A section of Don Reynolds' Web site offers that clients and media have described him as “near clairvoyant, uncannily precise, and brilliant.”
TTMA members are hoping he turns out to be none of the above.
Reynolds, president of 21st Century Forecasting and an internationally known professional futurist, didn't paint a pretty picture. In fact, the picture he painted was even more dour than those that have been painted by various economists who have spoken at industry trade shows this year.
Are you sitting down? He says that whatever it is that we're currently immersed in — recession or economic slowdown — it might be the fall of 2009 before we emerge.
“Some of these blowhard economists out there are saying it's going to be a six-month recession,” he said. “Here's my problem: If it's going to be a six-month recession, what is the good news that is going to turn it all the way around? Is it going to be the election of (Barack) Obama as president? Because my suspicion is that if Obama or Hillary (Clinton) are in there, the first two things they're going to do is raise taxes and implement protectionist legislation — not good for the economy. I'm not sure what (John) McCain is going to do; he hasn't told us.
“Is it going to be our good friends, the Chinese, who we owe a trillion dollars to? Are they going to bail us out? We owe the Japanese $600 billion, the Taiwanese $250 billion, the Koreans $300 billion, and Europe $500 billion. We owe $2.5 trillion in overseas debt. Why do people not want our dollars? It's hard to understand.
“My suspicion is that Wall Street is anticipating six months of recession. Economists are still arguing over whether we have a recession. When you go from 4% GDP to 0.6%, that's a major slowdown. Somebody once said when the next-door neighbor doesn't have a job, that's a recession. When you don't, that's a depression.
“The common statement is that Wall Street can recover six months before the economy recovers. And that's generally probably true. The problem I have is, what if we're going to have not six months of recession or economic slowdown, but maybe a year to 15 months? If you're looking for sunshine, if you're looking for good news, if you're looking for a new vacation, if you're looking for business, it's potentially possible that those wonderful things might not happen to any great degree until the fall of ‘09.
“I could be wrong about the recession. But I don't think I'm wrong that we're looking at another year to 15 months of, best case, a muddle-through, which is slow growth.”
Some good news
He said there are a “handful” of bright spots — led by the export business' position in light of the decline of the US dollar.
“It's a whole lot easier to sell your product outside the US,” he said. “Some of you are wondering, ‘Is that a market I can consider?’ One of the great stories of the 21st century is going to be Latin America. I think Brazil is going to continue to accelerate as a major economic leader.”
In addition, he said America's public infrastructure is going to need a lot of work in terms of replacing roads and bridges — work that will require at least $3 billion worth of unfunded rebuilding and replacement.
On the down side, the price of aluminum is more volatile.
“We all know to produce aluminum, you have to burn a lot of natural gas, and natural gas has gone up,” he said.
How did the picture get so bleak?
“National real estate declined 16%, and will certainly decline by 20%,” he said. “I don't care where you're at — the value of your home is important to you.
“If there's $20 trillion worth of value in residential real estate and it declines by 20%, did we just suck $4 trillion out of the economy? The stock market may have gone down, so we sucked another $2 trillion out of the economy. Banking looks like this: For every $1 of reserves, you can have $10 in loans. So if the banking industry writes off $300 billion worth of loans, did we suck $3 trillion worth of loan capacity out of the economy? How do you grow the economy if you've wiped out $10 trillion in net worth of loan-paying ability? I fundamentally do not know.”
Reynolds said the housing-foreclosure picture could get even darker. He said that early in 2006, mortgage companies noticed that the flow was slowing down, so they decided the best thing to do was to lower the underwriting standards.
“In two years, which is now through fall, these loans start coming due — and these loans were made to people who were less qualified than the people who took out loans that are in trouble now,” he said. “So the second shoe is yet to drop. We could potentially have three million foreclosures.
“We all know every time there is a foreclosure, the value of property in that neighborhood is going to drop a little bit because it's going to be a cheap house to buy and generally its looks a little worse. If you're a legitimate homeowner not in financial trouble and need to sell your house, you're going to be impacted. Is it safe to say that residential real estate cannot recover as long as the number of foreclosures is increasing? The number will likely increase.”
It's a dangerous scenario, he said, because it is getting into the heads of consumers.
“In terms of your personal economic psychology as a consumer, has it gotten more negative in the last three months?” he said. “And if it has, how much more likely is it that you will not be spending as much money? Two-thirds of the American economy is based on consumer spending. And consumer psychology is the worst it's been in 15 years.
“The Fed says, ‘We're not worried about the economy. Inflation has slowed down.’ The Fed produces an inflation number every month, and that inflation number excludes food and energy. How many of you in this room do not use food and energy? Come to the front, because I want to understand how you do it. I'm sorry, but we have inflation.”
Then there's the stock market.
“The S&P stock index essentially is sitting at the same place it was nine years ago,” he said. “The New York Times termed it as the ‘lost decade’ for stock-market investors. My suspicion is that we will continue a sideways pattern in the market for a few years. I'm emphasizing dividends. I'm buying dividends.”
Reynolds said many trailer manufacturers are in a “hunker-down strategy.”
“Some of you are still enjoying some business,” he said. “Almost every one of you have a deep concern of, ‘How bad is the economy going to get and how long is it going to last?’ I talked to a gentleman a few minutes ago who said, ‘We've managed to pay off all of our debt. We anticipated something like this, so we were somewhat prepared for this event.’ If you're the leadership of your own companies, you're in planning mode. You're looking out into the future and saying, ‘What are the events that are going to happen and what should we be doing?’
“You need to have some insight as to how markets work. The punch line is, ‘It ain't over yet, and it's going to last longer than you thought. Or maybe it's going to last longer than you want.’ I'm sorry if you don't particularly care for that message, but a realistic understanding of future events is absolutely crucial to the success, and in some ways the long-term survival, of your companies.
“Everybody feeling good? Cheering? Happy?”
Ah, not exactly. But thanks for asking.