Cy Harding, on the possible double dip recession...
"Given the way the recession is being tackled, by pulling next year's activity into this year to an unusual degree, rather than letting the economy take its natural course to correct the excesses, if the economy is near a bottom, is it going to be followed by a sustained upturn, or be immediately subject to a double dip.
What do we mean by that?
In its efforts to re-stimulate the economy, the Fed is using the lowest interest rates in 40 years to entice consumers and corporations, already burdened by record debt levels, to spend more by going even further in debt. That obviously robs from their ability to spend next year and the year after.
The auto companies are selling cars at a record pace, even in a recession. How? By offering 0% financing, enticing next year's customers to trade now.
The government is telling us to forget about the consequences of excessive debt, it's patriotic to spend now, for the economy and for the country. And it's working very well, freeing consumers from the guilt of loading up with more debt, as in "It's not my idea, the government told me to do it."
Another reason a falsely created quick recovery may just as quickly run into trouble again is the way the recession is spreading globally.
Since foreign economies have not seen the kind of interest-rate and government stimulus initiated in the U.S. their recoveries are liable to lag significantly. Why should we care? Because the stock market cares primarily about earnings and 25% of the earnings of S&P 500 companies come from overseas.
If we're right in these concerns the stock market will probably continue its pattern of rallies and corrections even if the September low was the final low for the bear market, which itself is not assured.
So we believe those asking if it's safe to get back in the market on a buy and hold basis are asking the wrong question. The question is what's wrong with making more than one gain per year by going after the rallies and not giving back the profits from each?" |
