credit facilities will be withdrawn, and there will be forced derivative position liquidations at organisations around the world. Modern derivatives will be the brokers’ loans of 1929, resulting in margin calls, liquidations, the evaporation of confidence, spectacular losses, a credit squeeze and financial chaos. The liquidations of assorted off-balance sheet positions will cause the realisation of big losses in many highly geared positions. This will in turn cause dramatic re-ratings of the creditworthiness of many borrowers.

*MF*

I'll pick up on one aspect - commercial property, from an article in today's FT.

Extracts:

Close to £43bn of loans to the commercial property sector are due for repayment this year, threatening default for property companies struggling to raise new money and piling further pressure on the UK’s banks to support corporate borrowers.

The scale of loans in default and in breach has already accelerated fast, according to the influential De Montfort University survey of the real estate banking sector, which will be launched next week.

There has been a sixfold increase in the value of loans in breach of banking agreements, worth an estimated £15bn, while the number of loans in default jumped 800 per cent to 3,230. This equates to about £6bn of loans when applied across the sector, according to the report’s authors.

The record level of outstanding debt shows how exposed the banking sector is to commercial real estate, which has seen values drop by almost half in the past two years.

Given average loan-to-value ratios of more than 80 per cent over most of the past decade, according to De Montfort, many banks now admit that loans made in the past few years could have all equity wiped out.

Full article here:

http://www.ft.com/cms/s/0/2f36bb44-40b6-11de-8f18-00144feabdc0.html?nclick_check=1

***************************

Anyone else ever think - how much of the problems, not just commercial property but across the board are "hiding - latent" in pension funds. Personally, I still think that is an area where the fan is still waiting to be hit.

Degenerate

*MF* wrote: »

Anyone else ever think - how much of the problems, not just commercial property but across the board are "hiding - latent" in pension funds. Personally, I still think that is an area where the fan is still waiting to be hit.

Pension funds have been a disaster waiting to happen for a long time. Final salary pensions are not and never were sustainable over the long term. If anyone else offered you a magic investment scheme with no risk and a guaranteed return, wouldn't you smell a rat? They're basically giant Ponzi schemes, and as people continue to retire and live longer, they are bound to unravel.

amcluesent

A damned good war is needed. That, or Soylent Green is introduced in the Tesco Value range.

mbga9pgf

amcluesent wrote: »

A damned good war is needed. That, or Soylent Green is introduced in the Tesco Value range.

Well, if you dont know what Option ARM is, you will do by next summer.

You will ask "What the hell were they thinking"?

adr0ck

quick ruuuuun toooo thhhheeee hiiiiiilllllllllllllllllllllllllllllllllllllllllllssssssssssss

run for your liiiiffffffffeeeeeeeeeeee

purch

"This country is going into a 10-year decline. Living standards will never be the same."

I was under the impression that everyone realised that already :eek:

Dunno what there is to be Petrified about

Change is good :T

wheresmydoshat

i'm slowly stocking up on baked beans