PRINCETON, NJ-By year’s end, the capital markets will start showing signs of recovery, predicts Dr. Peter Linneman in a white paper released last week. Linneman, chief economist for locally based NAI Global, cautions that full recuperation will take years, but the markets’ vital signs are evident now.

“There is no doubt that capital markets are rebounding, as witnessed by the nearly 60% bounce in the stock market since the low in March 2009, and the greatly narrowed spreads on LIBOR, high-grade corporate debt and, more recently, junk bonds,” Linneman writes in “Capital Markets Show First Signs of Recovery,” the newest in a series of white papers. “Bank excess reserves at the Fed remain slightly over $1 trillion, suggesting that these banks could create $7 trillion-$8 trillion in new loans.”

Financial institutions are still reluctant to lend, a fact that Linneman ascribes primarily to their increased focus on “dealing with Washington and problem loans, as well as the difficulty of making good loans in a world of falling asset prices. But as asset prices have hit bottom, we expect a return to selective lending by banks.”

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