Special Report: 10.19.2009

Posted by TED Magazine on Sunday, October 18, 2009

LET'S START WITH THE MACRO ECONOMIC OUTLOOK

Stay tuned -- much more to come.

By Joe Salimando  

Last Thursday & Friday, Oct. 15-16, I attended McGraw-Hill Construction's Outlook 2010. [I'll abbreviate the company's name as MHC for the rest of this]. Below, some details on the "macro" outlook for our economy.

Tomorrow, bonds (financial, not electrical).

Wednesday, housing.

Thursday, commodities (esp. copper).

Friday the 23rd and Monday the 26th, a two-part blog thingy on the formal MHC construction outlook.

First, some general comments. A lot of people blame economists for not seeing what was coming in 2007-09. I'm one of them. I thought what was happening was VERY clear -- and I wrote about it, here on TEDMAG, for years. If a schmuck like Joe Salimando can see it, you would think people with an education in economics and nothing better to do than watch the economy SHOULD have seen it.

Then again, I slept through most of the only economics class I ever took (my freshman year of college -- it was an 8 a.m. class, and I couldn't quite make it out of bed most of the time). As a result, I -- apparently -- have a huge advantage over trained economists.

Should we expect these trained people to be able (right this very minute) to "see" what's coming in 2010, 2011, and 2012? I don't know. Things may seem muddy right now. But they probably aren't, if you trouble to look hard at them, and think.

 

What Wyss Had To Say

David Wyss is the chief economist for Standard & Poor's. S&P is owned by McGraw-Hill, and thus is a "sister" company to MHC. Wyss's presentation was, in contrast with previous years, low-key. He was, in previous years, a sharp, smart presenter; I didn't agree with his outlook most of the time, but he was fun to watch.

For whatever reason, it's safe to say that David Wyss had been more "on" in those previous years than he was this time. Was that a function of some personal situation (of which I don't want to be aware)? Or was it a function of the fact that he works for a rottten-to-the-core compay (S&P is one of the ratings agencies that slapped "AAA" tags on a bunch of god-awful securities)? Or maybe he had bad news to deliver, and couldn't work up the enthusiasm he had in years prevoius?

His job here is to give a "macro" economic backdrop for the conference. Major points:

a. The recession "is finally dcoming to an end."

b. But "I think it's going to be a slow crawl" out of the nadir.That's not good, necessarily. "But at least we started crawling!"

c. Housing prices have another 10% to fall, nationally (national average, it will be different in diff. places). Despite the recent bounce, the coming fall and winter are going to see a relapse (which Wyss said was, more or less, to be expected given the season).

d. Globally, this is "probably the most synchronized recession ever seen in world history." Wyss slapped the phrase "Synchronized Sinking" on a PowerPoint slide; some attendees (and the host, a MHC editor) thought this was marvelous.

e. Wyss claimed that, since the start of "The Great Recession," the nation has lost 1.5 million office jobs. I don't know how he knows that; I don't recall seeing that data point presented elsewhere. Let's go with it, for the sake of discussion. The obvious question that follows is: Why build another office building? At least for a while.

f. Wyss noted that the Chinese have "showed the world how to do a stimulus," while the U.S. has been "showing the world how to do it wrong." This got me a little angry, and not because I feel like defending Obama (I really don't). China is run by, at the very least, a dictatorship (if not a Communist dictatorship). OK, they appear to be greedy; greed doesn't make one a capitalist, does it? If that's all it takes, Michael Moore is right!. Let's not forget: China already have the kind of centralized command-and-control economy that those "tea party" people are warning us against!!!

g. Wyss claimed that "we have lost 150,000 retail stores" in the 2007-09 bonfire. I have this circled in my notes, because the folks at Retail Traffic magazine have a number that's a fractional of that (like 4,200) in their count. I'm not sure why this disparity exists, and what it means; perhaps the magazine is counting major chains only? And: I certainly don't know who is right.

Whatever this numerical disparity means, Wyss's point here, of course, is clear: Don't expect retail construction to come roaring back anytime soon.

h. RISKS: He thinks unemployment will get above 10% and stay there for a while, and that "it could be worse." He warned -- cryptically, spending very little time on this -- about a "double dip" in the economy, especially if oil prices started to bounce back up from the $70-per-barrel range on back near the $140/$150 area of 2008's summer. PLUS: One of his slides made reference to "the risk of a 'lost decade' similar to Japan in the 1990s." But he didn't delve into this in his remarks, either.

I don't know what to make of that. I have mutated into a True Believer (the worst kind) in the Peak Oil Hypothesis. But I don't actually expect oil prices to run up in the short run (I expect them to tick down in 2010, in fact). If a big hike in oil prices it the only real threat to the economic recovery in 2010, then -- I would say -- we probably won't have a problem.

And yet, I expect problems!

i. In the Q-and-A, he was asked an obvious question and one that clearly indicated I was sitting in an audience of construction people.

OBVIOUS: What about the U.S. dollar? Wyss said it will decline for another 18 months, going down another 10% or so.

NOT-SO-OBVIOUS: What about immigration? Wyss admitted that "nobody knows" what's happening right now (which means the economists don't know and the mainstream media doesn't know). "The general feeling" is that we've had an outflow, he said, but "in my mind it's a temporary reversal."

 

Take-Aways

1. I can't make much out of Wyss's personal demeanor. The content of what he had to say, though, if you add it up, was that 2010 isn't going to be enjoyable. And maybe 2011 won't be, either.For my money, he could have spent a good deal more time on whether the economic recovery in China is real, and whether it will hold up. But he didn't, and the Q-and-A session was short for some reason.

2. The most interest thing Wyss had to say was about global stock markets. People like S&P had been, for years, telling investors in the U.S. (and elsewhere) to diversify globally, he said -- and (surprise!) investors had listened. As a result, stock markets the world over had fallen in synch, and now were bouncing back in synch.

SO: People listened, they diversified their investments around the globe . . . and the result is that global stock markets move in lockstep (meaning there's no where to "hide" if things go bad, if you're dedicated to having your money invested primarily in stocks).

3. One must remember that NO economist gets paid to sound like Girolamo Savonarola. All of them MUST emphasize the positive and go low-key on the negative -- that's why virtually no commercial economist saw the 2007-09 period (or the 10-year stock-market doldrums of 1999-2009) coming, isn't it?

Wyss's low-key presentation was short on positives. It was also short on negatives, but that was to be expected, wasn't it? How do you interpret that? I see it as a negative. But then, Wyss didnt' see this nightmare coming, really, did he? So if he sees things remaining bad for a long time -- maybe he's wrong about that, too!?!?!?!

TOMORROW: An illuminating panel discussion on bonds -- esp. the availability of debt to construction developers.