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65% probability – recession by end 2015

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65% of probability for a recession by end 2015. Yes, you can read this on many news site online. This is the latest prediction by a company which was famous for its accurate predictions of the 1929 crash as well as the recent mortgage crisis beginning in 2007. The Jerome Levy Forecasting Center said that its half dozen analysts have attached a 65% possibility of a worldwide recession by end of 2015. It’s chairman said, ‘clearly the direction of most of the recent global economic news suggests movement towards a 2015 downturn’. Of course, this prediction is on the other end of what Morgan Stanley and Goldman Sachs are saying. The two banks predicted that the current expansion in the US market still has plenty of room to grow. Earlier, another prediction. Read here: 9 Months, Financial Crisis may happen – Arturo Bris of IMD

The reason for the prediction? The Jerome Levy Forecasting Centre said that it’s because many advanced economies still have balance-sheet excesses exposing them to renewed financial crisis. There’s just not enough room for any of the policy makers of these economies to reverse any slump that may occur. (I think he was referring to the already very low interest rates of many of these advanced economies) Besides this, American companies are also getting a historically large proportion of earnings from abroad. (If external markets slowdown, it will impact all these American companies easily) Lastly, households are vulnerable to any bear market before their ratio of stocks to disposable income is higher than any point aside from the start of this century. (As soon as the stock market declines continuously, many households would face financial difficulties)  Remember all those reports about Bursa Malaysia being in trouble when there were lots of selldowns by foreign funds? Well, for those people who were hugely exposed to Bursa Malaysia stocks based on a speculative mode, they might have been hit pretty hard during those few weeks.

Do note that if America goes into a recession, the sentiment is likely to turn bearish here in Malaysia even if America is no longer our largest trading partner. It’s just 4th largest today behind Singapore, China and Japan. So, even if you do not believe of such a prediction, it’s best to still keep it in mind before you buy even more properties or stocks from the stock market. I think our property market should be ok, especially those for the middle income group. However, the high end ones, I am not sure if the middle class is able to save fast enough to buy them so soon. One latest article quoted over 4,000 units of the luxury condos coming into the market by Q4 2014. Here: New launches same area, lower priced than previous launches? Post-GST ‘trick’?  Happy thinking about this and then deciding.

written on 11 Nov 2014

Next suggested article: Lacking in financial awareness today? Peril awaits.

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