Predictors of 1929 crash see 65% chance of 2015 recession

In 1929, a businessman and economist by the name of Jerome Levy didn’t like what he saw in his analysis of corporate profits. He sold his stocks before the October crash.

Almost eight decades later, the consultancy company that bears his name declared “the next recession will be caused by the deflating housing bubble.” By February 2007, it predicted problems in the subprime-mortgage market would spread “to virtually all financial markets.” In October 2007, it saw imminent recession – the slump began two months later.

The Jerome Levy Forecasting Center, based in Mount Kisco, New York, and run by Jerome’s grandson David, is again more worried than its peers. Its half-dozen analysts attach a 65 percent probability of a worldwide recession forcing a contraction in the US by the end of next year.

That call runs counter to the forecasts of Morgan Stanley and Goldman Sachs Group The two banks posit an expansion that has plenty of room to run.

“Clearly the direction of most of the recent global economic news suggests movement toward a 2015 downturn,” chairman David Levy told clients in an October 23 edition of a monthly forecasting report, which at over 60 years purports to be the oldest of its kind.

While the US is doing relatively well, Levy is worried that at about 13 per cent of gross domestic product, US exports represent their largest share ever.

American companies also are getting a historically large proportion of earnings from abroad and households are vulnerable to any bear market because their ratio of stocks to disposable income is higher than at any point aside from the start of this century, he said.

“Without first strengthening substantially, we think it highly unlikely that global financial stability will hold together long enough for the Fed to signal and execute a rate increase,” he said.

Full article: Predictors of 1929 crash see 65% chance of 2015 recession (The Age)

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