NEW YORK -- Is the economy growing? Shrinking? Merely stagnating? While most economists have made vacillation a fine art, Gert von der Linde has carved out a singular niche for himself by producing courageous, unhedged opinions.
Currently, Mr. von der Linde, chief economist of Donaldson Lufkin Jenrette, is gloomy about the outlook for the rest of 1991, ++ consistent with his view on the economy for the past two years. In a typically frank report published last week, he wrote, "Consumers, like cars, can't keep running on increasingly empty tanks."
His conclusion: Despite recent indications that the economy will grow in the current quarter, people don't have the money to maintain spending, particularly for the big-ticket items that tend to fuel a recovery. Unlike during prior recessions, savings have yet to rebound. Meanwhile, disposable personal income (spendable money after taxes) is actually lower than it was a year ago.
That, Mr. von der Linde concludes bleakly and forthrightly, will lead to a resumption, continuing to at least the end of the year, of the recession in the quarter that begins today.
Never one to accept the "soft-landing" hypothesis or simila bromides about the economy, Mr. von der Linde also challenges the optimists' view that the recession will lessen inflation, which, in turn, will lower interest rates. That is a view based on the widely held premise that a slow economy inevitably breeds low prices.
But for Mr. von der Linde, nothing is inevitable. He notes that average hourly income and the Producer Price Index for finished goods have both been up in recent months and that the longer-term drop in the index, stripped of food and energy, has been minimal since the recession began last July.
That suggests long-term rates are likely headed higher with the "so-called" recovery.
Although a wave of bankruptcies and lackluster sales have punctuated the current recession, incisive and bearish commentary has become scarce on Wall Street as investment banks have taken to purging skeptics.
Mr. von der Linde's forecasts must be especially painful for a brokerage, since it has negative implications not only for stocks (because of a slow economy) but also for bonds, because of his suspicion concerning continuing inflation. Moreover, he has been harsh critic of excessive debt, despite the large business DLJ has built in leveraged buyouts.
But Mr. von der Linde says the last time he was censored was two decades ago when, shortly after he left a teaching position at Stanford University, DLJ made an abortive attempt to homogenize the outlook of its analysts. His forecasts proved accurate and, whether optimistic or pessimistic, have been published as stated ever since.
They have not, however, received broad attention from the public. Because he is shy, Mr. von der Linde avoids publicity and never engages in the self-promotion that characterizes many of Wall Street's better-known economists and forecasters. Talk shows, routine quotations and appearances on the evening business shows are shunned.
His reports, however, are circulated to DLJ's customers and have an intense following because they frequently shun the consensus and have an unusual ability to sort through the reams of official statistics describing the economy.
"He seems to have numbers under his fingernails," remarked James Grant, editor of Grant's Interest Rate Observer, a popular financial newsletter.
An example was Mr. von der Linde's consistent insistence that the government deficit projections would be far worse than either the government or private economists were forecasting. "The May numbers vindicated him nicely and characteristically," Mr. Grant said.
Similarly, last week's final downward revision of the gross
national product, which showed the economy had been even weaker than expected during the first quarter, conforms to Mr. von der Linde's earlier interpretations. Further downward revisions, Mr. von der Linde predicts, will emerge when the next revisions are made in November.
He has, he admits, been on occasion overly pessimistic. His statement in mid-1989 that the recession had already begun proved premature. "I was too early," he acknowledges.
Still, his skepticism remains, perhaps because he has firsthand knowledge of how an essentially healthy economy can just let go. On the wall behind his desk, Mr. von der Linde has framed sheets of paper that at one time were probably among the least valuable items in existence -- currency notes issued in Germany's Weimar Republic during the hyper-inflationary period prior to the Nazi takeover.
Some of the notes were issued by the bank run by Mr. von der Linde's father, who, like many other German workers at the time, received his salary twice a day.
"With the morning salary we could buy bread and sausage, by the following day, barely a match," he recalls. "I have an ever-abiding horror of inflation."
Typically, when analyzing indicators, Mr. von der Linde searches for similar patterns dating back not only years, but generations. Thus, when reviewing the effectiveness of Federal Reserve stimulus in a recession, he reviewed not only the 15 domestic contractions since the Fed was formed in 1914, but also the 15 prior ones dating back to 1854. His determination: Excessive faith in the ability of the Fed to heal the economy is misplaced.
As encouraging reports on employment, retail sales and industrial production were leading other economists to believe the recession was ending, Mr. von der Linde was noting that one quarter of positive growth doesn't necessarily mean the end of a recession. Positive quarters had occurred in the middle of five of the last eight recessions, he pointed out.
"The genuine issue is not a positive GNP report," he wrote in a report co-written (as is almost all his published work) with DLJ economist and demographer Richard Hokenson, "but whether or not a foundation has been laid for sustained economic recovery. We think it has not. . . . This recession is still unfinished business."
The current contraction in the U.S. economy, he believes, is outside the ability of the federal government to control. The high deficit means stimulative government spending isn't feasible, and the persistence of inflation means monetary policy will be similarly unavailing.
The surge in bankruptcies will continue, and the best cure is most likely to just suffer through this period until the "private economy" provides its own "regenerative power," he wrote in another report.
"The worst outcome for the rest of 1991 would be another force-feeding monetary policy frenzy that could at best produce a temporary blip in economic activity, with more inflation and stagnation to follow -- and possibly worse to come thereafter," he said.
Still, despite his near-term concerns, Mr. von der Linde is surprisingly optimistic about the eventual recovery. In the last seven recessions, the economy has ultimately responded each time with a vigorous expansion, particularly in the first year.
As long as government intervention is restrained, "it's reasonable," said Mr. von der Linde, that this will be the case again.
"The longer the recession continues, the more ordinary demands are postponed and the less likely inflation will be a problem," he said.