Johannesburg - Scenario planner and economist Clem Sunter said during a BDO seminar on Tuesday evening that America is in a
hard times scenario, and it seems like their recession is starting to spread like a virus, with consequences for stock markets around the world.
"One of the consequence is you will not make as much money on stock markets as over the previous four or five periods of ten years. So it will be tougher," he said.
However, he feels South Africa will probably have a softer landing than many other countries due to resources, tourism and infrastructure benefits.
Sunter notes that while the world average economic growth rate since 1980 has been 3.5% and "we have never had it so good", the world is in a much tougher state than it has been for around 30 years.
He says America is in a classic recession scenario, with the trigger having been a decline in the US housing market as American consumers account for 21% of the global economic pie.
"Young people simply haven't experienced this hard times scenario," he added.
'Something dramatic going on'
Sunter notes that house prices in the US are down between 15% and 20% on what they were nine months ago and in some states are down 50%.
He points out that the fact that Freddie Mac and Fannie Mae, with combined mortgages of an estimated $5.5 trillion, went belly up and needed to be saved by government should make people realise something dramatic is going on.
"The question is can America have a private recession or will it spread like a virus. Well, it seems like it is spreading," he said, noting that the UK's Chancellor of the Exchequer Alistair Darling said recently the UK situation is the worst in 60 years - with house prices down on top of the Northern Rock debacle.
"We haven't seen this since late 1970s," he says.
Sunter points out that one of his friends who wants to retire in the UK is trying to sell his home for £4m, but the best offer he has received is just £1.6m - 40% of the asking price.
"It has even spread to South Africa - you can't sell a house here," said Sunter.
"Things are getting very tough," he said.
"We had minor recessions in 1998 and 2001 - but nothing like we are seeing now," he said.
Politics getting in the way
He adds that in addition to the classic recession scenario is military action and the threat of military action, like a US invasion of Iran as Iran continues with its nuclear posturing and the US continues with its threats.
"There does seem to be a showdown scenario," said Sunter.
He concluded that the Russian bear was now a new concern after its invasion of Georgia.
"The Russian invasion of Georgia is huge," he said.
He adds that Pakistan has an estimated 100 nuclear warheads and this is serious if it falls into the wrong hands.
"It is difficult to make a judgement on Pakistan - now that [Pervez] Musharraf has been forced to resign there might well be another round of unrest as parties seem to have split," says Sunter.
"So there is major uncertainty and we're in the age of turbulence, which we haven't been in for 30-40 years."
"There are lots of flags and possibilities that have to create a tougher global scenario going forward," he said.
He said that while some may point to China and India forging ahead and saving the world.
"But that's why do scenarios - you have to choose between the long boom and the hard times scenarios."
- I-Net Bridge