MITEF Chicago: 2010 Economic Outlook
“2010 Dicey Year with Uncertainty in Every Corner”—Economists and Directors of Goldman Sachs, Mesirow Financial, Keeley Funds and Allianz
(Live blogged with iPhone, only touched up unintelligible words— See Photos Below for Panel Introductions)
Adolfo—Things improved a lot since 09 still pretty bad year for GDP, unemployment, low housing, consumer spending, changed mood, but signs of recovery, lack confidence with consumers rebound but no feeling recovery; auto clunkers controversy, fiscal stimulus less results than hoped, disappointment, supportive monetary policy, should continue; surprise, big numbers, growth, but doesn’t feel like it.
Bryce—2010, money mgr perspective, 1.5-2.5% growth, major risk, policy exit strategies, reduce stimulus china peg to dollar, fluid, new normal, when markets collide, not resetting, new territory, low consumption, more decelerating, regulation, decline interest rates, rising rates of unemployment, high jobless, fed accommodating.
Mark—09 difficult, forced selling, 09 crisis liquidity accounting crisis, insurance company, fixed income, problems not over yet, irresponsible conduct; 30 yrs ago, you couldn’t borrow if you couldn’t pay back; in bubble, with collateral mortgage, triple AAA, people bought, you could unload a bag of manure, people didn’t know, they only looked at ratings.
Angela—US GDP 2-3%, global 4.4%, unemployment 10.75 US, media deceptive discouraged workers, employmt, probably inflation, Fed on hold til 2012, oil $90 in 2010, $110 in 2011.
Adolfo (gets phone call): “My wife questioning my skills.”
Numbers growth looks good on paper; most growth quarter to quarter, I off stimulus, massive rebuilding inventory because orders stopped in 2009, no momentum for jobs, unemployment 10% (throughout) 2010, strain on financial sector, banks won’t lend aggressively, housing 1-2 yrs more to rebuild, people have to save to pay off debts in 2010, lukewarm 2011, Fed to normalize, Bush tax cuts will expire, restrictive because of deficit, unemployment 9%, inflation will increase, bright spot will be stocks, companies are keeping costs down, so they seem like good value.
Bryce— Good news: Fed editg mortgage market, many houses under water new normal, home country bias.
Angela—BRIC? Now 6% market cap huge rev, huge, high investment but domestic demand, consumer products govt open to infrastructure investment, India election, political risk.
Tim—The 4 most expensive words on Wall St: “This time is different.” ,-) Mark Twain: “History doesn’t repeat but rhymes.” Credit different, its benefits to BRIC counts as int’l exposure, BRIC won’t grow so fast, China copies only, India is poor smart hungry, product gains 09, takes long, emerging markets will take long, crisis brings opportunity, stocks are cheap, people get impatient w investments, people think they should move money constantly but no.
Adolfo—PIGS (Portugal Italy Greece Spain), need to insure bank system, (of course) they’re not lending: creditworthy borrowers are shrinking, next leg down, more losses coming, political schitzophrenia, Washington DC will tax banks and increase credit requirements, so banks have a simple strategy, borrow, short investments in Europe carry trade to make nice returns, monetary policy US Europe, Fed good w balance sheet, not good w zero intereest rates, exit strat complicated, risky.
Mark—question for Adolfo, global policy, (the world has an) imbalance in risk appetite, China buys T-bonds, uncertainty, Sarbox forces huge (unproductive) investment, bad consequences. Euro v dollar?
Bryce—invest discussion. Move up in capital structure, people not paid to take risk.
Q&A
Political risk: Angela can’t ignore political risk in Russia China, bottom up, must be on ground (as Goldman is), 40 stocks (GS invested in) now double (in value) because we were on ground. Adolfo risk relative, now a lot damage PIGS and US, the field is leveled. Risk of regulators, risk to banks. Adolfo needs to change, we rely on models instead of judgment, bailout to all, now systemic bailouts talked about in Congress, not optimistic.
Mark—We need reform, regulation well meaning but will choke growth. Adolfo too much regulation. Commodity, Gold bubble. Running away fr investment when price good. Sign.. Oil bottleneck supply
Angela—responding to my question about BRIC becoming more producer, not only consumer as Western execs assume. China becoming (higher value) services BRIC, because smaller countries compete at lower cost and drive China up value curve.
Q: Repeal Glass-Steagall, debt refinance problem for real estate, Bryce, don’t know yet infill loans going bad,
S&P will hit 1250 in 2010, will regain level before Lehman went down. Innovation key
Joann Becker, short-term v. long-term? Adolfo US good for innovation, I’m an immigrant, challenge not macro but micro how to help individuals succeed.
David Dalka, 8 McKinsey alums on Google’s management team, McKinsey alums created Enron, is anyone paying attention?
Bill Burnett: Gen-Y waiting for Gen-X to get outta the way, huge debt and boomers won’t retire, Angela, our research not worried about it, Adolfo, terrible market for recent graduates and people outta jobs, bad market, no idea of probs.
Steve Ghareeb, all cuts in govt spending, tax falling, pension liab huge, overhang probs, fiscal stim poorly designed. Angela Vicks wacked, bottomup stock selection dispersion vs know the company [was wondering when someone would mention that investors should know the businesses in which they invest]
Mark—inflation vs purchasing power, scary bad for equities, print money inflation debasement currencies worldwide groceries wholefoods, whole paycheck
Richard Cross, lost decade, as in Japan? Adolfo Japan stalled (didn’t react in time) on monetary policy. My concern is US creating boom bust cycle due to huge stimulus 2009, 2010
Ron May, talk about entrepreneurship, why won’t banks to lend, govt in the way healthcare, interest rates, too much uncertainty, damage, hope 2010’s reforms stall not because they’re bad but because they add to uncertainty (and slow business).
