Monday, October 3, 2011


Tom Keene from Bloomberg interviews Lakshman Achuthan, co-founder of the Economic Cycle Research Institute and they talk about the outlook for a U.S. recession.

 I don't know how it is possible to have a view that is bullish in this environment. I traded emails today with a person that is convinced that they need to be fully invested in the market and were attempting to find high dividend payers. Fine, I understand that if you are a mutual fund manager. I am not ok with that if you are an individual investor. In this kind of scenario you could lose 20% or 40% in a matter of a few months! A 4% dividend isn't going to make up for that kind of loss!

 So, as we examine this video, keep in mind the comments from Warren Buffett the other day, as he tells us that there is not a recession.

Here are just a few of the interesting tidbits from the video.

"This is not a double dip, it is a new recession." 

"If you think this is bad, we haven't seen anything yet."

 "Profits can be good, but I don't know where stocks go. We expect more frequent recessions so you have an elevated stock risk premium. Look at the case of Japan after the bubble burst, it is not that they didn't make any money, but the Nikkei is a quarter of the value."

Can yields go lower? -- "Yes, look at Japan"

I'm becoming more pessimistic as I see more data from the US that is poor and then we have further deterioration in Europe and the emerging markets. Copper is signaling that things globally are turning anemic.

It doesn't seem like the fellas at ECRI believe it's all good.  Perhaps just the Warren Buffett rails and insurance companies, and furniture stores that employ 70,000 are doing fine.  I'm not a huge fan of ECRI's cop out that this is not a double dip recession, for them it is a new recession, because I think they missed the signs as the Fed blew up their model (revealing that much of ECRI's data is based on liquidity and credit just like the Financial Conditions Index.  Having said that, I believe their models are back to pointing in the correct direction because the Fed simply had to quit fueling the economy with additional printed propellant.  It won't be long until the Fed is back again with the Mother of all Stimuli.  If we see significant breaks with the Dow with a 8000 handle I think this will allow for the globally coordinated stimulus from all central banks that I've been waiting for.  Until then, we'll see support levels fall as the confidence in the US economy falters and the Eurozone mess goes into total meltdown stage.  Alas, there won't be the "decoupled" emerging markets to save us either.  We better get our deflation hats on, it is coming.


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