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Financial experts see recession ending this year

A group of financial wizards looked into their crystal ball Tuesday and saw some good news.
/ Source: The Associated Press

A group of financial wizards looked into their crystal ball Tuesday and saw some good news.

The recession will ease by the end of this year and companies will begin adding workers, signaling the end of the worst economic downturn since the Great Depression.

It was the 64th day of the Obama administration and Chicago-based Dow Jones Indexes assembled a group of financial experts to assess the impact of government actions, whether they will work to stem the recession and what opportunities that might present investors.

The recession has affected every region of the country and nearly every sector of the economy, said Gus Faucher, director of macroeconomics at Moody's, which conducts independent research and provides economic forecasts.

"It's really unprecedented in the U.S. to have nearly the entire country in a recession simultaneously," he said.

The good news is there's an end in sight.

The economy will pull out of the recession at the end of this year, marking a duration of 24 months, about twice as long as the average post-World War II recession, Faucher said.

The unemployment rate is expected to peak at nearly 10 percent in the first half of 2010. Without the $787 billion government stimulus package, he estimated job losses would have continued into the second half of the year and peaked at about 12 percent.

"That would take what is now a severe recession and actually turn it into a deep depression," he said. "We think the fiscal stimulus package is vital in turning around attitudes toward the economy."

He said we are at or near a stock market bottom and stock prices should soon stabilize.

That certainly wasn't the case so far this week. The Dow Jones industrial average gained 498 points on Monday but dropped 115 points, or 1.5 percent, on Tuesday.

Home sales will turn around by midyear and home prices will begin recovering by the end of this year after bottoming out at 35 percent of their value from peak to trough. Home prices won't return to their values of a few years ago during the boom, but will recover from current lows, he said.

Banks will likely begin seeing improvement in capital as the government program to remove bad assets kicks in and the Federal Reserve provides more economic support. Faucher predicted major bank and financial services company failures will abate in the second half of this year and credit will begin to move again.

Those improvements and additional government spending will provide investors some opportunities in companies that own bridges, toll roads and utilities. It also will drive growth in areas of green energy production.

The stimulus package will spend $50 billion on roads, bridges, utilities and other infrastructure, said Craig Noble, portfolio manager, for Brookfield Redding LLC, a Chicago-based investment manager of global real estate and infrastructure securities.

He sees a potential sweet spot for investors in companies that own the assets that will benefit from the needed spending. He said the stimulus package is only a small portion of government spending on transportation and utilities. Congress must reauthorize this year a multiyear transportation bill that provides hundreds of billions of dollars in spending and sets priorities for the next five years or more.

"The infrastructure class currently offers a unique and compelling investment case with trillions needed to be spend across the globe in coming years," he said.

Stimulus packages rolled out in Canada, Europe, Australia, South America and China show the global nature of the infrastructure asset class, he said.

Obama administration polices that emphasize renewable energy such as wind power will also push billions of dollars into building electricity-carrying power lines and the towers to hold them. That construction is needed to carry wind power from expanding wind turbine farms in the Midwest to population centers in the Eastern United States.