how ever I heard a guy on lateline business last night saying it has lot to do with house prices in the US
perhaps they trigger them
Anyway this guy - Edward Leamer - was the first to predict the downturn
Interesting thing is he said that things will pick up in 2010
But he is talking about the US economy I suspect
markets are always ahead
I'd say then that the market will pick up late 2009
if not from now.
read on v v v
EDWARD LEAMER: Well, I really think the problem is fundamentally a Main Street problem, not Wall Street problem. The reason that we have all these terrible issues with regard to mortgage-backed securities is because home prices are falling and defaults and delinquencies are on the rise. If we can get the housing markets stabilised, then that'll help out the financial market. The reason we don't know how much these mortgage-backed securities are worth, is because we don't know how bad the housing market's going to become. And we think that the US housing market's likely to turn around in the middle part of this year. There was evidence of improvement, self-healing, in the summer last year, when sales rates started popping up again. But then we had all the problem with Lehman bankruptcy and a TARP plan that scared all American consumers, sales of homes just plummeted, sales of cars just plummeted. But again in January and February, you're starting to see sales occur.
ALI MOORE: But what's driving that, given the mass of unemployment, 5,000 - 6,000 people losing their job every month. Given this constant stream of bad news, what's driving a turnaround?
EDWARD LEAMER: Well, the - lots of investors are seeing great buys in the home market in the US. The banks are just dumping those properties at any price at all. So that's bringing in the investors. And a lot of people who lose their jobs are not necessarily the ones who are gonna be buying homes, 'cause they tend to be at the lower end of the totem pole, not say the top. A lot of those people might have qualified for homes under the old regime, but they're just not going to qualify any more. So that unemployment rate, as disastrous as it is for our lower paid, younger workers, it may not have as big an impact on the housing market as many people think.
ALI MOORE: So if the housing market does pick up in the latter or the second part of this year, does that then drive a recovery over what time frame?
EDWARD LEAMER: Well, it's very quick. A typical thing happens in the US is that it's - the order of problems in a recession are homes first, and then cars, usually within a couple of quarters at most, and then the business spending on equipment and software, and last, business structures, which are offices and factories. So it's homes, cars, first and foremost. And when you come out of the recession, the same thing: the first thing to turnaround is homes, and then cars. Usually about the second or third quarter of the recession, homes start to improve. And to a large extent stimulated by very accommodative monetary policy, and then cars are within another quarter.
ALI MOORE: So are you forecasting good times by the December this year?
EDWARD LEAMER: Well, we think that it's not gonna be as good as that. We don't think that the housing market is positioned to really have the bounce back, the V-shape recovery that is normal. And the reason is that there's still price erosion that's gonna occur in the many parts of the United States.
ALI MOORE: So what does it mean? Does it mean you do come out of recession, but it's a very gradual, slow recovering, or does it mean that you lop along in that recession mode for some time?
EDWARD LEAMER: Yes, a V is a normal shape. So the first stroke of the V lasts about three quarters, you lose a couple of million jobs, second stroke of the V, you get them all back. The whole thing is over in two years.
ALI MOORE: Not this time.
EDWARD LEAMER: Not this time, no. So this thing really started in 2006. When the housing market peaked at the end of 2005, we had two years of housing problems, then we have a problem in automobiles, so already you get this sense it's much-stretched in time. So we think that the recovery is gonna be much-stretched in time too this time. We think the second half will kind of flat - not exceptional growth, but not the big negatives. And then in 2010, we'll feel a lot better by comparison.
ALI MOORE: And Professor Edward Leamer, you've forecast economic cycles before, are you feeling optimistic at the moment?
EDWARD LEAMER: Well, I forecast things before, and the way you do forecasting is by looking at the way the current data look, and take a good look at the current data and try to find things historically that are similar. Well, this is so unusual, there's nothing similar. So, we're really giving you hunches and hopes this time. But the most important thing that we need to realise is the US has been growing at three per cent per year for 40 years. And we don't think that that long-term trend has been changed by the financial crisis. So 10 years from now, we're gonna be on that growth path the same way that we've been for 40 years.
ALI MOORE: Well let's hope your hunches and hopes are right and it doesn't take 10 years. Professor Leamer, thanks for talking to Lateline Business.
EDWARD LEAMER: Thank you very much for having me.
MQG Price at posting:
$17.60 Sentiment: None Disclosure: Held
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