"We're DOOMED!!"
Posted on 12/10/2007 4:50:28 PM PST by bruinbirdman
Morgan Stanley has issued a full recession alert for the US economy, warning of a sharp slowdown in business investment and a "perfect storm" for consumers as the housing slump spreads.
In a report "Recession Coming" released today, the bank's US team said the credit crunch had started to inflict serious damage on US companies.
"Slipping sales and tightening credit are pushing companies into liquidation mode, especially in motor vehicles," it said.
"Three-month dollar Libor spreads have jumped by 60 to 80 basis points over the last month. High yield spreads have widened even more significantly. The absolute cost of borrowing is higher than in June."
"As delinquencies and defaults soar, lenders are tightening credit for commercial, credit card and auto lending, as well as for all mortgage borrowers," said the report, written by the bank's chief US economist Dick Berner. He said the foreclosure rate on residential mortgages had reached a 19-year high of 5.59pc in the third quarter while the glut of unsold properties would lead to a 40pc crash in housing construction.
"We think overall housing starts will run below one million units in each of the next two years -- a level not seen in the history of the modern data since 1959," he said.
Although the US job market has apparently held up well, an average monthly fall of 138,000 in the number of self-employed workers over the last quarter suggests it may now be buckling. "Consumers face what could be a perfect storm," said Mr Berner.
The partial freeze on subprime mortgage rates announced last week by US treasury secretary Hank Paulson may help cushion the blow for some banks, but it could equally backfire by adding a "risk premium" that drives even more lenders out of the mortgage market.
Like Goldman Sachs, and Lehman Brothers, the bank no longer believes Asia and Europe will come to the rescue as America slows.
It has slashed its 2008 growth forecast for Japan from 1.9pc to 0.9pc, and warned that credit stress will weigh heavily on the eurozone.
Mr Berner said US demand is likely to contract by 1pc each quarter for the first nine months of 2008, but the picture could be far worse if the Federal Reserve fails to slash rates fast enough. It is betting on a quarter point cut this week, with three more cuts by the middle of next year. "We expect the Fed to insure against the worst outcome," he said.
Morgan Stanley is the first major Wall Street bank to warn that it may now be too late to stop a recession, though most have shifted to an ultra-cautious stance in recent weeks.
The bank at first treated the August crunch as a "mid-cycle correction", much like the financial storm after Russia's default in 1998. But the collapse of the US commercial paper market has now continued for seventeen weeks, suggesting a "fundamental deleveraging of the banking system."
Mr Berner -- known at Morgan Stanley as the "resident bull" -- is one of the most closely watched analysts on Wall Street. While he began to turn bearish last April as the credit markets turned nasty, the latest report is written in tones that may is rattle the fast-diminishing band of optimists.
"We're DOOMED!!"
Didn’t they issue a similar alert a couple years back? Maybe a year before the 2006 election?
they probably contributed.....usually deriviatives greed or this time.....the subprime markets
As soon as everyone is convinced we are going to die, things will start to get better. We have a ways to go yet.
...and yet another “expert” predicts a recession. “Experts” have been predicting a recession, for what, the past 6 years now...
We are at full employment, with record productivity and low inflation. The trade balance is improving each quarter, particularily in big-ticket items. The stock market continues upward (on long term trends) and the Christmas season is off to a strong start. Anyone with good credit can still find loans, if needed, quite easily, and at reasonable rates.
I wonder if Morgan Stanley predicted the dot-com bust of 1999?
Our recessions are equal to boom times in Europe and other places.
Sounds like someone is begging for a 1/2 point cut before the fed meeting tomorrow.
The EU loves this crap. Of course, they always predict that they will trounce the US growth rates, and then have to eat their words later. Has anyone other than me noticed that it seems to be the EU banks that have taken the biggest hit on the subprime fiasco?
It takes two negative growth quarters to make a recession. That would mean at least the middle of the third quarter 2008 before one could be official (1st and 2nd quarter '08).
If one quarter is negative and the next is not, no recession. Japan has been pullling off that stunt for a decade with no growth. Just no official recession.
Hmmmmmm. How to make a buck off this sentiment?
yitbos
I was talking to a loan buddy of mine and he said that in 2008 borrowers will actually have to put money down on new loans. Oh the horror.
Mr. Berner has obviously not looked at my region (eastern Maryland) where the demand for new housing is so overwhelming several towns are forecast to grow by 200-300% or more over the next few years.
You could always do this: DXD
If the rate is cut only a 1/4 point tomorrow, the dollar might stay higher and oil lower for a few days. If foreign investors see a likely recession ahead, weeks from now, the dollar could fall and oil rise more than that for a longer period of time.
Cut a 1/4 point, and live for today. Cut a 1/2 to adjust the dollar internationally, and live for tomorrow. January and February, as usual, are looming. Those are the months that our powers-that-be stop hiring to go south on vacations.
Ahhh...the hippie generation will go out to leave us with an economic implosion and a world war of world wars.
Let’s Live for Today
The Grass Roots
When I think of all the worries people seem to find
And how they’re in a hurry to complicate their mind
By chasing after money and dreams that can’t come true
I’m glad that we are different, we’ve better things to do
May others plan their future, I’m busy lovin’ you
1-2-3-4
Sha-la-la-la-la-la, live for today
Sha-la-la-la-la-la, live for today
And don’t worry ‘bout tomorrow, hey, hey, hey
Sha-la-la-la-la-la, live for today
Live for today
We were never meant to worry the way that people do
And I don’t need to hurry as long as I’m with you
We’ll take it nice and easy and use my simple plan
You’ll be my lovin’ woman, I’ll be your lovin’ man
We’ll take the most from living, have pleasure while we can
Baby, I need to feel you inside of me
I got to feel you deep inside of me
Baby please come close to me
I got to have you now, please, please, please
Gimme some-a lovin’, gimme some-a lovin’
Gotta gimme some-a lovin’, gimme some-a lovin’
Baby gimme some-a lovin’
Gimme some-a lovin, I need all your lovin’
Gimme some-a lovin, I need all your lovin’
Give me some love, now
I need all your lovin’
Meanwhile, exports soar. But that doesn’t sell as well as bad news.
Hey, they’ve accurately predicted the last 3 recessions all 17 times...
Has the United States had two consecutive quarters of declining growth?
No? Then, no recession.
About time for me to play hardball with my lender (regarding a fairly miniscule loan). Gotta get me some better Ts and Cs. I know this lender is hurting - they issued a profit warning. They’d hate to lose me as a customer. With my credit score and other metrics, I am in the top percentile of potential customers. Time for hardball, baby!
Thank you, Nancy Pelosi!
Vanity plate owned by newpickuptowingboatlivinginhousehecantreallyaffordguy:
LV42DAY
Funny thing, I never see him around my hood any more.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.