Wednesday, May 21, 2008

Fundamentals likely to get worse before they get better.

The economic situation in US is likely to get a whole lot worse before recovery begins. Retail housing prices expected to fall further in 20% range. Commercial real estate following on same lines. Consumer demand to be low. Recession to get worse.

Global economies expected to slow down by varying degrees.

Give the lag timing of 6 months with US, for India the worst quarters likely to be the last two quarters of fiscal 2009.

We are sitting on more than one time bombs as explained in my previous posts – Oil price rise , coal price rise, food price rise and the overall slowdown in growth due to cascading impact of global slowdown.

Are we sitting on a time bomb: The unseen chaos in Indian Economy
Recovery a Fantasy

Here's how the world is faring – a roundup of news, views and excerpts from across the globe


Prices cross the $ 132 mark. Speculation theory gaining ground. One of the Senate committee's in US investigating role of speculators. Michael Masters , a hedge fund manager 'spilling the beans'. Check my detailed post on this.

Oil : Speculative bubble theory gains ground


Excerpts collated from some of the world's leading business and economic publications :-

  • IMF Managing Director Dominique Strauss-Kahn warned that tight global credit conditions may go one even though there are "good reasons to believe the worst news (is) behind us." The changes in consumer behavior triggered by a meltdown in financial markets that began in the U.S. will continue to ripple through economies worldwide, he said, meaning there will be no broad recovery before the end of this year, and possible not until mid-2009. Speaking to a European Parliament committee, Strauss-Kahn said that the U.S. economy would only pick up once the housing market is stabilized.
  • The world economy is "teetering on the brink" of a severe downturn and is expected to grow only 1.8% in 2008, the United Nations said in its mid-year economic projections Thursday. That's down from a global growth rate of 3.8% in 2007, and the downturn is expected to continue with only a slightly higher growth of 2.1% in 2009, the U.N. report said. The U.N. economists said the deepening credit crisis in major market economies triggered by the U.S.-led slump in housing prices, the declining value of the U.S. dollar, persistent global imbalances and soaring oil and commodity prices pose considerable risks to economic growth in both developed and developing countries.

  • Foreclosures - filings climbed 65 percent and bank seizures more than doubled in April from a year earlier
  • Industrial production - large drop in April, equivalent to the one following Hurricane Katrina.
  • Jobless claims - applications rose for the fourth straight month in April
  • Index of leading economic indicators – rise in April for a second month. In line with a uptick expected due to tax claims.
  • Nonresidential projects – and construction markets believed to be slowing down
  • The US economy is in “uncharted waters,” says Federal Reserve vice-chairman Don Kohn , warning that both financial and economic recovery was likely to be slow
  • Fannie Mae's CEO says that the housing market is "about halfway through" its crisis and home prices could fall as much as 25% before the worst is over.
  • Credit card charge off- rose to 6.05% from 4.64% a year ago, the highest in last couple of years.
  • Retail demand – slowing down. As per some top US retailers, weak economy and poor housing scenario were discouraging consumers from making anything more than basic purchases. Consumers operating as if they are already in a recession

Other major economies

  • UK – shows a rise in unemployed claim. Seems to be following US footsteps.
  • Japan - economy grew by a surprising 3.3 percent last quarter, faster than last quarter. Seems more of an aberration in absence of any other mitigating factor.
  • Europe (excerpt) - Jean-Claude Trichet, the head of the European Central Bank, has indicated that the worst of the credit crisis may not be behind us. Mr Trichet said that we were seeing "an ongoing, very significant market correction." He compared the recent hikes in energy and food prices to the oil crisis of the 1970s, when higher wages undermined Europe's ability to compete, resulting in widespread unemployment.