The recovery from the current recession could be prolonged because of the large amount of debt in the economy, the scarcity of credit and fewer families buying homes, according to J. Dorsey Brown, chief executive officer of Alex. Brown Investment Management.
Brown's view of the economy and investment opportunities was one of three perspectives presented yesterday to the Baltimore Security Analysts Society.
"The heydays of the 1980s are over," Brown said, noting that the news in the first six months of 1991 will be "truly bad."
Alex. Brown Investment Management is a asset-management firm that is affiliated with Alex. Brown Inc., the Baltimore investment banking firm.
Brown foresees a recovery extending 12 to 18 months, rather than six to nine months, because of the following reasons:
* The unusually high level of debt held by government, business and consumers. He said the federal deficit could exceed $400 billion this year.
* Tight credit due to problems in the banking industry. "This lack of credit will certainly make recovery more difficult."
* Demographics that point to a flat or falling rate of family formations. The result is less demand for housing.
Even though Brown was bearish on the economy's prospects, he said investors should not be paralyzed. "When the news is the worst, great values and opportunities present themselves," Brown said. "If you wait for news to become favorable, it will be too late."
A more optimistic perspective was presented by Craig Lewis, president of Investment Counselors of Maryland, a Baltimore investment-counseling firm.
"We think there will be respectable growth in the economy this year," Lewis said, predicting that growth in the gross national product will be "somewhere north of 3 percent for the year."
LTC He based the upbeat prediction on the absence of overstocking of inventories and the possibility of more home-buying as mortgage rates drop. Lewis also said he expects the nation's trade balance to improve.
"This will be a year where business growth will go from negative to positive," he said, adding that a new business cycle should begin.
Stanford Z. Rothschild, president of Rothschild Co., a Baltimore investment-management firm, said there are a number of risks for the economy, particularly the war in the Middle East.
He said there is the possibility that the United States would not "win" the war. "All Saddam [Hussein] has to do is lose slowly enough and costly enough, and we lose," he said. He also warned that an improperly administered peace could lead to further radicalism of the Middle East.
Rothschild also raises the specter of the "Brazilianization" of the United States caused by growing national debt, declining educational standards and third-world type conditions in the cities. "I am only pointing these things out as risks," he told the analysts.