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Double-Dip Recessions, Economics and Ice Cream Cones

Economics / Double Dip Recession Jul 08, 2010 - 05:31 AM GMT

By: Mike_Stathis

Economics

Best Financial Markets Analysis ArticleOver the past several weeks, you may have heard the back and forth debates regarding the possibility of a double-dip recession between the various media hacks and clowns they interview.

The overwhelming question has been, “Will the U.S. enter a double-dip recession?”


Have you ever stopped to ask yourself exactly what a double-dip recession is?

Let me cut to the chase. There is no such thing as a double-dip recession. Even the NBER does not have a clear definition of this term.

According to the NBER, a double-dip recession is

“A continuous recession that's punctuated by a period of growth, then followed by a further decline in the economy.”

There’s a big problem with the use of double-dip.

First, Washington, Wall Street and the financial media adhere to the completely useless definition of a recession; two consecutive quarters of negative GDP growth.

But in the NBER’s vague definition of a double-dip, the period of “growth” does not qualify as the end of a recession. It merely acknowledges a slight improvement in economic conditions relative to previous data.

Therefore, if you accept the definition of a double-dip recession, you have to accept the NBER’s definition of a recession, which goes well beyond the traditional definition of two consecutive quarters of GDP growth.

The NBER analyzes numerous economic metrics; a much more comprehensive and accurate method to determine the beginning and end of recessions.

In fact, according to the NBER, we are heading into the 30th month of the recession.

So, if the media hacks want to even entertain the idea of a double-dip recession, the must first acknowledge the NBER’s own analysis that the recession has not yet ended.

When one speaks of recessions, are referring to the economic cycle.  Recessions occur at the trough of the cycle. Economic expansions occur at the peak. Therefore, according to economic cycle theory, you can only have a recession or an economic expansion. You cannot have anything in-between, such as a so-called “double-dip recession.”

This concept is similar to the bear-bull market cycle, which of course is tied very closely to the economic cycle.  You can either have a bear or bull market. There is no in-between.

The financial media confuses bull and bear markets as well.

Recall in 2009, when the stock market bottomed in March. Thereafter, it mounted a tremendous rally. By June, many were claiming the beginning of a new bull market. By August, many of the “most influential” Wall Street investment strategists followed this sentiment.

However, the fact is that a new bull market had NOT begun. It was merely an oscillation through the bear market cycle.

There is no in-between. There is no such thing as a double-dip recession much in the same manner as there is no such thing as a bull market within a bear market cycle.

Thus, use of the term “double-dip recession” is another way to downplay or mask the severity of the current recession, while side-stepping the NBER’s own analysis which states that the recession has still not ended.

Similarly, we have not seen a bull market since the March 2009 lows. It’s called a bear trap or sucker’s rally. And it’s used as a way to stick the sheep with stocks that are headed down. 

If you will recall, last year the media buzz phrase was “green shoots.”  I have no idea what a “green shoot” is because I don’t pay attention to the media hacks. If you know what it means it’s a very good sign that you are wasting your time with the media. If so, you can count on losing much more money in the stock market. 

While we are in a recession that has not shown any signs of abating since its onset in December 2007, the fact is that the overall economic correction we are experiencing does not fall within a normal economic cycle. What we are seeing is a depression, which will last many more years. 

Have a look at reality here.

If however, you want to speak in terms of dips, you need to at least use the correct multiplicity—quadruple-dip recession, because that is what America faces, at minimum over the next several years, if in fact you want to insist that what we are seeing even fits within an economic cycle.

In my opinion, there are two situations to use the term double-dip. The first is when you’d like two scoops of ice cream. The second is when you have no idea what you’re talking about when referring to the economy. That explains why you hear so many speak of the bogus term, “double-dip recession.”

Thus, anyone who uses the term double-dip recession should never be relied upon for any type of analysis.

Humans are by nature followers. Those who fail to question the basis behind a term or theory are forever destined to remain as sheep. In the end, after the sheep have been herded in mass, they always get slaughtered.

If you truly want to escape the herd and propel yourself ahead of the curve, you need to align yourself with the insights and guidance of someone with a proven track record of success; someone with no agendas' someone who is a leader in thought; someone who is willing to teach you the tricks he has learned. 

If this is not something you feel you need, I will guarantee you that your chances to make it through this difficult period will be very low. 

2

By Mike Stathis

www.avaresearch.com

Copyright © 2010. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

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