A popular topic of conversation nowadays is whether or not there will be a double dip recession. Supporting the "no" camp is the rarity of such a thing pointing out that it has only happened one time in modern history in the early 1980s (I read one thing that said despite what people say, that double dip was recorded as two separate recessions).Supporting the "yes" camp is the employment situation and lately Edward Harrison has been very interested in the ECRI Weekly Leading Index which, if I am reading him correctly, are almost saying double dip.
Recessions are typically very bad for equity markets, averaging a 40% decline if memory serves. I've been asked a couple of times in different contexts whether I thought there would be a double dip but really I'm not sure this is the best question. Whether there is technically a double dip or not we have problems with indebtedness, jobs, the banks are still in trouble (I've never thought they were fundamentally sound since this all started) and all the other things you know about and of course this is the "worst financial crisis in 80 years."
Double dip or not these are formidable obstacles that US equities need to overcome and thinking it will take more than two years (my opinion) is quite reasonable. I would again point out that there are quite a few foreign markets that simply do not have these obstacles in front of them. I've been talking about Chile almost since the start of this site. Since the peak of the US market in October 2007 the S&P 500 is down 30% while the IPSA is up 25%. It went down plenty, dropping almost in lockstep with the S&P 500 for about a year to a 30% decline but has been mostly working higher since.
If this has been a time to focus on protecting assets, and I believe it has, then certainly one way to protect assets would be to invest in countries with relatively little fundamental connection to the US' obstacles. The other day I made a comment about avoidance as a valid protection strategy so here the point is avoiding a systemically vulnerable economy.
I'm glad to let other people devote time to assess the reality of double dip or any other economic event. There are times to let assets grow and a time to protect assets and this continues to be a time to favor protection.
5 comments:
Looks like a double dip is coming, but rather than debating that term's use (which seems to be more political than economic these days), we should lay in a plan to handle a flat to down economy with ability to be wrong. But like food and drink, all things in moderation and with an eye to our individual fact situations.
I'm more concerned about what the "head butting" jersey will look like in the TdF....
I still see this as a correction. Sure hope I am not wrong, but will let you know if I change my mind.
SEG
Obviously, whether this is just a "correction" is interconnected with whether we are likely to have a double-dip recession. Definitely a mixed picture.
Anyways, a couple of notes/items I found of interest:
Saying recession? Appears to be a good leading indicator last time:
http://dshort.com/articles/Consumer-Metrics-Growth-Index.html
The cyclical bull lives?:
http://www.zealllc.com/2010/spxlives.htm
Good comparison there IMO, but IMO this isn't a normal "recovery" and business cycle so comparisons to past cycles like the 70s or 03-07 may not be applicable.
If we have a double dip or when we have a double dip?
The recoveries will be jobless recoveries.
Isn't this pretty normal 'noise' in a recovery? Why are so many willing to throw in the towel on a recovery with so little dissuading evidence? Small amounts of bad economic news is consistent with all recoveries that I have seen. Is this simply because of 10 years of market fatigue and a scary sell-off in 2008 that people aren't psychologically recovered from? JB
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