In a recent presentation in Orlando, Christopher Thornberg noted the likelihood of a double dip in 2011. Thornberg famously predicted the real estate bubble, disastrous downturn in California and the high probability of recession in 2008. He is a former economist at UCLA and currently works at Beacon Economics, the firm he founded. I relied heavily on Thornberg’s analysis in helping to side-step the housing debacle and I have found his research to be not only straight forward, but well reasoned.
Thornberg says the economic recovery is mostly government induced and could lead to a double dip as the government steps aside and attempts to hand over the baton to the private sector. In the presentation Thornberg noted the continuing concerns:
- The bad news: we haven’t completely fixed the problems, instead the economy is being driven by government policy
- The worse news: government policy is causing its own set of problems: namely public debt and the potential for inflation
Thornberg says 2010 is likely to be a good year for the economy, but as the stimulus wears off the true colors of the private sector will shine through and result in a double dip. On the bright side, Thornberg notes that export growth is likely to remain strong and businesses are well positioned. Unfortunately, in the long-run, he says the following 7 negatives are likely to outweigh the few positives:
- Consumer weakness will likely continue
- Businesses are a wild card
- Housing bounce won’t last
- Banks not out of the woods yet
- Commercial trouble to continue
- Significant chance of a double dip
- Higher Rates coming down the pike
You can see the entire presentation here.
Source: Beacon Economics
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.