U.S. Housing And Autos: Primed to Start A Recession?
According to the old adage, "Housing and Autos lead the economy into recession." In theory, it should be a scary time to be in the stock market. Housing starts are off 29% and domestic auto sales have slumped 8%.
But many on Wall Street are offering an even scarier piece of investment advice, "It's different this time around." Well, is it? The “Squawk Box” team investigated. The panel was Mark Weisbrot, Co-Director At The Center For Economic And Policy Research, John Silvia, Chief Economist at Wachovia and CNBC’s Steve Liesman.
Mark Weisbrot is very bearish on the economy. He said, “In 1999, it was quite easy to predict that the stock market bubble would burst - and that when it burst it would cause a recession. The same (is happening) with the current housing bubble… and it’s already begun to burst.”
“The other negative; last year $600 billion was cashed out in equity, by home owners. That’s already dropped to $350 billion this year - and it’s already slowed the economy. With these two things together, it’s hard to see how we can avoid a recession.”
John Silva is much more optimistic. He said, “When you look at each economic recovery and recession – of course, there are always similarities– but each is also very different. (In terms of what's happening now) start with the great moderation story – while autos an housing will slow (the current) economy, the way we do business, the way we purchase, the diversification in the US economy, all suggest slowdown but not recession. The globalization of capital markets has really made a difference."
Liesman said, “ I’ve been impressed with the ability of the financial markets to cordon off risk in the place where it exists and the lack of any contagion – so far the financial system has show itself to be incredibly resistant.”