Matthew Bristow, Managing Director was quoted on bank lending and business bankruptcy filings after a recession in Oklahoma's Statewide newspaper, Journal Record. VIEW FULL NEWSPAPER ARTICLE
Has recession turned into recovery?
October 2, 2009
TULSA – Oklahoma State University economist Russell Evans believes the national recession could bottom out late this year.
BOK Financial Chief Investment Officer Jim Huntzinger is far more optimistic.
“I think it ended at the end of June this year,” said the 27-year veteran of Oklahoma’s largest bank.
Although some national observers agree with Huntzinger, Bob Dauffenbach doesn’t buy it. While he’s seen some indications of improvement, the University of Oklahoma economist expects lingering problems to keep the U.S. recession in a sustained flat bottom well into 2010.
“There’s just a wide, wide variance of opinion about where things are headed,” said Dauffenbach, director of the OU Price College of Business Center for Economic and Management Research.
“You may be having the blue-chip economists forecasting a big rebound, but they didn’t predict the downturn, so why should we trust them?
“It’s just an upside-down world and I fear it’s going to remain so for a while,” he said in a phone interview Thursday. “It’s going to stabilize, but I don’t think that’s the end of the story. My sort of best-guess as to what we’re going to look at for the next two years is periods of positives and periods of negatives. We’re going to kind of oscillate a lot around the lower edge.”
All agree on one thing: When it comes, the U.S. will endure a mild, restrained recovery, with Oklahoma continuing to perform above national standards despite today’s still-low natural gas prices and slowly recovering oil prices.
“Knock on wood, we’ve made it through this recession in pretty good shape,” said Huntzinger.
But several potential time bombs could derail both trains. While rising unemployment brings immediate concern, with Huntzinger and others anticipating national levels could reach 10 percent,many wounded retailers fear the worst from shaken consumers heading into the key holiday sales season.
Looming over those issues are worries concerning the nation’s $700 billion-plus mortgage-backed securities nightmare, rising bank failures and bankruptcies, revenue-stressed state and municipal governments, mounting war debt and military reinvestment costs, health care reform questions and the looming bill for President Barack Obama’s multitrillion-dollar economic stimulus package.
“This has been a very different set of circumstances that have set up this problem in our economy,” said Matthew Bristow, managing director of ClearRidge Capital of Tulsa. “So this could be a very different outcome.”
Those many governmental issues spiking the federal deficit raise what is, to some, the supreme chill of increased taxes – a budget-freezing point for executives even in Oklahoma.
“Clearly taxes have got to go higher,” Huntzinger said in an office interview Thursday. “The medicine we took to help get us through the recession and the economic meltdown one year ago came at a very high cost.
“But higher taxes would be problematic for the economy, as weakened as it is,” he continued. “We’ve got to find some ways around that.”
While BOKF’s executive vice president agrees the national economy’s not out of danger, Huntzinger takes his recovery position from several months of improving data topped by the Conference Board’s leading indicator index.
“They have been up five months in a row now,” Huntzinger said of the 12-element index. “And not just slightly, but rather significantly higher.” While indicators charted by the OU Price College of Business mirror some of that, Dauffenbach attributed some key spikes to Obama’s temporary stimulus, including the Cash for Clunkers program. He fears those improvements may not sustain themselves, as Thursday’s report of declining national auto sales suggest.
“Calling the recession at an end just because you bounced off the bottom is kind of an incomplete picture in my view,” he said. “There’s a lot of cheerleading going on to keep the consumer spending, to keep the consumer borrowing.”
Both Dauffenbach and Huntzinger noted positive movement in both consumer saving and spending trends, although the OU economist said the improvement needs to be stronger. Huntzinger said some of the negative data that continues to churn concerns in the press, such as rising unemployment, reflect lagging results that always trail real economic activity. He suggested national unemployment stats might show continued volatility through next year even as they slowly improve.
As for the number of troubled real estate loans and securities, which some analysts chart at more than $1 trillion, Huntzinger said falling property values have adjusted for many of those problems.
“We’re not out of the woods yet,” he said. “However, I think the market has priced itself appropriately for the magnitude of the problem.”
The lingering credit crunch remains a concern for Bristow, who like Huntzinger feels the economy bottomed out this summer. But his studies of past recessions indicate the nation’s banking system may face a $350 billion shortfall in capital needed for commercial and industrial loans vital to any recovery.
Huntzinger doubted that, although like Dauffenbach, he foresees a muted turnaround on the horizon.
A normal expansion following a recession of this magnitude might lift the nation’s gross domestic product by 6 to 8 percent, he said. Huntzinger expects this recovery to chart at just a third or fourth of that.
That paralleled Dauffenbach’s expectations, as well as an outlook of a midyear economic update issued last month by Evans and Kyle Dean at the OSU Spears School of Business Center for Applied Economic Research.
“The consumer is still overleveraged,” said Huntzinger. “He needs to pay down debt and is already doing so. He has taken the proper steps.”
Bristow’s studies indicate business bankruptcy filings, already up 64 percent in the second quarter from a year ago, could continue to increase two for five years after the recognized end of the recession, dampening any recovery efforts. Dauffenbach fears this may prove true.
Like unemployment statistics, Huntzinger suggested bankruptcies could represent trailing data to economic activity, not withstanding the key recovery role bankruptcies play in recycling capital and resources.
But he understood how the negative public perceptions brewed by that activity hampers consumer and business confidence, which Huntzinger sees as one of two key foundations for a sustained recovery.
All that led Dauffenbach to question the method of defining how or when a recession turns its corner.
“There’s all these different kinds of ways of measuring it,” he said. “One of the ways you can look at it is how long it takes you to return to the prior level of employment you had in the economy at the time when the recession began. From the year 2001 recession, that took 47 months. It took an extended time from the ‘91 recession to return to your previous end of employment.”
Under that standard, with unemployment levels increasing, today’s proposed turnaround could mark a false bottom, or no turnaround at all. Or historians may glance back and consider it a retooling period, when employment standards revised themselves.
Huntzinger expects a sustained recovery to hinge on two factors: improved consumer and business confidence, and how the federal government works through its building funding crises.
“It’s clear that we’ve got to have a plan as well thought-out as it can possibly be to take the economy out of the government’s hands and put it back in the hands of private business,” he said, expecting that to evolve over the next three to five years.
While everything from health care reform to Social Security to military infrastructure will play into how Congress and the president untangle the growing deficit, Huntzinger focused on the still burgeoning stimulus package as a prime foundation for his recovery views.
“In many cases I think it was appropriate for the government to do some of what we did, because we are clearly in better shape today than we were in September 2008,” he said. “So far, so good.
“It was the worst period of extended market conditions that I’ve seen in my life,” he said. “Much of the corporate infrastructure had ceased to operate. That’s how serious it was.”
As one who questioned several of the stimulus policies, Dauffenbach fears these approaches point to more short-term solutions. To the OU economist, the real issue reflects America’s standard of living and economic role in a growingly global economy.
“I think the cure is America waking up to the opportunities of the future, to begin saving again and investing again, making things, drilling the earth for energy and growing the economy,” he said.
“There’s this thing we call the real standard of living that we enjoy in this increasingly global economy. That’s increasingly under debt when you’re the top dog.
“It’s competitiveness, and in the long term, how do we remain competitive in a world economy?” he said. “Those are ultimately the issues we have to examine. Our standard of living is based on the real stuff we consume. That’s the malaise I see. I see us remaining on top, but on a relative sense less so in comparison with the rest of the world. I don’t know what you do about it, except you do what those countries do, which is save more.”
All rights reserved. Copyright: ClearRidge Capital, LLC, 2009.
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