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About Our Blogger. Bill Byrnes is a co-founder of MUTUALdecision, a web site dedicated to helping mutual fund investors. He has been an investment banker with Alex. Brown and Sons and is a former Distinguished Teaching Professor of Finance in the McDonough School of Business at Georgetown University. He has been CEO, chairman and served on the board of directors of a number of public and private companies and has been the director of an institutional fund. Bill has invested for many years in mutual funds and is a Chartered Financial Analyst.Mutual Decision writes: "We would like to know your thoughts on our blog. Send us your feedback."
Posted 01/02/08 by Bill Byrnes
The MUTUALdecision Blog: "The economy faces serious challenges in 2008:
- New home sales are at a 16 year low and may go lower;
- Inflation will be high for the next few months as energy and food prices work their way through the economy;
- Retail sales will be weak, as evidenced by the Christmas season;
- Illiquidity in the credit markets will spread from mortgages to auto loans and credit cards due to financial companies tightening their lending standards;
- Adjustable rate and sub prime mortgage problems will continue;
- Corporate profits will turn negative.
Bill Byrnes: These factors will contribute to, but not cause, the 2008 recession and they will be somewhat mitigated by strong export demand (thanks to the weak dollar) and, at least for the time being, good unemployment numbers.
Bill Byrnes: The decline in the value of existing homes is what will cause the 2008 recession and cause it to be the most severe recession since the early 1980s (although not all that bad by historical standards). The bulk of the average American’s savings is in their home and their net worth is decreasing. There will be far fewer mortgage refinancings and home equity loans to monetize housing values. Declining housing values will cause/force consumers to cut back spending.
Bill Byrnes: Existing home prices were down 3.3% for the twelve months ending in November. Although sales were up slightly in November, they’re still down 20% from a year ago. Record levels of foreclosures and mortgages which rates adjust in 2008 make it unlikely the November up tick will be sustained. There will no economic recovery until housing prices bottom. The Fed will cut rates to combat the economic downturn but financial institutions stricter lending standards will mitigate the impact of the Fed’s actions. Thus, we should expect up to four quarters of negative economic growth.
Helge: Here our story begins. We don't have the same housing slump in Finland but there is a downturn in building. The Finnish economy still looks strong but we're not going to escape the problems that started in US. We've an export oriented economy and and an economical recession will of course have an impact on us as well. The US Integrity Bank in Georgia filed fro bankruptcy. The UK is waiting for a deep downturn. "Worst in sixty years time," according to national YLE TV news today at 10:04. UK experts expect that the economical downturn will be more difficult and prolonged than what people can imagine. I've no information about how true this statement is but we have 30 000 Finnish families with loans over 250 000 euros. A big part of those are with people that are probably not able to pay back the loans during a downturn. There will be restructuring of real estate ownership.