CHAMPAIGN — Both the United States and Europe will likely re-enter recession next year, the chief investment officer for Clifton Gunderson Wealth Advisors said.
Europe "most certainly" will do so, and the United States will spend the next three to seven years "on the cusp of dancing in and out of recession," Mark Griffin told about 60 business people from the Champaign-Urbana and Danville areas Thursday.
Speaking at the I Hotel and Conference Center, Griffin delivered grim news on the U.S. deficit, claiming that projections by both the Congressional Budget Office and the Office of Management and Budget are "ridiculously optimistic."
He said U.S. debt and deficits are likely to be "worse than forecast."
Griffin said the unemployment rate won't likely improve much soon — but also won't deteriorate much.
Though the national unemployment rate is 9 percent, the rate would rise to 16 percent if it counted people no longer eligible for unemployment benefits and people working part time because they can't find full-time work, he said.
Ordinarily, the nation would need to add 200,000 jobs a month to reduce the unemployment rate significantly, he said.
But government is shedding 50,000 to 100,000 jobs a month, making the task that much more difficult, he added.
Griffin said some economic signals are encouraging — namely the health of businesses.
"Businesses are in pretty good shape on balance," he said, citing "record levels of profits" and "very healthy" corporate balance sheets. Many companies are "sitting on mountains of cash," he said.
"Manufacturing hasn't fallen off a cliff like people think it has," he added. "It's doing OK, not great."
Griffin gave tepid endorsements of the stock market, saying U.S. stocks and many emerging-market stocks are relatively inexpensive.
He said he's not advising people to "rush out and buy a lot of stocks," but he doesn't think investors should be afraid of them either.
Griffin claimed that if annual market returns from the past 30 years are compared with intra-year declines during those years, volatility today isn't much different from volatility over the past three decades.
Among investments, Griffin called U.S. Treasury instruments "the most overpriced on the planet."
As for commodities, Griffin said Clifton Gunderson Wealth Advisors has had gold in its client portfolio since 2003 and still does. But at this point, he admitted, "we're a little nervous" about gold.
Griffin said he sees "no good option" for Europe. Banks that lent to Greece have "no breathing room whatsoever" and will have to take massive write-downs on that debt, he said.
He said the "least bad" option for Europe is for the European Central Bank, the World Bank and the International Monetary Fund to make unlimited guarantees to recapitalize the banks that lent to Greece.
Griffin said the United States doesn't have many options to improve its economic situation, given fiscal and monetary policy mistakes made over the last decade.
He said the Federal Reserve's latest strategy, Operation Twist, likely won't stimulate the economy, but will hurt bank earnings. The strategy, which involves selling medium-term bonds to buy long-term bonds, would effectively shrink the difference between short-term and long-term interest rates.