Meredith Whitney says she hasn’t been as bearish as she is now in a year.
“I look at the board, and every stock from Tiffany to Bank of America to Caterpillar is up,” Whitney told CNBC.
“But there’s no fundamental rooting for why these names are up, particularly in the consumer space.”
Moreover, Whitney says she has never seen so much consumer credit contraction.
“You didn’t see this much even in the Great Depression,” she says.
“$1.5 trillion in credit cards has been pulled from the system.”
“There’s nowhere to hide at this point.”
Whitney expects banks will do another round of capital raising because the sector is inadequately capitalized at present and foresees “another leg down” in the residential real estate market when mortgage rates and prices begin moving lower.
“We estimate that 20 percent of the capital banks have created has been through (the Fed’s agency mortgage-backed) program. . . They’re just about finished with the program and (Bernanke) has not talked about how they’re going to exit the program, which now makes up one-third of the Fed’s balance sheet.
Whitney still sees a much bigger risk related to residential mortgage exposure, rather than commercial, and advises investors to sit on their cash for a while because everything’s too expensive right now.
However, though she expects a double-dip recession, Whitney says the second half of the “W” will not be as severe.
Economist Nouriel Roubini says a double-dip recession can be avoided if stimulus measures are unwound properly.
"Hopefully, if policymakers avoid further mistakes by exiting too soon or too late we can avoid another recession," Roubini said at a recent conference in Tel Aviv.
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