Goldman Sachs: Brace For Recession In 2008

Wall Street's Biggest Investment Bank Predicts Housing, Credit Turmoil Will Shrink Economy

(CBS/AP)  The biggest investment bank on Wall Street has a grim prediction about 2008: a recession is definitely on the way.

Goldman Sachs on Wednesday said it believes the housing slump and recent credit market turmoil will spill over into the broader economy this year. And, by the time it's all over, economists believe the Federal Reserve will cut interest rates to 2.50 percent from its current 4.25 percent.

There is a silver lining to the dire prediction, however, since Goldman projects the economy will recover as soon as 2009, making this downturn somewhat "recession-light."

"The recession is likely to last two to three quarters and should be relatively mild by historical standards, with a cumulative decline in real GDP of only about a half percent," Goldman economists' Jan Hatzius and Ed McKelvey said in a research note.

A recession is when the economy shrinks for six straight months, reports CBS News correspondent Anthony Mason. The last time that happened was 2001 after the dot com bubble burst.

Goldman switched to an "outright recession call" following recent economic reports that indicated a spike in the jobless rate, and a decline in home sales and manufacturing. They also expressed concerns that sluggish consumer spending will contribute to a recession.

The economists expect the Federal Reserve will aggressively lower rates to combat the credit crunch, including a half-point cut at its Jan. 29-30 meeting. The contracting economy is likely to push the unemployment rate to about 6.25 percent by late 2008, potentially hurting corporate earnings.

Goldman also expects that Congress and the Bush Administration will push through a temporary tax break later this year as part of a fiscal stimulus plan.

What would all this do to stocks and bonds?

Economists predict that consumer spending will likely post a small outright decline - unlike in the 2001 recession - as the housing downturn contributes to a negative wealth effect and consumers find it harder to obtain credit.

This will put pressure particularly on stocks in the consumer discretionary, financials, industrials, materials and information technology sectors. Sectors that might offer investors some protection in a recession, however, include health care, consumer staples, energy and utilities.

Meanwhile, bond prices are expected to rally as risk-averse investors pull money out of stocks and boost demand for safer, albeit low-yield, investments. Goldman predicts the yield on the 10-year Treasury note - which moves opposite its price - will fall to 3.5 percent by late summer following interest rate cuts. The 10-year yielded 3.78 percent on Wednesday.

All the recession talk has the markets on edge, reports Mason. Stocks rallied Wednesday, but the both the Dow and the Nasdaq are still down more than 10 percent from their recent highs.

Experts are predicting an ugly 2008 as inventories of unsold homes grow and a large number of adjustable-rate mortgages reset, sending more homeowners scrambling to make higher payments and pressuring the already shaky credit markets. What worries industry watchers the most, however, is the possibility that the housing troubles will plunge the economy into a recession.

"I think everyone is expecting the other shoe to fall. There's still some blood to be let," said Jim Gaines, a research economist at The Real Estate Center at Texas A&M University. "And historically, a downturn in the housing market has been a leading indicator of a recession."

[harp1963]

harp1963...you need to up your meds. I''''m agreeing with you, you *******....republican scum have bankrupted this country.

1,200 points on the Dow over 8 years is nothing...in fact, most pension funds have lost money.

You miners do know what a pension fund is don''''t you?


Posted by shanev137 at 03:17 AM : Jan 10, 2008


Sorry, when I wrote the reply I had just gotten home from working a 16 hour shift. Actually, I just woke up and am getting ready to go back and participate in "the working of Americans to death so 1% of our population can live on 5000 acre estates and have servants wait on them hand and foot."

All the best brother.

[forthepeopl1]

we all knew this was happening. and the whitehouse and clintons think there is nothing going on.

wait until they see americans running down to washington to take them out.

and bush/cheney are all ready to go into iran..

then bush will declare a state of emergency so oboma/edwards will not be able to get in..you wait this is what is going to happen

or they will kill oboma to let hillary get in..hillary lost nh primary, so bill riged it so she would win..like bush did it. no computers should be allowed. only hand written votes.............

[hillaryin08]

So, these guys have been saying this for two years now and its finally happening?

[shanev137]

harp1963...you need to up your meds. I''m agreeing with you, you *******....republican scum have bankrupted this country.

1,200 points on the Dow over 8 years is nothing...in fact, most pension funds have lost money.

You miners do know what a pension fund is don''t you?

[mikekleber]

Bush and his trillion dollar war on terror have destroyed our country. With Bush''s help, the terrorists have won!!!

[brianbwb-2009]

While the Chinese government is, well, simply designed to be evil. And is.
ST

There is the mitigating fact that communism is the only form of modern self government they have known, going from a feudalistic society to a vassal slave colony under the British. Their only recent history with self government was as a socialist state, and they are only now coming to grips with the concepts of capitalism.

It is not the government per se that encourages today''s slavery, it is the new capitalists, utilizing cultural norms of feudalism from the past, indeed the government is very quick to act on companies utilizing slavery, even meting out the death penalty for the "owners" of the slave shops, even when they are "connected". In fact, their government "connections" are just as likely to get the death penalty for their transgressions.

However, with a population of 1.5 billion, and a severely underdeveloped infrastructure, there are many holes in which the rats can hide, and many of these rats have considerable US corporate money behind them.

[harp1963]

LOL...overal
l the Dow has only gone up about 1,500 points in the last 8 years since he''''s been in office.

The Dow hasn''''t even kept pace with inflation.


Posted by shanev137

If you call most moms and dads both working 10 to 16 hour days for *** pay and benefits prosperity, that''s your view. I could care less about the DOW or what 1% of America is calling prosperity. You obviously didn''t grow up in Steel Country, or you would know what prosperity for everyone is about.

[harp1963]

"You''''re still a young man, baby...." Tower of Power

We have been in a recession since 1972, Reagan printed bills to put a band aid on the machete wound...

Posted by brianbwb

I know all about Ronald Reagan. Old Ronnie destroyed the U.S. Steel industry in the United States. I grew up in Steel Country. The middle class was fat when I was a kid. Families prospered on single incomes with a "stay at home" wife. Hard work was all that was required. You didn''t need a PhD in Nuclear Physics to taste prosperity. There was no such thing as credit cards either. People paid cash for their possessions. Today the coal industry "Company Store" mentality has gone world wide...work them into debt by paying them "script" (credit cards today) and then foreclose on their home in the end when they can''t pay their bills.

Also, Union membership is weak because all the members are knee deep in debt and can''t afford to stand up today. The big money boys have America by the b a l l s.

[shanev137]

It seems like we''ve been in recession ever since George Bush became President.

Posted by harp1963 at 12:35 AM : Jan 10, 2008

--------------


LOL...overall the Dow has only gone up about 1,500 points in the last 8 years since he''s been in office.

The Dow hasn''t even kept pace with inflation.

[searingtruth]

"Countrywide is toast. They are going belly up and their share prices will be worthless very shortly. Regulators are about to step in and not let them loan anymore money."
shanev137


Hey, that''s toast, with jam!

So many golden parachutes.

As we have long become accustomed to, only the people will suffer.

I wonder when, and if, we''ll ever stand up and demand our Constitution, and justice, back.

Like Americans are supposed to.
ST


"The weak always surrender freedom, at the first opportunity."
SearingTruth

"Who will fight, when surrender is of more comfort?"
SearingTruth

A Future of the Brave - www.searingtruth.com

[incog-nito]

Indeed, there are no such thing as free and fair unless,at a minimum, the following conditions exist:

1. No government tariff, quota, or subsidy of any kind.

2. Workers enjoy the same labor and safety standards.

3. No current manipulation of any kind, or better yet, a common currency.

This will not happen any time soon, so no, there is no such thing and free and fair trade.

[shanev137]

Countrywide is toast. They are going belly up and their share prices will be worthless very shortly. Regulators are about to step in and not let them loan anymore money.

[searingtruth]

"...So there are many reasons for tariffs ..."
brianbwb


Indeed, "free trade" has always been a fallacy, and failure.

Fair trade, with the "fairness" determined by the country importing and exporting, is the only way I can see of preserving a just world economy.

And humane countries should also give primary credence to the human rights and relative living standards afforded the workers of other countries when determining trading policy.

For example, I have long advocated a 10 year economic disengagement plan from China, and it is a disgrace to our nation that it will take that long.

But we have become so embroiled with these despots that I can''t see us changing the labor and economic balance any quicker.

And of course, while living under the despot Bush it''s a little embarrassing calling the Chinese government the same thing, but Bush is an aberration who will eventually be brought to justice, and is not reflective of our historic American government despite our many imperfections and sometimes hypocritical actions.

While the Chinese government is, well, simply designed to be evil. And is.
ST


"In fact, history clearly records that our progress as a species is not impeded by our inability to solve critical problems; it is instead impeded by our inability to recognize and focus on them."
SearingTruth, A Future of the Brave

A Future of the Brave - www.searingtruth.com

[brianbwb-2009]

It seems like we''''ve been in recession ever since George Bush became President.
Posted by harp1963

"You''re still a young man, baby...." Tower of Power

We have been in a recession since 1972, Reagan printed bills to put a band aid on the machete wound...

[harp1963]

I wonder if the economy would be better if we had all the manufacturing jobs back that the Republican Congress, Senate, and our great leader George Bush gave to China when they passed the legislation giving the country with the worst human rights record "free trade" with America.

[brianbwb-2009]

Oh, I forgot, we don''''t like them furriners or their money.
Posted by B0ludo

Oh, we like them all right. I remember when, growing up in Detroit, later moving to a suburb called Inkster, that Dearborn, and Dearborn heights were "white" enclaves, Dearborn''s mayor, Orville Hubbard, vowed to keep it that way, as he saw the neighboring city of Inkster, which was mainly "Black" as "the undesirables" and actively encouraged discrimination. There was also another enclave, called Hamtramck, a polish enclave city surrounded by Detroit.

Check the demographics there now, Dearborn has sold itself, there can now be found the largest Arabic, Armenian, Iranian, and Iraqi immigrant populations in the US, and the once ridiculously paranoid anti Russian "White" population has celebrated Stanley cup victories by a largely Russian Detroit Red Wings.

Oh we like furriners, Because they are bringing money, and the US born poor can take a hike.

This is the future for all of America.

[harp1963]

It seems like we''ve been in recession ever since George Bush became President.

[b0ludo]

I guess we could always try to do what France does and bring in tourist dollars, what with the cheap dollar, we should be a cheap trick to anyone going on Grand Vacance... We got plenty of things to show visitors... The rust belt, South of the Border, plenty of Starbucks and there is the Grand Canyon and South Beach... Oh, I forgot, we don''t like them furriners or their money.

[usayesterday]

...I''''d bet my savings on the fact that the "anti-christ" will be a modern American conservative!

Posted by USAyesterday at 12:22 AM : Jan 10, 2008
..........

I know my statement above is rhetorical...

...but one cannot help but observe the actions of the modern American conservative and think that the biblical description of the "anti-christ" is not too dissimilar.

[brianbwb-2009]

to ST

I find myself in the strange position of defending Nixon, it wasn''t only his manipulation, remember, the secret activity that we call Vietnam started in 1956 during Eisenhower''s term, in Cambodia, and Laos, Kennedy was killed for wanting to end it, Johnson escalated it into Vietnam with his own version of 9/11, called the "Tonkin Gulf incident".

Nixon had absolutely no choice, he was forced to do what he did, the war profiteers had stolen an estimated $13 trillion between 1956 and 1972, when the "war" in Vietnam ended. The only reason that Carter gets blamed for inflation was that Nixon, in order to keep it in check, instituted a wage and price freeze, limiting wages and prices from rising more than 10% per year, which expired when Carter took office, after which, the Republicans would not let him extend the freeze.