Analysis and Discussion with Jan Hatzius of Goldman Sachs

Transcript:
goldman achs conomists ay mortgage credit osses ill of being lost -- larger than most eople elieve and investors should xpect a renewed economic lowdown. oldman sachs' s chief u.s. conomist jan atzius is rticipating in a anel at the icago onference and joins us from that meeting. et me get your sense bout it. hink the overall ortgage credit osses ou entioned hen the being much larger than people xpect think eople ave bviously figured ut hat ubprime has some ery, very erious oblems, and hink hat s an rea here the erception as definitely caught up ith reality. t i hink in areas utside ubprime, alled a home equity loans and ven rivate redit, i hink ome rices continue to all, push more people into gative quity, that will show up in erms of igger credit losses. ow much ore do ome rices need ault the you think to really shake ut and get to the bottom of his market? e have them alling bout other 10 percent of o 15% ear, hich would basically get you ack to he aluation at we saw on rend ver the ast 30 ears. o if you look, for xample, the ratio ome rices ent, if ou go own nother 0 percent 5%. ave housing tarts today. ome eople ere encouraged those numbers. ou we ot. hy not? do not know f i ould ut uite like his, ut i would ay the increase in housing tarts target driven ultifamily tarts. ultifamily tarts ave ot really done anything. hey ave been down to round a pretty broad ange, and now we are t the very top of he range. hink e will ome backed down rom the top of he ange. d the decline in single- amily is still ongoing. ctually hink hat is absolutely necessary as part he adjustment rocess. ingle-family tarts need all further to nwind he excess. conomics 101. ow much further? eople are ooking for hese signed as a significant turn in the housing market. hey eep ooking or the number after number. ave single-family starts alling o five and a alf him. 5005 -- 500,000. hat is a small hare he otal ecline, ecause we arted out ver .5 million. ut it is still a ubstantial drop from ere think it looked at hings ike the home when a vacancy ates, a very good easure think tells ou that there s still too uch uilding going believe t or ot. en you look dp, it nice to tay ositive at least for the ast two quarters. ll we be ble o start a cession from the numbers ou are looking at? ill we ble to skirt in recession? think we ltimately will have a ecession and he business cycle dating committee he national bureau conomic research t looked monthly ata to ate business ycles, think they will ltimately determine he first half 008 is a recession. you look at ome of he monthly ata that they use such industrial roduction, payroll mployment, usiness ales, hey are in act contracting espite the gdp number. i would lso said the dp ata are subject to revision. hat aid, i did not think it will e a deep recession. re in the neighborhood zero. i think robably ow when all is said and done. ot talking bout deep drop. ill that hange if continue f boards $127 barrel r $5 gasoline at the ump s well igher food prices? > i efinitely do think that is one of the isks and it as come a igger risk. r commodity strategists hink hat increase in commodity ices, specially oil prices are going to continue. hat is omething hat will weigh n consumer pending and i ink it is lso one eason or the extraordinarily oor consumer entiment number that we got earlier. eople re seeing a high rices and are feeling the impact of nflation ore and that is weighing on entiment. he fed unds rate bout 2%. igns f the fed may want to pause? hat do you think the next ove is going to be r has to rom the fed? e really did not xpect ny moves for a long ime in our iew, oing to 2 percent was pretty uch appropriate. hink hat the fed going ind hat they want to keep nterest ates ow in order o allow the conomy to djust his ousing and credit chalk. ut i hink gainst urther retty high. t is ossible ut i do not think it s a likely outcome. ppreciate your time, jan atzius rom goldman achs.