This week's prediction roundup
A random sample of what people learned when consulting their inner oracles.
Those with rose-colored crystal balls
The Conference Board's Leading Economics Indicator (LEI) index turned up again: "The Conference Board LEI for the U.S. rose again in July, its fourth consecutive increase. The six-month change in the index has risen to 3.0 percent (a 6.2 percent annual rate) in the period through July, up substantially from -2.8 percent (a -5.4 percent annual rate) for the previous six months, and the strengths among the leading indicators have grown more widespread in recent months. The interest rate spread, initial unemployment claims and the average workweek made large positive contributions to the index this month, more than offsetting the negative contributions from consumer expectations, real money supply, and building permits."
Peter Linneman thinks single-family has bottomed: "The next two years are going to see a lot of asset price appreciation, particularly related to real estate. You're going to see better economic performance than people are foreseeing. If you look at past recessions, that's always turned out to be the case. The real estate industry [is] probably going to have a great four years for public companies, including companies that aren't ... [yet] public."
Brian Wesbury and Robert Stein say the market is not on a "sugar high" (a term used these days by Pimco's El-Erian: "Easy monetary policy must show up somewhere. While we do not always know where it will show up, in the next year or two a shrinking trade deficit, a turnaround in home building and a revival in business investment and consumption will all help economic growth continue... Our stock market model suggests fair value is substantially above current levels, even if interest rates rise as we are forecasting over the next few years."
Those with thorn-colored crystal balls
While housing has improved, Robert Shiller thinks the economy is a long way from recovering, though he allowed for the possibility of another housing bubble: "The low interest rates, the affordability is leaning that way and the ratios are back down. I get glimmers of excitement among some people, but we still have a high inventory of unsold homes, and we still have a lot of weariness because of the recent experience.... It's clearly not over yet. It's not obvious that people are really ready to spend again. That may take years to rekindle that normalcy."
Calculated Risk has some cool graphs that show how the country will age and medical spending will rise.
Courtesy of Zero Hedge, Janet Tavakoli has gone 100% cash: "Many more banks are in trouble, a chunk of housing activity is due to foreclosures/short sales/resales (the $8,000 housing incentive often went for down payments from people who couldn’t scare up one of their own), credit card problems are on the rise, one-quarter to one-third of all mortgages in the U.S. are underwater, the mortgage 'modification' program is a failure with only around 200,000 done so far—half of which are already failing (the same fraudsters who got us in this mess are modifying mortgages), 3,000,000 mortgages are in serious default (90 days or more past due), the unemployment picture is grim, the cash-for-clunkers fake auto stimulus is a non-green short-term artificial pump-up, profits seem due to inventory management and cost cutting rather than demand, and industrial production has plummeted (other than military production which is up). More TARP money will be needed for many smaller banks that are in trouble due to current and coming loan losses. The international picture is mixed, but I’ve even liquidated those positions."
Rolfe Winkler says our banking system is putting us on the path of Japan: "With real estate prices likely to fall, and stay, 40 percent below the peak, borrowers have a big incentive to renege on their side of the bargain. This is how we become Japan. Emergency bailout facilities allow banks that otherwise would have failed under the weight of bad loans to hold those loans to maturity — pretending the bad ones will be paid off in full over time. In reality, many loans will default and banks will bleed capital for years. Take commercial real estate. As the Congressional Oversight Panel has reported, few CRE loans that were originated at the peak will qualify for refinancing when they mature. Banks can pretend they will, carrying the loans at values far above what will ever be paid back."
Elizabeth Warren laments that the toxic assets that brought down the economy are still on the books of the banks: "We have a real problem coming...."
Robert Brokamp is the senior advisor for The Motley Fool’s Rule Your Retirement service.