November 18th, 2009
05:20 AM GMT
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Looking back on this year to early March, you'll find the precise point when the U.S. stock market seemed to find its bottom. The Dow has had a tremendous rally since then, but just about everyone is concerned about what it means.

Dropping commercial real estate values is leading fears of a double-dip recession.
Dropping commercial real estate values is leading fears of a double-dip recession.

Does the recovery lack any real support from economic fundamentals? It is jacked-up on stimulus programs that governments will soon try to unwind– and with what consequences?

Many analysts argue that the consequence will be the dreaded double dip.

As Mark Zandi, chief economist for Moody's Economy.com, told CNN Money this week: "If we do slide back into recession, it will be very difficult to get out."

Some economists are so concerned they want another round of stimulus early next year because the U.S. labor market is still so weak.

About two months ago, I sat down with Steve Palm of "Smart Numbers," a Real Estate analysis company. He feared that so many commercial developments and large housing projects were defaulting it all but assured a double dip sometime in the middle of 2010. It was a dire prediction that stuck with me.

Checking back with him this week, I am sorry to say that the situation from his vantage point is no better. Palm still sees "Way too much stuff coming back to the banks." "This is causing poor liquidity as the banks still cannot lend. The dollar is way too weak too."

Small regional banks continue to go under across the United States. Most of them are going down because of foreclosures on large commercial real estate ventures. Palm sees no end in sight, and fears that if unemployment keeps mounting and housing indicators start falling again, it will be ample evidence of the "W-shaped" trend that analysts say signals an imminent double dip.

The bankruptcy rate further complicates how to gauge this recovery. As unemployment drags on and home values continue to suffer, personal bankruptcies surged 9 percent in October, with a 7 percent jump in business bankruptcies. The American Bankruptcy Institute also expects total bankruptcies in 2009 to reach almost 1.5 million. That's an increase of 30 percent from last year.

Analysts say given all of these factors, the way governments unwind the current stimuli will be key in determining whether the recovery is sustainable, or whether it slides once again. How will we know? CNN Money.com has a great primer on six key indicators to watch if you're concerned as well.

How to protect our own investment portfolios in 2010 is something we should all be discussing. Stay tuned for more on World Business Today.

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soundoff (16 Responses)
  1. Per Holmlund

    Trying to find clues in history – market history

    Look at the situation from 1966 to 1982 when we had a similar story to this one that started 2000, similar but not the same. With globalization it is much worse this time. What do you see? Gold running from nowhere to 800+ $ and during the trip to the 800 level it made a stop similar to what we saw 2008-2009. So if history is of any help we should hedge the risk, building up just now, with Gold.

    History is saying Buy Gold!

    People are talking 1200. Look at the last run that ended 1980, a two stage rocket. This one has taken the first, 2000-2008, and has just given a new buy signal (TA monthly graph) so prepare for the second. 1500?, did I hear 2000, 3000. (And when something looks to good, don't forget the stop.)

    November 18, 2009 at 1:05 pm |
  2. Christer Friberg

    Well, in a global economy it is all about competitive advantages. The question is what does the United States have to do to compete against Europe, Japan and all the emerging econmies like China, India, Brazil etc.

    Challenges are the fact that Japanese, Koreans and to a large extent Chinese do not buy anything not produced domestically, while in the United States it is almost opposite. Only the Unites States fight costly wars in other parts of the world. China and other Asian countries pay no respect to copyright protection.

    November 19, 2009 at 5:03 am |
  3. Chris

    Is it in others interest to raise the U.S. $, to force the Fed to raise interest rates in a time of recession?

    November 19, 2009 at 6:12 am |
  4. Chris

    To suggest the new debit laws. An end to personal credit would recede the bankruptcies and then only lend tender to those who elevate the small business environment, not by entirely product, but by the means of labor and innovation for the intent of a future that is worth the investment for a energy independence of states, sake, with net positive interest results.

    November 19, 2009 at 6:32 am |
  5. Jahgift

    So Mr. Hope is now afraid? Remember: America has chosen "hope over fear".

    no panic.

    November 19, 2009 at 8:39 am |
  6. gogo

    it is hard to forecast future, but I think that we have not to be afraid of double dip. we need some reason for second dip and I can not see that reason. giants like fannye mae, citi bank , bank of merica etc were saved by government. hundreds of millions bucks were thrown to them. it was totally wrong, but it has happened. so we have not to be afraid of bancruptcy of these giants and second madness and sellout in Wall Street , but on the other hand we can not expect strong growth for many years. I think that USA set off long road of stagnation . Chance of change was missed. reasons of economical problems have not been solved but bribed by government. it is nothing but trick to avoid crisis at the expense of debt.

    November 19, 2009 at 4:02 pm |
  7. Andrea Silverthorne

    There will be no doubt a double dip in our economy. The real estate boom masked the damage done to the econom by outsourcing; therefore, we have no economy, and no one has done anything viable to either get the old economy back or create a new one. We are ratcheting down to economic holocaust.

    November 19, 2009 at 9:11 pm |
  8. Ferdinand Vondruska

    We see deflation and no recovery for 15 months to come. If that is truly going to happen, we are in for an absolute phaenomenal surprise: dirty thirties... dirty teens...! We are talking steel business and steel leads the way (for good and bad news, Sir!). I have no more to say.

    November 20, 2009 at 4:55 am |
  9. Sanuel Young

    USA IN DECLINE.:
    This is a long term forecast. There will be no big pickup in jobs - thus no big spending money to drive the economy.
    Where will the jobs come from. We continue to close plants ( Emerson has recently announced it is leaving the US ), retail outlets are still closing etc. As for retraining - for what, by the time we retrain people the jobs have gone overseas. Remember how we were gung-ho to train computer jocks, well these jobs went to Ireland, China and India etc.
    History has proven that the great empires started their collapse as their currency collapsed - sound familair.
    Had China not bailed out the USA, with more loans, who in turn bailed out the automotive companies and banks,
    Is it fair to say the USA could have gone bankrupt.

    A DOUBLE DIP RECESSION - YOU BET.

    November 20, 2009 at 7:05 pm |
  10. TONY

    THE SOVIET UNION IS GONE, THE U. S. A. IS GONE; NOW THE BIG QUESTION IS THIS: WHERE WE MIGHT MAKE THE LIVING WITH OUT THE BLOOD SHUCKERS?. TO CHINA?.
    WE WERE LIVING DECENTLY HERE IN THE UNITED STATES OF AMERICA BEFORE, TODAY WE CAN NOT EVEN AFFORD THE BRED AND THIS WAS CREATED BECAUSE TOO, TOO MANY WARS THIS IS WHY THE FEDERAL AND LOCAL GOVERMENTS HAD INCREASE THE TAXES TO SUCH A POINT THAT WE MUST HAVE THREE JOBS TO MAINTAIN THE BLOOD SHUCKERS, LIKE SAL VEGA AND HIS COMMISSIONER IN WEST NEW YORK, N. J. 07093 THAT THIS YEAR IN ONE SHUT THE TAXES JUMP 50% IN ONE SHUT.
    TONY

    November 21, 2009 at 1:04 pm |
  11. Liam McGlynn

    Optimists are counting on debt-fueled consumption and government largesse to rescue us from an economy already burdened by over-consumption, low savings rates, and a level of government spending that siphons capital that might otherwise benefit the private sector. A real recovery originates from private investment and comparative advantage and these have regressed rather than advanced.

    In mid-2010, commercial real estate, Alt-A and Option ARM mortgages, credit card defaults, foreclosures, and bankruptcies will create another financial crisis and threaten the derivatives market structure. Credit, already tight, will freeze. By July 2011, the U.S. will see more than 300 bank failures and a further decline in both residential and commercial real estate value.

    In response, the U.S., guided by puppets of the financial system, will pour trillions of unfunded dollars into an ever-widening chasm of leveraged losses. The budget deficit will explode.

    The second dip, a virtual certainty, is not the issue. Rather, we must consider the reasonable probability that the US will be unable to fund its profligacy through typical Treasury auctions. In such a case, the Fed would step in and expand its balance sheet by purchasing notes. Should this intervention exceed $500b, it may set in motion a monumental collapse of the currency. This scenario has sufficient probability to warrant prudent mitigation as the ensuing inflation could significantly deplete savings and reduce real income.

    Though an inflationary recession may seem oxymoronic, current conditions are somewhat unique and precedents exist. The degree of inflation will depend on the continued willingness of investors to seek refuge in the dollar during times of crisis as well as the continued willingness of foreign central banks to soak up US Treasury notes as a means of driving exports. Both dynamics are weakening at a perilous pace.

    November 21, 2009 at 7:30 pm |
  12. DFly

    It is very sad that the most economically advanced country in the world is digging it's own grave by working up the economy in the wrong way, contrary to many of the wisdoms spoken by the great economists and experts in their fields such as Gerald Celente, Peter Schiff, Jim Rogers, Marc Faber, Paul Krugman, politician Ron Paul, Auditor-General David Walker, and the list goes on.

    What US needs is not more stimulus, this is like the analogy of a cancer patient not taking the doctor's advice to amputate the cancerous leg but prolonging the misery by trying all sorts of medicine hoping for a miracle cure to save the leg first and then the life. A more pragmatic approach would be to follow the doctor's professional advice, after all the doctor is trained for this sort of situation, and knows best. Instead the patient eventually dies because the reality is simply there is no other way, but to sacrifice the leg to save the life.

    In the case of US economy, just that you have a weak economy, but this is a result of flaws in the system and the flaws must be allowed to rid itself of all the bad practices and weak players and let the stronger players prosper. It is a painful medicine but nevertheless necessary for the cure.

    It is not that you do not have examples of the consequences of such measures, a very good example is Japan and the lost decade.

    My taking on the situation with US is simply a question of political will power, there is simply no political will on the part of the politicians to execute such painful and unpopular policies. I think it would be a political catastrophe for any politicians to adopt this measure, the political system in the US simply does not allow this. I think US needs a political reform apart from an economic reform because fundamentally the system is flawed too.

    All the best and good luck!

    November 22, 2009 at 4:40 am |
  13. ashok

    With public debt heading to 100% of GDP in the major economies, there is no fiscal headroom for a second stimulus package. Governments need to find a more sustainable path to stabilise the world economy than encouraging overleveraged consumers to spend more.

    November 22, 2009 at 12:45 pm |
  14. charles shriner

    The only place recovery is /was taking root is in the stock market and those profits are derived in overseas markets. We are in fact still mired in recession and will be for years to come until the unemployment rate comes down to less than 7%, the housing market recovers and people can get loans. What double dip? This is a prolonged L which most agree will continue at least until 2013.

    November 23, 2009 at 2:31 am |
  15. Per Holmlund

    10 timers

    If Gold continues Gold Company margins will explode. Gold Stocks start to move north giving them high Beta status. And there we go.
    I read …5000 dollar. Martin Hutchinson (Translation from FT) Le Monde

    Per Holmlund September 14th, 2009 1302 GMT
    Sell gold???
    Xtra 03/09/2009
    Do you see it coming? Did you see it coming? Not a run for cover, YET!

    New demand created by BRIC, the 100 of millions of new rich, the ageing effect in west, 60, 70+ years gifts plus silver, gold, diamond marriages and the zero interests. And don’t forget the effect on gold companies income statements. Profits will explode if/when gold hits 1500. Or did I hear 2000, 2500…

    2009-07-31
    The Pessimist is waiting for a Double Top The Optimist is waiting for a Head&Shoulder reversal buy, a historical brake of the 1000 level and a climax with a bubble!

    November 23, 2009 at 10:04 am |
  16. michael

    Speculation never did any good either. It's too uncertain, and if the USA does have a total financial collapse, it will drag the rest of the world down with it, worst cast scenario, the USA defaults, and is not going to pay its debt back, however china and other emerging economies depend on the USA consumption, so China is forced to sustain its growth, by buying US treasuries, to keep it alive, if USA goes under, so does china's production, and with lack of innovation, China is also going to suffer. Not to mention, Banks across Europe, and US owned banks in Europe, will trigger a collapse, not as devastating, but will pull the world economy down, to a depression.

    December 5, 2009 at 12:40 pm |

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