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Thornberg, one of the earliest predictors of the housing marketcrash, explained that there are definitely some good signs outthere. "If you look at an economy a certain way, there are somegood things happening." But, he also noted that if you look at theeconomy a slightly different way, things are bad. It's similar tothose black-and-white psychological photos, he said, "where youlook at it one way and it is a light at the end of the tunnel, butif you look at it another way, it could be a train headed straightfor you."

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It is clear that the financial markets hurt the industry, henoted, "but those aren't the source of the problems." The actualcause of the problem he said, are the three big imbalances:housing, the national asset bubble and the consumer. "When you lookat the numbers, the recession is over, which is good news,"Thornberg said, "but the bad news is that it's not over because thefundamental problems haven't been fixed overall." He added that"the positive signs you are seeing are due to governmentintervention," which is now "creating its own separate set ofimbalances, such as budget deficits for example that are explodingacross the board." At some point in time, he said, "the governmentwill back off their support, and then we have to worry about thoseother problems emerging."

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Thornberg added that "this doesn't mean you should go back intoyour shell." Instead, he said to "keep your eyes open and staycautious…there are opportunities, just proceed cautiously." Hepointed to an "S" shape recovery, "and by 's,' I mean 'slow'."

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Why Aren't Banks Lending?

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Thornberg says the wrong reason for banks not lending would befor them to sit on the cash to cover their losses. "It is justanother type of asset they are sitting on." The answer, he said, isthat the banks aren't lending because there is no one to lend itto. "I know that sounds odd because there are a lot of peoplesaying, 'I can't get a loan,' but they are risky," he said. "Thepeople the banks want to give loans to are not looking for cashright now. They aren't stepping up to the plate and buying."

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The banks aren't out of the woods either, Thornberg said."Despite the fact that they get to move a lot of their assetsaside, the profit situation for the banks is quite grim." Heexplained that the bank's traditional client base isn't showing upat the door to borrow money.

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The banks aren't out of the woods either, Thornberg said."Despite the fact that they get to move a lot of their assetsaside, the profit situation for the banks is quite grim." Heexplained that the bank's traditional client base isn't showing upto the door to borrow money.

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Where are We Today?

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What worries Thornberg is what is going on with the consumer.Consumer spending has increased some, but consumer weakness willlikely continue, he said. "Businesses are a wild card, the housingbounce won't last, commercial trouble will continue, there remainsa chance of a double dip, higher rates are coming down the pike andthere is a chance of inflation," he said. "But…it isn'tpermanent."

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With all that, Thornberg still remains bullish on California inthe long run. "We are a state that when it is good, it is reallygood in California, but when it is bad, it is really bad." However,"The state has grown faster than the US since 1994 in terms of GSP,income, employment and population," he said.

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Following Thornberg's forecast presentation, experts--includingRichard Weiss, EVP and CIO of City National Bank, Carmela Ma,president of CJM Associates Inc., and Brad Cox, managing directorfor Trammell Crow Co.--joined Thornberg on stage for a paneldiscussion.The panelists focused on investment opportunities, theinternational global market, prospects for a California recoveryand the dynamics driving local markets.

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Weiss said that stocks are a good place to be because corporateprofits are poised for huge rebound, although not the only place toinvest, and he emphasized that overseas investments may be moreattractive because, "The US is slowing down." Ma pointed out thatthe US is now in "a different environment" where "everything thathappens outside this country affects us." As an example, she citedthe high foreign demand for US dollars that are viewed as a safehaven in times of global turmoil.

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Ma sees California in 'a very good position to profit especiallyfrom recovery led by Asia due to the close proximity," adding thattraffic at the ports of L.A. and Long Beach will create more jobsand growing industry sectors such as green technology education andhealthcare should help the recovery of LA's office market.

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Cox predicted that property values are going to bottom in 2010in most markets in Southern California, pointing out that pricingis difficult today because so few properties are trading. Heestimated that the true benchmark for prices in Southern Californiais probably 30% to 40% off what it once was. He noted that theflood of distressed assets that has long been anticipated has yetto materialize, and he's not sure it will. This means thattransactions will pick up in the middle of 2010 as some things cometo market, but it will not be a flood, Cox said.

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.