Five Scary Scenarios

While the official word is the recession is over, the U.S. economy doesn’t seem to be out of the woods. We still have weak consumer spending news, lender CIT Group filed for the nation’s fifth-largest bankruptcy and unemployment increased again!

So could this recovery still be going off course? Five money managers and financial gurus shared their worst-case scenarios for the market and the economy. From runaway inflation to sky-high deficits that force the government to slash Social Security and Medicare, here are five fears that still keep the experts up at night.

1. Runaway Inflation

“I don’t think we’ll have a crash like the last one, but the risk that we will have a significant bear market is very real. There could be several catalysts. For one, European banks are undercapitalized and overleveraged — far more overleveraged than U.S. banks. So the likelihood of a major European bank failing in the next two to four years is significant. Also, the likelihood of the commercial real estate sector in the U.S. suffering a significant wave of foreclosures is high. A third risk is any sort of geopolitical shock, such as another terrorist attack or a small war starting in another country. The fourth — and arguably the biggest — potential catalyst is that our aggregated indebtedness as a nation has gotten totally out of hand. Rampant inflation is a serious risk if we keep spending $1 trillion to $2 trillion more than our tax revenues.”

Robert D. Arnott
Chairman, Research Affiliates

2. Stagflation

“The most likely nightmare scenario is inflation, and even possibly stagflation. Prices are headed up for raw materials like oil, copper, grains, cement, nickel, and iron ore — all the things necessary to grease the wheels of an economy. That could put a real damper on the market’s recovery. Historically, commodity prices have remained quiescent during the initial period of an economic upturn. This is the first time in 40 years we’ve seen an immediate rise in commodity prices as the economy is just starting to come out of a recession. That price increase will start to be a drain on the consumer. And if we can’t get employment restarted in this environment, you end up with stagflation.”

Jerry Jordan
President, Hellman, Jordan Management

3. Crippling Government Debt

“The U.S. government has $65 trillion in future promises on its books. I see three potential ways to manage those obligations, and none of them are pleasant. One would be to manage our economy to a sufficient growth rate with moderate inflation to pay off all those obligations. That would require a reversal in policy from large deficits to large surpluses through much higher taxes and a significant contraction in government spending. There is no political will for that now, and even if it were accomplished, there would be such high volatility in the inflation rate along the way that investors would periodically be terrified. Two, we could succumb to the temptation to print the money needed to pay these obligations until inflation soars and the dollar becomes completely devalued. Or three, the government could default on paying some of its debts, potentially by significantly raising the age to receive Social Security or cutting back on Medicare. If that happens, there will be major social implications because people have paid into these systems for years and feel entitled to these benefits. To me, scenarios one and three are the most likely at this point.”

Jeffrey Gundlach
Chief Investment Officer, TCW Funds

4. A 10-Year Japanese-Style Recession

“My biggest fear is the U.S. becomes like Japan. During their economic crisis in the 1990s, the Japanese lowered interest rates to zero, never forced their ailing banks to write down their bad assets, and threw a ton of money at bad banks that accomplished nothing. That looks like what we’re doing right now. We’re not requiring banks to take write-downs, and we’ve suspended mark-to-market accounting so that banks can hide their losses. And we’re propping up banks that are borderline insolvent with billions of dollars in government assistance even though they’re not lending as they’re supposed to do. If we follow Japan’s model, we may have Japan’s results — 10 years of subpar economic growth and a lot of government spending on zombie banks that refuse to lend. The Nikkei stock index has fallen more than 70 percent from its 1989 peak as a consequence. That could be our future.”

Barry L. Ritholtz
CEO, Fusion IQ, and blogger at The Big Picture

5. The Dollar Collapses

“For me the next market crash is not an if but a when. It will start with the government continuing to print money till the dollar collapses. China, Europe, and Japan are the biggest holders of U.S. currency in terms of Treasury debt, and they’ve already indicated an interest in selling some of their positions. That will put further downward pressure on the U.S. dollar. Meanwhile, unemployment will continue to creep up. Seventy percent of the gross domestic product of our economy is from consumer spending. With unemployment high, spending will go down. If inflation picks up, as it will with the dollar falling and oil already hitting $80 a barrel, the Fed will raise interest rates and make it harder for consumers to borrow money to spend. Then the X factor is, God forbid, that there is another terrorist attack. With so many potential negatives on the horizon, I’m just not buying this current rally.”

Neil Menard
Principal, Steben & Company


Boxee & Crunchyroll Bring Anime to your PC or TV

For my daughter Lindsey Sullivan, she loves Anime!

From Mashable: We’re big fans of Boxee, the media center software with a social twist. Boxee (which is available for Mac & Windows) not only lets you manage your digital media on your home computer or networks, it also lets you access tons of great online content straight from your TV or PC.

Today Boxee has announced that it is partnering with Crunchyroll — an online community and video site dedicated to Anime and Asian entertainment — to bring tons of legal Anime video content to Boxee (Boxee) acounts for free.

Crunchyroll boasts more than five million registered users and claims to have the largest online collection of legal Anime and Asian entertainment. According to their site, Crunchyroll’s content is “provided by Asian media leaders including TV TOKYO, Shueisha, Fuji Creative Corporation, Pony Canyon, Yomiuri Telecasting Corporation, Toei Animation, Gonzo, Munhwa Broadcasting of America, and many others.”


The new Boxee Crunchroll app, available today, lets users browse Japanese, Korean, and Chinese TV content. Users can enjoy Crunchyroll content for free, but users who sign up as Crunchyroll Anime Members can get higher quality streams (up to 720p HD video), no advertisements and access to simulcast shows as early as one hour after the Japanese broadcast. Membership starts at $5 a month, which is honestly a pretty good deal if you’re an Anime fan.


We think it’s great that more and more types of content are coming to Boxee, especially one as poplar as Anime. What do you think Anime fans? Let us know!


Old rivals brace for Kim Clijsters & Justine Henin

The  return of Kim Clijsters and Justine Henin in 2010, as well as a shorter playing season, could guarantee a new golden era in women’s tennis

That’s the feeling of the eight players who have made it through to the 4.45 million dollar WTA Championships which get underway on Tuesday.

Clijsters made a return to the sport after a two-year absence to start a family by winning the US Open. Fellow world number one Henin, who quit on the eve of the 2008 French Open, has also announced her return,  a decision adding extra spice to next year’s Australian Open where old rival Serena Williams is defending champion.

“I think it’s great to have Kim and Justine back. They got tired at one point, but they’re back.  Good for them. I would wish them luck, but I want to do well too,” said Williams.

Russia’s Elena Dementieva described Clijsters as “extraordinary”.

“I was not surprised to see her playing at this level because I know she’s a great athlete and she was capable of doing this,” said the Russian.

“It’s great to see Justine coming back. Again, it’s not a big surprise because I think with Kim and Justine, they were pretty young when they decided to retire. Justine had a big passion for the game.

“I’m sure she was missing the game and is desperate to come back and win a Wimbledon title.”

French Open champion Svetlana Kuznetsova believes the return of the two Belgians will add variety to a women’s environment often dismissed as one-dimensional and predictable.

“Every player you see has a different game. One is a hard hitter, another one is a bit defensive…every player has a different personality, ” said the Russian.

Meanwhile, Caroline Wozniacki, (winner of the Pilot Pen Tennis Tournament) who is a WTA Championship rookie as is her close friend Victoria Azarenka, hopes that the kind of versatility which took her to the US Open final will be a challenge for Clijsters and Henin.

The Danish teenager’s marathon collection of 87 matches in 2009 has been helped by her careful approach to the game. “I think there’s a place for different players,” said Wozniacki.

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