By Sy Harding, Posted Friday, June 18, 2010

Just a month or two ago opinions that the serious recession that ended in the last quarter of last year, will return in a double-dip later this year were blown off as crazy.

However, such opinions are now gathering credibility as prominent names join the chorus of worriers. I'm not talking about perma-bears, those grizzlies who have been calling for an economic Armageddon continuously since the market top in 2000. They failed to realize that economic cycles and bull markets did not go away. The only change over the last decade has been that the cyclical declines have been larger and closer together than was the case in the long positive economic boom times of 1982-2000.

I am talking for instance about hedge-fund manager George Soros, who made his billions by being ahead of important trend changes in both directions for many decades.

Like many, Soros is particularly concerned about the 'austerity' measures being enacted by governments around the world, including in the U.S., to tackle record budget deficits.

Soros said two weeks ago, "We have just entered Act II… The collapse of the financial system as we know it is real and the crisis is far from over… 1930's style budget deficits are essential as counter-cyclical policies [to pull economies out of recession], yet many governments are now moving to reduce their budget deficits under pressure from financial markets. This is liable to push the global economy into a double-dip."

This week he said it is "inevitable" that Europe will be back in recession by next year.

Paul Krugman, winner of the Nobel Prize for Economics in 2008, who provided a timely warning in advance of the 2008-2009 recession, warned of a next recession in a New York Times column this week. Krugman wrote, "Suddenly creating jobs is out, condemning deficits is in. Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when FDR's premature attempt to balance the budget plunged the recovering economy back into severe recession… Economic policy around the world has taken a major wrong turn and the odds of a prolonged economic slump are rising by the day."

Even Federal Reserve Chairman Ben Bernanke, while still forecasting the U.S. economy will continue to grow "at a moderate pace", said for the first time last week that he "does not rule out the possibility of a double-dip recession."

Equally astute Warren Buffett says a "terrible problem" lies just ahead for municipal bonds, that with plunged real estate values and high unemployment, too many cities and towns are just not able to collect enough in taxes and fees to handle expenditures and also make payments on their bonds.

Meredith Whitney, a prominent bank analyst at Oppenheimer in 2007, became famous with her accurate bearish call on Citigroup in October, 2007, and even before the problems that befell Merrill Lynch and Lehman Brothers was quoted as saying, "It feels like I'm in the epicenter of biggest financial crisis in history."

Now heading her own research firm, Whitney said in a recent interview, "I have the strongest conviction that there's going to be a double-dip in housing."

And apparently sharing Warren Buffett's opinion, in the same interview she said, "The issue of the municipal bond market is one that's very scary to me because you have so many states with under-funded budgets - underfunded by two and a half times the level they were underfunded after the dot-com bubble burst… People worry about the federal budget deficit, but the state budgets are more urgent since 49 states are constitutionally required to have balanced budgets." In other words, while the federal government can simply print more money and take on even more debt by issuing more bonds, states must cut jobs and programs, and raise taxes in order to balance their budgets, austerity measures unfriendly to the economy.

That's just a sampling of astute folks who are now using the DD phrase.

Recent economic reports seem to underscore their worries.

There was the very disappointing employment report for May, and the report that retail sales unexpectedly fell 1.2% in May. Those are two critical areas for the recovery, jobs and consumer spending.

I am still of the opinion that the housing industry is of more importance to the recovery, as it creates so many jobs in other areas of the economy. And the early returns regarding housing activity in May and June are certainly not encouraging.

Mortgage applications are down a huge 40% since the home-buyer rebate plan expired in April. It was reported this week that new housing starts plunged 10% in May, with single family home starts plummeting 17%. And permits for future single family home starts fell 10%.

However, most Wall Street firms and their spokesmen are confident there will be no double-dip, not even a slowing of growth. This week many are even raising their estimates for this year's S&P 500 earnings. So I guess we need not worry.