Greeks are bracing for a long and deep recession ahead as it begins to dawn on them that the cost of fixing the country’s public finances will entail years of economic hardship and high unemployment.

In recent public opinion polls, but also in the media, the business community, and even in ordinary dinner conversation, the feeling is that it will take several years for the Greece to emerge from its economic crisis and that there is much pain to come before things improve.

“I have no doubt that we will remain in recession in 2010, 2011 and 2012 and that the recession will deepen. It won’t be until the first half of 2013 that we will see a recovery,” said Yanos Gramatidis, president of the American-Hellenic Chamber of Commerce. “And I think most people have grasped that.”

The polls seem to show so, too. According to one poll in Sunday’s edition of To Vima newspaper, 37.9% of Greeks expect the recession to last three to four years. Another 19.3% think it could last five to nine years, and 22.4% think it could take a decade or longer for Greece to emerge from recession. Only a small minority, 15.4%, reckon that a recovery will come in the next year or two, the poll showed.

“I used to think that this recession would be short-lived, but I don’t really believe that anymore. I think it is here to stay and for some time to come,” said Alex Pyromallis, 27 years old, who works in a bookshop in the center of Athens. “And things will definitely get worse before they get better.”

How much worse remains to be seen. Greece’s 250 billion euro economy shrank 2% last year, after 15 years of 4% average annual growth rates, and marking the country’s first recession since the early 1990s.

Officially, the Greek government has forecast only a relatively mild contraction of 0.3% in the economy this year and a recovery next year. But privately, people in the government say those forecast figures will be lowered to show a decline of 1.5% or worse this year, with a recovery only due to start in 2012.

But others think even that may be too optimistic. A recent Deutsche Bank report forecasts a 4% decline in Greek gross domestic product this year.

“I think we are in for an even deeper recession than we have had so far,” said Constantine Michalos, president of the Athens Chamber of Commerce and Industry. “There have been some estimates of a 4% decline for this year and I can’t really refute that. I think those estimates are very much on the ball.”

Mr. Michalos and other business leaders say that the recent austerity packages adopted by the Greek government to narrow the budget deficit to 8.7% of GDP this year is only half of the challenge.

Greece also faces years of structural reforms to get its economy back on track and restore its lost competitiveness against its European neighbors. And that kind of deep restructuring will take a long time.

“We will be the last country in Europe to stage a turnaround,” said Panagiotis Hazakos, a 66-year-old engineer who is retired but still runs two small boutique hotels on the resort island of Myconos. “But I think people have started to understand the severity of the situation.”

See the full interactive graphic.

Thirty states and the District of Columbia recorded unemployment rate increases in January from a month earlier, while states registered rate decreases, the Labor Department said. But in a sign the job market is inching toward recovery 31 states added jobs in the first month of the year.

In January, the overall U.S. unemployment rate fell to 9.7% from 10% a month earlier, while the nation’s economy shed 26,000 jobs. The job losses continued in February amid strong weather effects, but the jobless rate remained at 9.7%.

Michigan continued to have the highest unemployment rate in the nation, though the state posted a month-over-month decline of 0.2 percentage point. Mississippi notched the biggest gain in its jobless rate, increasing 0.4 percentage point to 10.9%.

Unemployment Rate, by State

Source: Labor Department

A roundup of economic news from around the Web.

Compiled by Phil Izzo

Anirvan Banerji, director of research at Economic Cycle Research, joins the News Hub to discuss why he believes the U.S. economy will experience more frequent recessions ahead.

Young people are worried about losing their jobs and paying their bills, but they’re still holding out hope that conditions will improve.

Some 60% of 18- to 29-year-olds said they were worried about paying their bills and meeting other obligations in this economy as fear of job loss still looms large, a new poll by Harvard’s Institute of Politics shows. Nearly half, 46%, said they’re concerned about losing their jobs.

An even larger share – 67% — said they feared that family members or friends might lose their jobs. And 58% said they were personally concerned about being able to afford housing.

Those college students surveyed also said they were worried about being able to stay in school. Of the young adults that were enrolled in four-year colleges, 45% said they were concerned about their ability to stay in college. Another 34% said they weren’t concerned.

They were even more pessimistic about the state of the labor market once they graduate. Just 14% of those college students said it would be easy to find a permanent job after graduation, whereas 85% said it would be difficult. That’s down from nearly a third who said finding a job would be easy in the spring of 2008.

Lodged among their long list of concerns, though, were hints of optimism. The majority, 52%, said their personal financial situation was good, compared to the 45% who said it was bad. An even larger 57% said their parents’ financial situation was also good.

Nearly half, 46%, also said they expect to be better off financially than their parents. Just one in 10 expect to be worse off.

They were divided on how soon the economy would turn around. Nearly a quarter of young people said the economy would get worse in the next year. Another 38% said it would stay the same and 36% said it would get better.

The survey was conducted between Jan. 29 and Feb. 22. It covered 3,117 young adults and has a margin of error of plus or minus 2.3 percentage points.

Sales at Caterpillar Inc. are expected to rise 10%-25% this year on inventory restocking and a stronger global rebound than was initially expected, James W. Owens, the company’s chairman and chief executive, said on Tuesday.

Caterpillar expects sales to rise on a better-than-expected global rebound. (Associated Press)

Yet Mr. Owens, who will be retiring as CEO in June, cautioned the outlook remains uncertain and assigned a 25% chance to a “Great Recession”-type of event in which Caterpillar’s sales, which were $32.4 billion in 2009, increase to just $35 billion by 2012.

The company’s current “base case” scenario is for sales to reach $55 to $60 billion by 2012, said Mr. Owens, speaking before a lunchtime crowd at a conference held by the National Association for Business Economics in Arlington, Va. “We have to be really nimble,” he said.

Asked about price pressures, Mr. Owens said he expects them to be minimal. In 2009, the company’s total material costs declined on a world-wide basis, and he said he expects that to happen again this year.

“We’re not seeing a lot of risk of inflation,” said Mr. Owens, an economist by training who has served as Caterpillar’s chief executive since 2004.

Avoiding deflation, a situation in which prices and wages enter a downward spiral, “is critically important,” said Mr. Owens. “Modern industrial economies don’t know how to deal with deflation… I think the Fed gets that.”

The biggest force driving the company’s sales increase this year is the inventory cycle, he said. Caterpillar reduced nearly $3 billion in dealer inventory last year, and the absence of a similar decline this year “means a big pop in sales.” Mr. Owens had high praise for the Federal Reserve’s actions during the credit crisis under Chairman Ben Bernanke. “I don’t think I could be more complimentary of what the Federal Reserve has done, in particular seeing us through this horrific recession,” he said. “The decisions… may not have been perfect but I think they have served us extraordinarily well in preventing an outright depression.”

He said he wished more of the roughly $800 billion stimulus package had been directed at infrastructure investment, which the U.S. sorely needs, but said he supported the stimulus package overall and such criticisms were largely just “picking at the margins.”

He also underscored the need for keeping corporate taxes low so the U.S. can retain multinational firms, and going forward with free-trade agreements that promote exports and create U.S. jobs.

Caterpillar, the world’s largest manufacturer of construction and mining equipment known for its signature yellow machinery, also has been diversifying from a manufacturing to service-oriented company.

Its service businesses accounted for nearly 50% of the company’s sales in 2009, Mr. Owens said, thanks to divisions in financial services, renting and leasing, refurbishing of used or broken equipment, and recent acquisitions such as Progress Rail, which provides world-wide maintenance of railroads.

For some time now, Federal Reserve officials have been hesitant to put a precise time frame on when they will begin to tighten policy, except to note the action lies well into the future.

But on Monday, one of their chief lieutenants, the man charged with implementing Fed policy, offered a pretty clear take on the likely timing of a move up in interest rates. The official, New York Fed Markets Group chief Brian Sack, has no formal role in setting monetary policy. But his position elevates his importance, and he suggested in a speech some sort of rate tightening will occur by late year.

“The current configuration of yields and asset prices incorporates expectations that short-term interest rates will begin to rise around the end of this year,” Sack told a group of economists in Virginia. “The markets seem prepared for the risks toward tighter policy,” he said, adding a “decent-sized term premium” on longer-dated yields suggests low chances of a “sizable upward shift in yields’ when that tightening comes.

Why is this observation important' Sack’s speech was entitled “Preparing for a Smooth (Eventual) Exit” from the current state of very stimulative monetary policy. If the Fed wants a tranquil exit from its current stance of 0% interest rates and if it thinks market are priced for the move, then it’s reasonable to believe a late-year increase in rates is what policy makers have penciled in.

Sack’s speech also laid out a path for the unwind. He sees the Fed draining reserves on a temporary basis, then raising rates, all the while allowing the $1.7 trillion in mortgage and Treasury assets it will have purchased by end-March to mature. Any active sales will come much later. Importantly, he said the tools to drain reserves temporarily will be in place by midyear, lending additional heft to the idea the Fed can start easing rates up off 0% by year end.

The Fed “will engage in reverse repos and term deposits in midsummer followed by a rate hike in September,” said Barclays Capital economist Michelle Meyer.

To be sure, some Fed officials like St. Louis Fed President James Bullard have suggested a rate increase may not come this year, or even in 2011. Others, like New York Fed President William Dudley, San Francisco Fed President Janet Yellen and Dallas Fed President Richard Fisher, haven’t made predictions and have simply affirmed the need for low rates to be maintained for an extended period.

In a speech Tuesday, Chicago Fed President Charles Evans said, “I think six months is a good time period…we’ll continue to have accommodative policy like we have today,” largely because the still-troubled state of the labor market requires that stance.

However, in light of the labor market’s relative resilience in the face of massive snowstorms in February, some economists are starting to expect better times for hiring, saying that could move forward the timing of a policy tightening. Deutsche Bank is now predicting as much as a 350,000 job gain in March, which will likely be followed by more hiring the following months. Given unemployment’s centrality to Fed interest-rate decisions, the bank’s economists told clients “to the extent that the labor market improves beyond what policymakers project, the rhetoric from FOMC participants should shift toward earlier rate increases.”

There’s a good chance that will happen according to Deutsche Bank, because it sees the unemployment rate falling to 9% by the fourth quarter, against the Fed’s current projection of it ranging between 9.5% and 9.7%.

The latest readings from consumers and small business owners indicate economic sentiment isn’t improving, despite signs of a factory rebound and less gloom on the labor front.

On Tuesday, the National Federation of Independent Business said its optimism index for small business owners fell back in February to its December reading of 88.0, and the IBD/TIPP Economic Optimism Index dropped 3% to 45.4 in March, well below its average of the past year.

What’s behind the setback' For tiny firms, it is the lack of customers. “Poor sales” was cited as the top problem among small-business owners. For consumers, job jitters and the lack of vigor in the economy are contributing to the gloom. Households also think their personal finances are worsening.

Uncertainty breeds inertia. Consumers won’t spend if they aren’t sure they’ll have a paycheck down the road. And businesses won’t hire or expand operations if they don’t expect sales growth. Both consumer demand and business investment are needed for the U.S. recovery to gain traction.

So far, Washington and its stimulus policies haven’t done much to break the doldrums. Recent surveys show both consumers and small business owners are disappointed in government policies or don’t expect them to help much.

A roundup of economic news from around the Web.

Compiled by Phil Izzo

Small-business owners in the U.S. turned slightly more pessimistic in February, although employment readings grew a shade more positive.

The Small Business Optimism Index lost 1.3 points to 88.0 last month, reported the National Federation of Independent Business in a press release Tuesday. The NFIB noted that only two of 10 components posted gains last month.

The subindex covering expected business conditions dropped 10 points to a -9 reading, and sales expectations dropped three points to zero.

The report said the drop in sales expectations may explain why fewer owners planned to increase inventories. The inventory index dropped three points to -7 in February. Small-business owners saw some improvement in earnings, although the trend remained negative. The index for better earnings rose three points to -39.

The job-creation index was unchanged at -1 in February. But the pace of layoffs slowed dramatically, and slightly more owners, on net, reported job openings were hard to fill. Consequently, the report said, “Net job creation will appear in coming months, but the gains will be painfully slow.”

Inflationary pressures were nearly nonexistent last month. Seasonally adjusted, the net percentage of owners raising prices was -21%, down 3 points from January; more small businesses were cutting prices than raising them.

Whitney Tilson of hedge fund T2 Partners recently appeared on television to give his thoughts on the market and some of his positions. Specifically, he notes that they are still short Palm (PALM) and expect further downside to come. However, it is obviously a smaller sized position for them than it once was, given the precipitous fall it's seen lately. We've also previously gotten a look at some of T2's other short positions. Turning to General Growth Properties (GGP), Tilson argues that there is essentially a 'floor' here at $15 because there is a credible bid for the company at this level on top of Simon Property Group's (SPG) previous bid at $9. So, the risk / reward skew is favorable here and he ultimately thinks someone will make a higher bid. Many other hedgies and prominent investors own shares and debt of this name as Bill Ackman's Pershing Square is one of the largest owners. Bruce Berkowitz's Fairholme Fund is also the largest unsecured creditor. Berkowitz and Ackman both recently teamed up to help provide funding for the latest proposed GGP bid.

I hadn't seen an advance release of the January German export data, when I wrote the following on Tuesday, "honest injun" I hadn't:

Well, this is only a hypothesis. But if the hypothesis has any validity we should be able to make some predictions on the basis of it. I would make two. Firstly, since East Europe’s economies are often dependent for their growth on exports to the West, and in particular to Germany, then we should be able to see some “shadow” of this German process cast out into the East.

Although the S&P 500 almost touched its high for the year on its eighth up day out of the last nine trading days, the VIX (the volatility index) increased almost 4%. So, as the S&P 500 scrapes at fresh 18-month highs, the VIX is bouncing from 21-month lows. The chart below shows the current action in the VIX.

VIX bounces off 21-month lows

I love this guy. In the clip below, he dishes out his patently-straightforward analysis of the Greek debt problem. He demands accountability from the Greeks (and anybody else asking for a bailout), and dismisses concerns that sovereign CDS traders are the problem – “Were they the ones who increased deficits to 12% of GDP'”

Other talking points:

The Social Security Trust Fund is able to make accurate estimates on the major components of its monthly cash flows. Therefore the first quarter operating results for the Fund are in. Only the payroll taxes and benefits paid numbers are currently available for January, February and March of 2010. The raw numbers show clear acceleration of the deterioration in the Fund's dynamics. They also give us some insights into the employment situation in the country. The conclusions are not good. This chart (click to enlarge) summarizes the payroll tax (both FICA and SECA) receipt numbers for 09 and 10.

Could it be that the long nightmare for large cap stocks is about to end' We have been in a lousy market for stocks in general, but it has been especially bad for the big guys because small company stocks have been on a roll compared to large company stocks. If history is a guide, that relationship will eventually reverse itself and large cap stocks will do much better than small cap stocks. The last time we saw this was back in the late, lamented 1990s. Could a resurgence in large cap stocks be coming again'

This chart from Bespoke shows the relationship between large cap and small cap stocks. These two types of stocks operate in pretty long-term cycles in which small outperforms large or vice versa for years at a time. In this chart, large caps are outperforming when the line is rising and small caps are outperforming when the line is falling. As you can see, it has been a long dry spell for large company stocks.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program Wednesday March 10.

While the financial sector has been underperforming for the past few months, Cramer thinks financials will make a repeat performance of their rally last year that initiated the bull market. Cramer gave ten reasons why financials are ready to make a comeback:

Approximately once per month I run a high-yield momentum screen using the free service on Finviz and post the results. Last month's results are here.To reiterate, the screen is more of a trading strategy and less of an income strategy (unlike my dividend aristocrat screen from earlier this week), although the dividends do play an essential component in the overall returns. Thus, turnover could be high and the strategy is not for everyone.

Disclosure: No positions

Stocks discussed on Jim Cramer's Stop Trading! TV Segment, Wednesday March 10.

Google (GOOG), J.Crew (JCG)

Stocks discussed on the lightning round session of Jim Cramer's Mad Money TV Program, Wednesday March 10.

Bullish Calls:

Electronic Arts (ERTS): "I have been recommending Electronic Arts, which is not down, because they bought Playfish… which is the ultimate social media game play."

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds. But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

"In effect, they’re going to Las Vegas," said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. "Double up to catch up." Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing. And some states that previously shunned hedge funds are trying them now.

The home is the center of the economy. When the number of new homes on which construction is started (housing starts) begins to plunge, a corresponding spike in national unemployment is upon us. An inverse correlation of housing starts and unemployment is easily seen in the chart above. And the housing starts plunge precedes the stock market plunge.

The U.S. Treasury reported its monthly inflows and much larger outflows on Tuesday. The bad news is that the bloated deficit exploded to new levels -- $220 billion in February alone (remember when we had annual budget deficits that size'), up 15% from year-ago levels.

Anyway, the good news was that tax revenues soared from year-ago levels.

August 2009 was the high point of American’s satisfaction with the economy during Barack Obama’s tenure. Interestingly, this meshes with the data on the ground.

This is the market’s “strong season.” Flush with cash from bonuses (some ill-gotten, some well-deserved), New Year raises (small for most of us in the real world, absurd for those who pump out the "news" on Wall Street) and new-found stock gains for the past 12 months, the market “should” do well in the rosy glow of all this for another month or two.

But. Even as a tree given artificial growth stimulants grows ever fuller, with new limbs, branches and pretty bright green leaves, if the roots and trunk haven’t had time to grow in circumference apace, it gets weaker. It still looks better than it did before all that artificial stimulus, but it is now more subject to the vagaries of wind, rain, lightning and infestation. You must strengthen the roots and trunk, or the tree may be prettier but it is also weaker and more susceptible to unexpected damage.

Critical thinking helps in any field. I have the pleasure of participating in a discussion list that explores many issues where critical thinking is a focus. The members have a wide range of ages and specialties. They are quite different from average people in two respects. They are intellectuals (an unpopular group in today's society) and they are critical thinkers (an endangered species).

Lawyers are often correctly ridiculed as truth facilitators because they are reason shoppers, i.e., they know in advance what their conclusion is to be. Then, like a theologian with a closed system who is fully aware that he or she has X as a conclusion, the advocate uses “because” formulations because it sounds right to do so. Isn’t one supposed to be “reasonable” after all'

Wednesday was another in a string of boring days – welcome boring days, given that Old Man Winter seems finally to be losing his icy grip – with stocks rallying again (+0.5%). The quiet is certainly helping stocks, and assuming the S&P can break through the January highs around 1150 it looks like a fairly easy cruise to 1175 merely on technical momentum (that level is the ultimate target of that inverted head-and-shoulders pattern, and also roughly the projection off the Nov and Jan highs). After that, though, I am increasingly skeptical. The low levels of risk aversion admit of two potential outcomes: a slow and painful grind higher, or a sharp and painful trade lower. Either way, painful.

The 10y note contract yesterday weakened 6 ticks, with the 10y yield moving back to 3.72%. The market was a little weaker than that prior to the 10y auction bidding deadline – in quiet markets, the concession for supply is more obvious. After the auction, which went fine, prices recovered somewhat.

It was ten years ago today that the tech bubble burst and the Nasdaq hit its all-time peak. But even though the index is trading at less than half the level it was then, many of the largest US companies are still from that sector. Of the twenty largest companies in the US, seven come from the Technology sector.

Ironically enough, Financials, which were left for dead a year ago, are the second most heavily represented sector in the top twenty. While Microsoft (MSFT) is still the largest Technology stock and the second largest S&P 500 company overall, its biggest competitors are catching up. Google (GOOG), which wasn't even a public company when the Nasdaq peaked, is the sixth largest company in the United States. Apple (AAPL) was a public company back in 2000, but at the time it was practically on life support. Today, AAPL is the fourth largest company in the S&P 500, and its market cap of $203.5 billion is greater than Berkshire Hathaway (BRK.B) and nearly equal to that of Wal-Mart (WMT).

Japan buys U.S. Treasuries, the U.S. buys British bonds, and the UK buys Japanese bonds. All these auctions are “covered,” which means these Three Amigos have no problems with their massive debts – right'

Wrong.

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)This is the first time we've covered Tom Brown's hedge fund Second Curve Capital. His hedge fund exclusively focuses on the financial services sector as he has been a banking analyst for many years. Prior to founding Second Curve in May 2000, he was in charge of the financial services group at Julian Robertson's Tiger Management. In the past, he had also worked at Smith Barney, PaineWebber and more. He also runs the site BankStocks.com.