CHRISTOPHER THORNBERG: DOUBLE DIP IS COMING IN 2011

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