RGE’s Wednesday Note – The Rising Risk of Double-Dipping
Last week, Nouriel Roubini released an analysis exclusively for RGE clients. While maintaining his core projection of protracted U-shaped growth in the United States, Roubini argued that the risks of a double-dip recession in the United States are rising. The following content is excerpted from that analysis, the full version of which is still available just for clients on Roubini.com.
V, U and W
A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession.
This is not the conventional wisdom. Heated debate continues to rage in the United States on whether the economic recovery will be V-shaped (with a rapid return to robust growth above potential), U-shaped (slow anemic, sub-par, below trend growth for at least the next two years) or W-shaped (a double-dip recession). The V camp includes distinguished research groups and individuals such as Ed Hyman’s ISI, Larry Meyer’s Macroeconomic Advisors, the research group of JP Morgan, Michael Mussa and others. The U camp includes—among others—Roubini Global Economics, Goldman Sachs’ U.S. economic research group, PIMCO and Ken Rogoff. As early as August 2009, I worried in a Financial Times op-ed about the risk of a double-dip recession even if our RGE benchmark scenario characterizes the risk of a W as still a low probability event (20% probability) as opposed to a 60% probability for a U-shaped recovery. Others concerned about the double-dip risk include also David Rosenberg, Gary Shilling and John Makin.
Ed Hyman and I debated whether the recovery would be U or V-shaped on a February 22 conference call attended by over 2,200 listeners. Since that call, a slew of new U.S. macro data have come out. They have been almost uniformly poor, if not outright awful. Consumer confidence, based on the Michigan survey, has tanked. On the real estate front, new home sales are collapsing again, existing home sales are also falling sharply, and construction activity (both residential and commercial) is sharply down. Durable goods orders are down, initial claims for unemployment benefits remain stubbornly high (way above the 400K mark). Real disposable income for Q4 has been revised downward while real disposable income (before transfers) for January was negative again. The manufacturing ISM index—while still expanding being above 50—has now fallen a couple of notches and its production and new orders index levels are falling, too; and global PMIs suggest a loss of momentum in the global economic recovery. Real inventories look unchanged in Q1 relative to Q4; auto sales were at best mediocre; core CPI was falling and core PCE was close to 0%, suggesting anemic demand and economic weakness. Q4 GDP growth was revised upward to 5.9% but most of it (3.9%) was due to inventories; final sales grew at a 1.9% rate while consumption grew at a dismal 1.7% (down from 2.8% in Q3). Q3 growth has been revised from an initial 3.5% to 2.8% to 2.2%, with final sales growing only 1.7%. So, at the time of maximum policy stimulus (H2 of 2009), final sales were growing only at a pathetic 1.8% average rate.
The eurozone (EZ) debt crisis, which RGE discusses in depth in a major new paper, predisposes Europe to a rising double-dip risk, due to the wave of fiscal austerity sweeping the periphery of the EZ. Even if the EZ doesn’t enter a double dip, the growth of domestic demand there will be as or more constrained than in the United States. This, in turn, will be a drag on the potential for U.S. export growth. The U.S. dollar rally on risk aversion reflects this risk. The U.S. dollar is settling back down and the threat of a debt crisis is headed off by a stronger Greek fiscal adjustment and potential adjustment package. But fiscal spending cuts, confidence hits and the looming threat of either rising unemployment or falling wages in the public sector—on top of private sector retrenchment—will remain. A similar retrenchment may well lie ahead in the United Kingdom, given rising fiscal sustainability concerns and the threat of a sterling crisis. Europe then will have great difficulty being a source of demand for U.S. exports, and may even provide impetus to faltering global demand growth, contributing to the threat of a wider double dip across high-income countries.
All rights reserved, Roubini Global Economics, LLC. Opinions expressed on RGE EconoMonitors are those of individual analysts and may or may not express RGE’s own consensus view. RGE is not a certified investment advisory service and aims to create an intellectual framework for informed financial decisions by its clients.
13 Responses to “RGE’s Wednesday Note – The Rising Risk of Double-Dipping”
Guest • March 10th, 2010 at 10:18 am
First?!
Guest • March 10th, 2010 at 10:18 am
or no one reads this any more?
Guest • March 10th, 2010 at 6:34 pm
You know, ever since they changed the website there has been a dramatic fall in comments posted. Heck, I don’t even come here daily any longer. Oh well – hope people like the ‘New Coke’.
Guest • March 11th, 2010 at 10:32 am
I agree; the layout is not eye-friendly at all! They f@*^ed up totally!
JLarkin • March 11th, 2010 at 11:20 am
Weekly initial unemployment claims peaked like a V.S&P bottomed like a V.Imports and Exports bottomed like V.GDP bottomed like a V.Earnings bottomed like a V. (Though still shaky accounting with banks, not marking to market.)CRE still diving.Home prices still diving.Gov deficits still diving.– interesting times
Roga • March 11th, 2010 at 11:56 am
it’s the password… we didn’t need to have a password to post back when Roubini first showed us all the light. At the very least his post’s (which are in and of themselves far more infrequent since he reached celebrity status) should be free of any boundaries to the knowledge seekers on the web. What did happen to everyone? Miss America? London Banker? PeteCA? There were so many others… where have they all gone. I was only a kibitzer but oh what a difference a year makes apparently. Shame.
methinks • March 11th, 2010 at 1:58 pm
I think that what NR doesn’t recognize is that his newfound celebrity has not only effected his website, but also his economic view of the world.
Guest • March 11th, 2010 at 5:25 pm
screw this forum… go to somewhere else…
tt • March 11th, 2010 at 7:30 pm
A request for comments from London Banker…There have been a number of reports of little to no gold in COMEX or London Bullion Market.A London gold banker is quoted as saying: “There is going on a lot more than meets the eye. The physical system is actually consolidating bigtime and is organizing itself with lightning speed, totally hidden from pretty much anyone, even the so-called insiders. The paper precious metal market and the physical precious metal market have de facto disconnected. The paper and physical gold markets currently operate in parallel universes. The outflow of physical metal from bank vaults is happening at a mind bending pace.”http://www.zerohedge.com/article/its-going-implode-buy-physical-gold-nowGATA says that with everyone taking physical delivery, the system is going bust…http://www.gata.org/node/8405Is this what you believe as well?
blind homeland stupidity • March 12th, 2010 at 12:06 am
http://www.911truth.org/pages/search.php?page=search&realm=author&search_string=ryan&search_button=go.http://www.911truth.org/article.php?story=20090813150853871.Thursday, August 13 2009 – Research/EvidenceDemolition Access To The WTC Towers: Part Two – Securityby Kevin R. RyanAugust 13, 2009Scoop Independent NewsSee also… Kevin R. Ryan: Demolition access to the WTC TowersWho could have placed explosives in the World Trade Center (WTC) towers? This is the second essay in a series that attempts to answer that question. The first installment began by considering the tenants that occupied the impact zones and the other floors that might have played a useful role in the demolition of the WTC towers. [1] The result was a picture of connections to organizations that had access to explosive materials and to the expertise required to use explosives. Additionally it was seen that, in the years preceding 9/11, the impact zone tenants had all made structural modifications to the areas where the airliners struck the buildings……comment: sometimes a paragraph just jumps out at you andsays ” read me again!”….Marvin Bush was a director of Securacom from 1993 to 2000. [114] Bush was hired as part of a new management team when Securacom separated from Burns and Roe. It was just at that time that the PANYNJ and Kroll began planning for the extensive rebuilding of the security systems at the WTC complex. As his stint with Securacom ended, Marvin Bush became a principal in the company HCC Insurance, one of the insurance carriers for the World Trade Center. Bush was also a director of Kerrco, an oil company in Houston.Bush was the cofounder of Winston partners in 1993, a company that benefited greatly from the War on Terror. In 2000, Winston Partners invested heavily in a defense contractor called AMSEC, that was 55% owned by SAIC. It has been noted that SAIC was not only the largest non-governmental contributor to the NIST WTC report, it was also a company that had expertise in nanothermite technology. [11.."After 9/11, Barry McDaniel, who was then CEO of Securacom, was asked whether FBI or other agents had questioned him or others at the company about their security work related to 9/11. His answer was -- "No." [121] The FBI did, however, briefly consider investigating Securacom for possible insider trading related to 9/11, due to an SEC referral of suspicious accounts. But since the people involved were considered to not have any “ties to terrorism or other negative information,” the investigation was not pursued. [122]Silverstein PropertiesLarry Silverstein owned WTC building 7, and in May 2001, he also finalized a 99-year lease of the WTC complex and took over operation of WTC buildings 1, 2, 4 and 5 from the PANYNJ. His partners in the deal were retail operator Westfield America and real estate investor Lloyd Goldman. To finance his deal for the WTC, “Silverstein borrowed $726 million from GMAC Commercial Mortgage, a unit of General Motors. GMAC in turn converted the loan into securities, which it sold to investors like pension funds.” [123]” …….http://www.911truth.org/article.php?story=20091214182933855.What we can say today, with certainty, is that if we are to believe that al Qaeda orchestrated the events of 9/11 then we do not know much about al Qaeda. Alternatively, there was a far more powerful and highly connected system of intelligence and financial networks, represented by organizations like Carlyle, Kissinger, SAIC and Halliburton, that converged upon the events of 9/11. That other system continues to profit from the 9/11 attacks, and uses the fear and rage generated by al Qaeda-attributed terrorism to its own advantage. Understanding and destroying terrorism might simply be a matter of understanding and destroying the organizations that continue to profit from 9/11…….http://www.puppetgov.com/2010/02/22/demolition-access-to-the-wtc-towers-part-four-cleanup/.Regardless of who had foreknowledge or what the imminent danger was, over the next few weeks and months there were heroic efforts made to rescue survivors. But those efforts were hampered by Giuliani’s drive to cleanup the site rapidly. The commonly held story is that the government wanted to re-open Wall Street, and for that reason didn’t care about the health of New Yorkers and first responders or about facilitating the most careful rescue operations. 36 But what if local authorities were actually in a hurry to remove evidence?An unprecedented destruction of evidence ……
PeterJB • March 12th, 2010 at 1:26 am
That’s pretty heavy stuff.but predictable of “leadership”.Ho hum
The Alarmist • March 12th, 2010 at 7:53 am
What does he mean by saying that the data have been uniformly horrible? Although I have been travelling, I have been following the situation in the MSM and have been more than reassured by them that all is well in the land of make believe; that, for example, 36k lost jobs is a good thing and that it was only so bad because of the snow (note to self … check employment stats for other years we had snow. Didn’t know winter was such a surprise).I heard that China is complaining that its journalist corps seem to be incapable of abiding by good socialist/marxist new principles, i.e. that they are not being supportive of the State and its efforts. Note to Hu Jian Tao: Why don’t you ask the US MSM to send over some of the laid-off journalists they have been generating lately, as they seem to be more than up to the task of being lackeys of their Statist puppet-masters.BTW, I expect a UU recession. Enjoy the summer.
The Alarmist • March 12th, 2010 at 7:56 am
Worth its weight in Tungsten, which, BTW is apparently what can be said about a good deal of the so-called physical gold out there.
