Recessions are a drag. Nobody likes them and they are hard on a bunch of people. But I've been thinking one is coming for awhile... and I mean one that is much more painful than what we experienced at the beginning of Bush's term. Of course, I am a cautious investor and general pessimist on economic issues... I guess I was exposed to too much Great Depression thinking by my grandfathers and great uncles. Anyway, it now looks like Morgan Stanley is now telling folks a recession is on the way, though they qualify their predictions of severity. For those that think everything is swell, please tell us if you think a recession or even a slow-down is coming. If not, why?
More to the point - can people smarter than me explain what best to do in order to avoid some of the pain of recession wrt investments?
Recession? I doubt it. Growth in manufacturing is the best it's been in a very long time. There are more factories and plants being built or expanded than any time in my short life. Slow down? It’s probably coming. We’re nearing a labor shortage, and there’s still some correction left from the real estate bubble.
Commodities tend to be a natural hedge against a recession. When the equities market crashes, commodities spike. So putting your money in precious metals, WTI, henry hub futures, or something else safe like that should be a good bet.
Could you send me an email letting me know when the recession will start and stop? It will be our little secret.
All that's needed to cause a recession is a drop in GDP for two or more consecutive quarters. Since new home sales tend to fuel GDP growth substantially, there's a chance that we could enter a recession next year.
Morgan Stanley thinks it will last from January to September of next year. They know more about finance than I do.
I wonder if Morgan Stanley was bullish in January of 2000. Methinks not. IIRC the start of the last recession was not called until it was almost over. The end of the last recession was called about 6 months after it was over (911 can be blamed for muddying the waters here). BTW "the market" usually get priced months ahead of itself. The market could very well have already priced the recession into its valuations. Thus, the time to sell for the recession has likely come and gone.
Perceived incomes (real income plus housing wealth) are down, which leads to consumer demand going down. If companies have over-expanded anticipating higher demand, that's a problem, because those new plants will go underutilized.
Faced with a widening mortgage crisis, the Federal Reserve Tuesday cut a key interest rate for the third time in three months. "Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time," the central bank said in a statement released with the announcement. Fed Chairman Ben Bernanke and his central bank colleagues cut the benchmark federal funds rate a quarter-percentage point after a closed-door meeting that was their fheir final scheduled session of the year.
...and we're off. Another 25 bps drops in the Fed Funds Rate. Some desperation on the Fed's part to add some liquidity to the financial markets.
key term...mild recession. Or really it would me more like an adjustement than a recession. Personally, I don't think it's such a bad thing either. Things need to get back to an equilibrium and i don't think its there now. I have thought that the market around 13000 is about right..maybe even down to 12800. Just a guess, but i dont know if 13500 will stay for long. I'm not really liking the fed continually dropping rates. I think they could be doing more harm than good in the long run. I think the market needs to be left for a while and let it correct itself.
The thinking here once again shows that people conflate the stock market and the economy. A market correction has absolutely nothing to do with the performance of the economy. A correction is not a small recession. The tail should not wag the dog.
Agreed. There are definitely some long term inflation concerns there. The market will correct itself by mid 2009.
Freddie Sees $5.5B-$12B More Losses By MARCY GORDON – 3 hours ago WASHINGTON (AP) — The chief executive of Freddie Mac estimated Tuesday the mortgage finance company will lose an additional $5.5 billion to $7.5 billion over the next few years as the housing crisis worsens and home-loan defaults rise. The government-sponsored company has already logged about $4.5 billion in projected losses during the first nine months of this year. "I honestly think it's going to get tougher before it gets better," Richard Syron, the company's chairman and CEO, said in a discussion with financial analysts in New York. Freddie's shares fell $1.80, or more than 5 percent, to $33.24 in morning trading. While the mortgage crisis has brought a rising wave of foreclosure notices into public view, less evident have been "pictures of people standing with furniture on the lawn" after being forcibly evicted from their homes, Syron said. "As that begins to happen, and it will happen, I am afraid of the impact that this has." Syron's remarks came a day after Freddie Mac and its larger government-sponsored rival Fannie Mae said they are changing their criteria for purchasing delinquent home loans they've guaranteed, in order to reduce the number they buy from investors. On Tuesday, Freddie Mac announced it was imposing a 0.25 percent fee on all new home loans it buys or guarantees with settlement dates starting March 9, matching an earlier move by Fannie Mae. The two companies, which together own or guarantee around two-fifths of U.S. home-mortgage debt, have cut their dividends and sold billions of dollars of special stock recently to buttress their finances after posting stunning third-quarter losses. They have been forced to set aside billions of extra dollars to account for bad home loans, eroding their profits at a time when home prices are falling and defaults are spiking on high-risk mortgages made to borrowers with weak credit histories. Fannie's shares declined $1.85, or 5 percent, to $35.06. http://ap.google.com/article/ALeqM5itb7kEpMUHhQmkezlp8-j5ZzbVZAD8TFBUD00
yep, and others... Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East. "This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas. "Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said. The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg. As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy. Mr Redeker said foreign investors have been gradually pulling out of the long-term US debt markets, leaving the dollar dependent on short-term funding. Foreigners have funded 25pc to 30pc of America's credit and short-term paper markets over the last two years. "They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008," he said. "This is nothing like the situation in 1998 when the crisis was in Asia, but the US was booming. This time the US itself is the problem," he said. Former Fed chief Alan Greenspan said this week that house prices may fall by "double digits" as the subprime crisis bites harder, prompting households to cut back sharply on spending. For Saudi Arabia, the dollar peg has clearly become a liability. Inflation has risen to 4pc and the M3 broad money supply is surging at 22pc. The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc. Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth. link
