At least one financial strategist thinks that the current economic slump is the result of far more than this decade’s credit cycle. On the contrary, he thinks today’s crisis encapsulates multiple cycles going back perhaps as far as the early 1980s, possibly earlier.
“Cyclical corrections do most of their cleansing via sharp contractions in price, and are characterized by spiky, distinct bottoms,”says Max Bublitz, chief Strategist at SCM Advisors, San Francisco. “Secular turning points are drawn-out affairs and accomplish their cleansing over a longer, more psychologically painful time frame, where the drip-drip-drip of negativity simply wears everyone out.”
- The consensus estimate of positive 2 percent GDP by the third and fourth quarters is too optimistic. More likely is positive GDP by year-end.
- Housing prices will fall another 5 to 10 percent.
- Unemployment will peak close to 10 percent in 2010.
- Bank solvency issues will re-emerge.
- Corporate default rates will peak around 20 percent.
It seems, Bublitz says, “that we remain locked in a race to the bottom. Perhaps we’ve already seen the bottom. But one thing we do know is that the race is largely abut psychology, with the rot of failed expectations ultimately forming the nutrients for recovery as the cycle inexorably begins anew.”