Gauging the Chances of '07, '08 Recession

Peter Boockvar, equity strategist at Miller Tabak, told CNBC’s “Morning Call” that the U.S. economy could slip into recession in the second half of 2007 or early 2008.

“The fundamental case for my caution continues to play out,” Boockvar said Monday. “The U.S. economy is slowing dramatically, as evidenced by Friday’s GDP number, today’s real spending number being negative, and the anecdotal evidence I’ve gotten from (retailers), airlines and automakers. The economy, I think, could see a recession in the second half of this year or early 2008 -- and it’s not going to be good for most stock prices.”

On Monday, the U.S. Commerce Department reported that consumer spending on all items rose 0.3% last month, the slowest increase since a similar rise in October. But income rose by 0.7%, the fourth straight solid month of income growth.

Boockvar said the stock market is boosted by stock buybacks, but “organic earnings” continue to slow. Earnings appear strong, but only against sharply lowered expectations. Exports are strong, but represent only 8% of the U.S. economy and therefore aren’t enough to offset sluggishness elsewhere.

“The bull market continues to be in commodities -– precious and industrial metals, as well as agricultural products,” Boockvar said. “Stocks tied to those areas have done tremendously well, and I expect them to do well. But keep in mind that the industrial metals will be subject to pullbacks if the U.S. economy were to go into further declines in growth. Agricultural commodities will be much less sensitive to that. Fertilizer companies will benefit. Precious metals – -the dollar is obviously in trouble; it’s near its lowest level in many years –- so gold and silver will be a beneficiary.”