Slideshow: Apocalypse How? Dire ’12 Forecasts

By Ben Steverman - Jan 13, 2012 http://www.bloomberg.com/money-gallery/2012-01-14/apocalypse-how-dire-2012-forecasts.html#slide1

Meredith Whitney

After correctly predicting Citigroup (C) would cut its dividend in 2008, Meredith Whitney, now chief executive officer of Meredith Whitney Advisory Group, told CBS's '60 Minutes' that municipalities would hit bond investors in 2011 with defaults totaling "hundreds of billions of dollars." Individual investors fled muni bond funds. Yet munis had a relatively good 2011, with defaults totaling $2.6 billion, according to Municipal Market Advisors. Whitney told Bloomberg Radio on Jan. 5 that she's still pessimistic: "Things are playing out in ways that I expected. I think that 2012 is worse than 2011, and 2013 could be worse than 2012."

(Left, Helena Kozlowski, widow of a retired Central Falls, Rhode Island, firefighter. The state-appointed receiver running the city asked retired police officers and firefighters to accept pension cuts to help avoid bankruptcy.)

Nassim Nicholas Taleb

The author of the best-selling 2007 book "The Black Swan," Nassim Nicholas Taleb said last June that the U.S.'s debt situation was worse than that of Greece. "The difference between Europe and the U.S. is the consciousness of the problem," Taleb said in September. He warned the world's predicament is more dire than in 2008. "And, we will pay a higher price," he said in October. "We haven't done anything constructive in three and a half years. Nobody wants to do anything drastic now." Asked about these statements, Taleb wrote in an Jan. 12 email: "These are not predictions but statements of riskiness."

John Hussman

Encouraging data about the U.S. economy in December and early January failed to impress John Hussman, president of Hussman Econometrics Advisors. He insisted in a Jan. 9 commentary that the full set of economic evidence still implies "a nearly immediate global economic downturn." The "marginal" improvement in data does bring the probability of recession to "less than 100 percent," he said, "but it remains the most probable outcome at present."

Jim Chanos

Short-seller Jim Chanos, founder of Kynikos Associates, gained fame when he predicted Enron's collapse in 2001. In late 2011, he was betting on an even bigger failure -- that of the financial industry of the world's second-largest economy. "The Chinese banking system is built on quicksand and that's the one thing a lot of people don't realize," Chanos told Bloomberg Television in late November. "The banking system in China is extremely fragile," he said, because of non-performing loans made in the late 1990s and early 2000s. On Jan. 13, a Bloomberg story cited a China Banking Regulatory Commission statement asking large banks to make "sound" business plans for 2012, and noting challenges to "a steady development" of China's economy.

Peter Schiff

Chief executive officer of Euro Pacific Capital, a radio host and an unsuccessful 2010 U.S. Senate candidate in Connecticut, Peter Schiff has long criticized the Federal Reserve for "printing" currency and favored gold and foreign currencies over the U.S. dollar. The dollar's recent advance is a "lucky streak" that could end in a bad way, he wrote in a Jan. 10 commentary. "When reality rears its ugly head, and the spell breaks, the reverses can be vicious," he said. "It happened with dotcom stocks. It happened with real estate, and I believe it will happen with the dollar and Treasuries."

Mark Spitznagel

In the next few years, Mark Spitznagel estimates the S&P 500 index will drop 20 percent, with a 20 percent chance of a correction larger than 40 percent. Spitznagel runs Universa Investments, a doomsday "black swan" hedge fund designed to profit from such declines. (Black swans are hard-to-predict events that have major impacts.) "We are living in a world central bank oligarchy, with Bernanke as ringleader, and it has created an economic tinder box," he said in a Jan. 12 email. "Too much malinvestment has been kept alive, and history shows an inevitable wipeout, which started in 2000."

Stephen Roach

The non-executive chairman of Morgan Stanley Asia, Stephen Roach, expects U.S. consumer spending to remain weak "for years to come," hurting global economic growth. "With balance-sheet repair only in its early stages and the personal saving rate (at 3.5 percent) still decidedly subpar, the zombie-like behavior of American consumers should persist," Roach said in a Jan. 12 email. He's not as gloomy on China. "All this China crisis talk is really overblown," he told CNBC in late December. He's more worried about India's economy, he said, noting that it's the only economy in Asia with "a big budget deficit, which limits their ability to use monetary or fiscal policy."

Jeremy Grantham

Jeremy Grantham, chief investment strategist of GMO, warned in 2009 that the world, and particularly the U.S., was in for "seven lean years" as it recovered from debt, declines in asset values and "gross financial incompetence." In December, Grantham wrote that "Sadly, I feel increasingly vindicated" by this forecast. Also, he says, economic growth in the U.S. and developed world "have permanently slowed." Other factors that will hurt the economy include "depleting resources," global warming and, in the U.S., failing infrastructure, an ineffective educational system and income inequality.

David Rosenberg

On Aug. 5, David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, warned on Bloomberg Radio of a 99 percent chance of recession in the U.S. He backed away from this on Jan. 9 on Bloomberg Television, but said this year will be more challenging for the U.S. than the last. The economy "is still fragile and this recovery is quite spotty," he said, warning of "headwinds" from overseas including a European recession and a possible slowdown in China. "I see barely more than 1 percent growth in 2012," he added in a Jan. 12 email, "so yet another year of economic deceleration."

Michael Panzner

Michael Panzner wrote the book "Financial Armageddon" in 2007 and an equally gloomy tome in 2009: "When Giants Fall: An Economic Roadmap for the End of the American Era." On his blog, Panzner describes "an economy teetering on the edge of disaster," and criticizes those betting on recovery. "It appears somebody put too much Kool-Aid in the optimists' eggnog," he wrote Dec. 28. In a Jan. 11 email, he said: "The fundamental outlook is even worse now than it was a few weeks ago, given (the lack of positive) developments in Europe and growing evidence that the economies of major countries around the world are deteriorating fast."

John Mauldin

John Mauldin, president of Millennium Wave Advisors, says Europe will "fall apart" in 2012. After Europe and then Japan struggle with their fiscal problems, "the U.S. is going to have to deal with our own issues," he told Bloomberg Television on Dec. 20. "We've got a cancer. That cancer is debt," he added. "The longer we take to solve this problem, the more difficult it's going to be." It will take four to five years for the developed world to get out of its debt mess, he said.

Peter Thiel

A cofounder of PayPal and early investor in Facebook, Peter Thiel is worried technological progress has stalled, a running theme of his speeches and interviews in 2011. Without more rapid advances, "people will have a lower quality of life, where people won't be able to retire, where governments are pushed toward more and more austerity," he told Bloomberg Businessweek in February. "That will lead to a more constrained, pessimistic future." Thiel has funded a variety of unconventional research projects because he says run-of-the-mill technology doesn't impress him. He told the New Yorker in November he doesn't consider the iPhone a "technological breakthrough."

Gary Shilling

A. Gary Shilling, president of A. Gary Shilling & Co., warns of a "severe" recession in Europe in 2012, potentially worse than the U.S.'s 2008-2009 slowdown. Without a common fiscal policy in Europe, "it makes it much more difficult to react to weak economic times," he says, speaking in a Jan. 12 interview. Also, U.S. consumers will pull back on spending this year, he says. They spent more freely until December, "but they didn't have the income advances to support it." In China, he predicts a "hard landing" in 2012, with growth falling from "double digits" to 5 or 6 percent.

Bill Gross

"The financial markets and global economies are at great risk," warns Gross in his Jan. 2012 investment outlook letter. Gross and others at Pacific Investment Management Co., or Pimco, had been predicting a relatively orderly period of slow growth and gradual debt reduction in the developed world. After a disappointing 2011 performance for the fund he manages -- the largest bond fund in the world -- Gross now forecasts a far more unpredictable future, with equal probability of either "deflation" or "re-flation."