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8 More Reasons Why a Double Dip Is Coming
150 comments | by: Daryl Montgomery July 28, 2010 | about: AGG / DIA / SPY Font Size: PrintEmail Recommend 14 Share this page
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an article to As earnings season continues and one company after another beats expectations, the economic numbers are continuing to come in below estimates. The data and indicators are increasingly painting a picture of an economy that is falling apart. Here are a few of the reasons why another recession is imminent:

1. U.S. orders for durable goods fell 1.0% in June. Economists expected them to rise 1.0%. Excluding the volatile transportation sector, orders fell 0.6% and shipments were down 1.3%. Inventories rose for the sixth month in a row, indicating goods are being produced, but they're not moving out the door.

2. Industrial output in China fell 2.8% in June. A "potential weakening of the global economy" was cited as the cause.

3. The ECRI (Economic Cycle Research Institute) weekly leading indicators index has fallen as low as minus 10.5. There has never been a case when it has gotten this low and there hasn't been a recession.

4. The Consumer Metrics Institute's Growth Index has been negative since January and is now around minus 3.0 (it fell to around minus 6.0 in August 2008). It leads U.S. GDP by approximately two quarters.

5. The U.S. trade deficit widened in May and was the largest in 18 months. This happened even though oil imports fell over 9%. Rising oil imports are usually the factor that makes the trade deficit go up. The trade deficit subtracts from GDP.

6. After a sharp drop in June, U.S. consumer confidence fell even more in July. The Conference Board's latest reading was 50.4. As usual, economists' estimates were on the high side. A reading of 90 or above indicates a robust economy. Before the most recent recession, consumer spending was 72% of GDP.

7. U.S. weekly unemployment claims refuse to drop below 400,000, the approximate dividing line between recession and non-recession. At no point during the current "recovery" have they gotten that low. The unadjusted number of claims for the week of July 17th was 498,000. Even though companies are reporting huge earnings increases and raising estimates for next quarter, more and more workers continue to lose their jobs.

8. The economic cheerleader-in-chief, Fed Chair Ben Bernanke, gave a gloomy report on the U.S. economy last week in his bi-annual testimony before congress. Bernanke didn't see the subprime crisis coming, nor did he realize the U.S. was in a recession in the spring of 2008, months after the recession had begun. So if even he admits the economy is weak, it must really be in bad shape. Bank of England Governor Mervyn King, has also recently stated, "Britain can't be confident that a sustained recovery is under way."

I know the business forecasting people I deal with have pretty much universally adopted the view that it will be a double dipper and that we're starting down again. The stimulus money is largely spent out. It didn't create the jobs it was suppose to. Taxes will likely rise next year which will stiffle the incentive to invest.

The only buzz I hear is that the Democrates are so desperate to hang on to control that they are looking for ways to do some kind of "temporary" stimulus to keep things looking at least okay as we head into November. But unless something changes we will likely be on the downhill slope come the November elections.

Max

max30109 wrote:I know the business forecasting people I deal with have pretty much universally adopted the view that it will be a double dipper and that we're starting down again. The stimulus money is largely spent out. It didn't create the jobs it was suppose to. Taxes will likely rise next year which will stiffle the incentive to invest.

The only buzz I hear is that the Democrates are so desperate to hang on to control that they are looking for ways to do some kind of "temporary" stimulus to keep things looking at least okay as we head into November. But unless something changes we will likely be on the downhill slope come the November elections.
Max

Max expect the Fed and the Treasury to inject 5 Trillion (yes that is Trillion with a "T") very quietly into the economy over the next few months. This will lift the overall economy to maybe a 3 to 4% growth rate over the next 2+ years, which is just enough to get the administration and congress through the 2012 election cycle. Then as the economy begins to implode and hyperinflation takes off there will be an event of unbelievable magnitude to take the sheeples attention from the crumbling U.S. and world economies.

You have that long to get your final preps in order and either get the Hell out of the country or be in a very rural environment and ready to weather out the coming storm. The problem is if the powers to be have their way you will be living in an American Police State with ZERO Constitutional rights and NO freedom as you know it today.

The "stimulus" isn't all spent. The Dems kept a nice portion of it to be used just before the election in some way...this will either be used for "shovel ready" jobs with no paperwork hold ups so that a quick job infusion can happen OR if that doesn't come together, they can put the unused stimulus back into the piggy bank declaring "a great savings for the American people" and a reduction of the deficit.
Most economists believe that neither will help and indeed, a double dip will happen.
My thinking is that very little can save the economy at this point, it's just a matter of whether it's a slow dragged out decline or a sharp crash.

TP has a point though, if they can survive through this new dip coming, then they HAVE to pull something before the 2012 elections or Obunga will loose big. Personally, I'm surprised that nothing false flaggish has happened yet.

Tigerpaws wrote: Max expect the Fed and the Treasury to inject 5 Trillion (yes that is Trillion with a "T") very quietly into the economy over the next few months. This will lift the overall economy to maybe a 3 to 4% growth rate over the next 2+ years, which is just enough to get the administration and congress through the 2012 election cycle. Then as the economy begins to implode and hyperinflation takes off there will be an event of unbelievable magnitude to take the sheeples attention from the crumbling U.S. and world economies.

You have that long to get your final preps in order and either get the Hell out of the country or be in a very rural environment and ready to weather out the coming storm. The problem is if the powers to be have their way you will be living in an American Police State with ZERO Constitutional rights and NO freedom as you know it today.

I can't imagine how you would "quietly" inject $5 Trillion into the economy. I also don;t think Obama can hold t together that long, his policies aren't the only thing that shapes what happens. I would also expect China to retaliate, as they don't pretend not to know what happens when cash is created and spent. If you combine the TARP, Porkulous, Porkulous 2, Supplemntal spending, 2009 budget, that was almost $5 trillion, it didn't do anything either. There won't be the bad side of the past spending taking money from private business, but I don't see them spending or investing it either.

Noone wants to talk about the 500lb crawfish in the corner, so of course, I will! Folks we are in and have been in a depression. The only reason we haven't been told that is that the King, as said, wants to hold it together for the upcoming elections. 30 months of overall decline in the economy is, in classic economics, a depression. So far, not a great one but a pretty good one. When the rest of the economy dies because of the massive taxes coming our way: federal, Bush tax cuts expiring plus all of the state, parish (county for you yankees)and local add-ons and you have the mix for one hell of a good depression. I think Tiger has it wrong, I don't think the economy has 24 mos before the balloon pops. I think more like March-May window of next year. If the conservatives take the HOuse or Senate, add a few more months, if the dems somehow retain control, maybe as early as Feb.! Either way, the ca-ca will be hitting the fan, in economic terms, shortly. Prep, pray and practice!

Well, most people associate a "depression" with a run on banks, the stock market crashing and soup lines. We haven't seen this. However, the reason we haven't is because of the manipulation of the markets, the fact that they can shut down Wall Street if the drop goes too low, and the game playing by the fed. No runs on the bank for similar reasons...they have put the breaks on and have methods of preventing such at this time (though watch for more and more "system glitches" and such that shut down bank web sites and limit how much you can take out of your ATM for a short time). The Fed money leaking into the system may also shore up banks from having to shut down/being unable to handle a run. People also don't believe that a run could happen any more. They understand electronic funds better and know there will be glitches so they don't panic as much.
If we make it through this fall without a major issue, we might make it thru to next summer. There are plans for a deliberate crash, a major terror attack, FEMA camps, martial law and a whole lot of things. However, anything can change these...move them up or push them back. A natural event could happen that throws a monkey wrench in the plans, a political play, a superb American invention, ANYTHING. But in general, I am looking at 2012, as I have originally, for THE event. THE final crash, THE end of things as we know it.
I'm not a huge believer of the Mayan calender or anything, just that 2012 works out as a logical time frame. Don't get me wrong though, there will be planty of things leading up to that time, plenty of bad news and a slow slide into poverty for a lot of people and lots of danger for our country. We'll have the left continue their agenda to take away freedoms and turn us into a socialist dictatorship.

Double Dip is a given...Unless you have an extra 5 Trillion or so laying around. Deflationary depression has the Big Boys losing sleep. Strange but true, the election of conservative Tea Party types will hasten deflation since they will try to rein in spending. Pull your money out of banks and cash out retirement accounts....seriously...

Big Names Brace for Deflation
Bill Gross Is Among Investors Getting Set for Decline in Prices: 'It's Happening'

*
By GREGORY ZUCKERMAN

Some of the world's leading investors are growing more worried about deflation and are re-shaping their portfolios to prepare for a possible period of falling prices.

Bond-fund heavyweight Bill Gross, investment manager Jeremy Grantham and hedge-fund managers David Tepper and Alan Fournier are among the best-known investors who are bracing for deflation, a development that could cripple global economies and world stock markets.

The investors cite weak economic figures and a mounting consensus that global policy makers are reluctant, or unable, to take further steps to boost growth as reasons for their market positions.

"Deflation isn't just a topic of intellectual curiosity, it's happening," says Mr. Gross, who runs the $239 billion mutual fund Pimco Total Return Fund, citing an annualized 0.1% drop over the past two years in the U.S. consumer-price index. "It's an uncertain world that's tipping toward deflation."

These investors are walking a fine line. Many in the market scoff at the possibility of extended deflation, betting the U.S. Federal Reserve and other central banks will take radical steps to arrest broad price declines. Deflation scares immediately following the 2008 financial crisis didn't materialize, in large part because central banks intervened.

Many of these star investors don't see extended deflation as a sure bet and predict that, as deflation becomes more likely, the Federal Reserve and other government officials will take radical steps to arrest the decline.

Still, preliminary signs of deflation are spurring Mr. Gross and the others to take on huge positions of interest-bearing investments such as bonds and dividend-paying stocks. They have also begun buying protection against possible stock-market losses. In a period of falling prices, companies can find it challenging to generate profits, putting pressure on stocks.

Recent data are responsible for the worries. The consumer-price index rose 1.1% in June compared with a year earlier. Friday's report on second-quarter gross domestic product showed the underlying inflation rate—which excludes volatile moves in food and energy prices and is closely watched by the Fed—increased 1.1%, the lowest reading since the first quarter of 2009. St. Louis Fed President James Bullard last week warned of a Japan-like period of deflation and slow growth.

Such mainstream talk about deflation is a sharp reversal from just two months ago, when inflation, not deflation, was the focus of traders. Investors such as John Paulson, renowned for his bets against the U.S. housing market, piled on gold positions and dumped U.S. Treasurys.

Mr. Gross has been aggressively buying U.S. government debt in recent weeks. Treasurys now account for about 51% of the portfolio of his Pimco Total Return fund, up from less than 33% at the end of March. It is as high an allocation to government securities for the fund as at any time in the past six years, according to Morningstar Inc. The fund has gained 7% this year.

Mr. Tepper, who runs the $15 billion hedge fund Appaloosa Management LP, has about 70% of his portfolio in bonds rated "BB" and "BBB"—the lowest end of the investment-grade spectrum and the upper tier of "junk"—from banks and others. That is up from 63% earlier this year, investors say, helping him score gains of about 12% in 2010. He is sticking with credits that promise generous yields but still are relatively safe bets in any period of weak growth and potential deflation. "I'm concerned that slower growth may lead to a much tougher environment for pricing," Mr. Tepper says. "That can mean deflation in some industries, even if we get inflation in the overall economy."

Others, including $42 billion Fortress Investment Group LLC, $1.2 billion New York hedge fund Argonaut Capital Management and $107 billion Boston investment firm GMO LLC, founded by Mr. Grantham, are warning clients about possible deflation.

Deflation is seen as pernicious and hard to address once it sets in. Falling prices can make businesses and consumers reluctant to spend and invest, hurting profits and crippling the economy. It can be caused by a drop in the money supply and credit, declining spending and high unemployment, all of which can encourage companies to cut prices.

"We fear that core inflation readings in the United States could dip into outright deflationary territory in coming months," Argonaut Capital, whose returns are flat for the year, recently told investors. "This should be a positive for longer-dated fixed income."

Mr. Fournier's $4 billion hedge fund Pennant Capital says "political winds shifted" when European nations recently told U.S. Treasury Secretary Timothy Geithner at the Group of 20 summit they will focus on balancing their budgets rather than stimulating growth. The growing clout of the Tea Party movement in the U.S. also has colored his view that elected officials won't have the ability to spend.

Mr. Fournier and some others say the tea-party adherents are appropriately worried about hefty government debts, but that without near-term spending and programs by elected officials, the economy could sink further.

"The U.S. economy has to grow north of 2% to avoid deflation, and we're right around there," he says.

Mr. Gross was much more skeptical of Treasurys as recently as about three months ago. Mr. Gross says he is paying particular attention to deterioration in an index produced by the Economic Cycle Research Institute that attempts to predict future economic health. In addition, he says, a drop in money supply and fiscal tightening in much of the world are reasons for Pimco's investment shift.

"We said, 'Hey, two-thirds of the world is moving to the zero line,' " of inflation, Mr. Gross says.

Pimco's team predicts "core" U.S. inflation, which excludes volatile energy and food prices, might drop a tad below 0% over the next few years; it could rise as high as 2% if growth improves.

There is still a big problem for investors preparing for deflation: It is hard to find attractive investments when it arises. Some say utilities and companies with stable cash flows are the best bets, along with government bonds. But many shares and riskier bonds depending on rising corporate profits could be losers in such a scenario.

Mr. Gross urges investors to focus on cash flows that are "relatively certain," such as dividends and interest from stocks and bonds of quality companies.

Mr. Fournier is betting further economic difficulties spur politicians and the Fed to take aggressive actions to stave off deflation. But stocks may have to fall sharply before that happens; he is buying protection such as exchange traded funds that rise when the market falls. Argonaut founder David Gerstenhaber also is avoiding stocks, though he says the dollar could do well if deflation arises, as all kinds of borrowers slash debt. In a period of deflation, each dollar of debt becomes onerous as wages and prices fall, as opposed to in an inflationary period, when the value of debt drops.

Deflation is no sure thing, the investors say. Mr. Tepper argues that if the U.S. grows 1% or so over the next few years, deflation and troubles for stocks will arise. Growth of 3% would boost profits and stocks, he says.

At Pimco, Mohamed El-Erian, the firm's chief executive and co-chief investment officer, says "the risk of a deflationary spiral has increased, but it is still not the most likely scenario."

He says investors need to prepare for an unusually wide range of possibilities. The risk of so-called fat tails—or extreme outcomes—including a bout of prolonged deflation, are "not insignificant."

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

Prairie Fox there is a way for the Federal Reserve and the Treasury to inject as much "money" as they want to and they have already been at it for some time now. The Federal Reserve has a 3rd party/country/central bank buy our debt which they hold for 5 days then sell it back to the Fedederal Reserve, because they (the Fed) are imune to oversight they ge to do what they please.

Tiger Paws, who told you the Federal Reserve is unregulated and has no over site? They lied. It does have over site and is regulated.. by CONGRESS, even though they tell you it's not. Now why would they want people to think they are not the ones passing the laws and doing the over site? Now that is one for you to investigate and bring information to people on.