Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

GDP Report Adds to My Bearish U.S. Economic Forecast

Economics / Double Dip Recession Aug 04, 2010 - 07:44 AM GMT

By: Claus_Vogt


Best Financial Markets Analysis ArticleThe Commerce Department confirmed what I’ve been saying for weeks: The economy is in shambles, there is no growth momentum and the next bear market leg is about to strike!

Last Friday the Commerce Department reported that our GDP grew at an annual rate of 2.4 percent in the second quarter. That’s down from 3.7 percent in the first quarter and 5 percent in the fourth quarter of 2009.

What’s more, two of the GDP’s contributors are out of steam, and won’t have much to add to future numbers …

One was state and local government spending. As these stressed-out governments try to deal with their own river of red ink, spending is bound to come to a screeching halt.

And a second contributor was inventory buildup, which was less than half the prior quarter’s number and the quarter’s before that. So unless consumers go on a wild spending spree, businesses won’t be restocking their shelves in the foreseeable future.  

This is precisely why I say the recovery is dying a slow death.

In addition, GDP figures for the past three years were revised — downward in seven of the 12 quarters — because consumer spending grew slower and home building fell harder than had been estimated. This means, without doubt, that the recession is worse than government officials openly care to admit.

Now, let me update you on my cyclical model, which is designed to catch medium- to longer-term trends in the business and market cycles.  

It’s composed of four major components:

Component #1— Fundamental Valuation

Valuation metrics like price/earnings ratios or dividend yields never fell to undervalued levels. Even at the low point in March 2009, they quickly rose back to overvalued levels as soon as the stock market recouped a good part of its losses. Here we are now with the S&P 500 sitting below its all-time highs, but we’re looking at a market that’s overvalued as much as 50 percent.

Or, to put another way, this stock market could easily decline by 50 percent before my fundamental valuation metrics signal real long-term buying opportunities. And I fully expect that we’ll see those levels before this secular bear market is over.

Component #2— Monetary Conditions

The medium-term uptrend, which started in March 2009, was mainly liquidity driven. A lot of liquidity was getting pumped into the markets, but this has changed and has turned bearish.

If you look at liquidity indicators like credit growth or money supply growth, you’ll see that liquidity has dried up. Not just in the U.S.; it’s a global phenomenon.

chart1 GDP Report Adds to My Bearish Forecast

Since this medium-term bear market rally was a reaction to monetary and fiscal stimulus, I think we’re running on empty, and the most important driver of this uptrend has just ceased to exist.

As you can see on the chart to the right, the money supply growth is going down. That foretells of inflation, which is not good for economies orstocks. Especially when the market is still fundamentally overvalued!

Component #3— Sentiment Indicators

Sentiment indicators reached levels in March and April that indicated high complacency and extreme optimism. Some put/call ratios fell to levels last seen at the highs of the stock market bubble in 2000.

The most amazing thing was that the cash level of mutual funds fell to a new record low in March and April 2010. Lower than in 2000 and lower than the summer of 2007, and we all know how those two events played out!

chart2 GDP Report Adds to My Bearish Forecast

The importance of mutual fund cash levels is easy to understand. If all mutual funds are heavily invested and have very little cash, there is not a lot of fuel to push the market higher. So when you see mutual fund cash levels come down, it’s usually a sign of a topping market.

The scary thing is: What will the fund managers do if investors decide to get money out of their mutual funds? They’ll be forced to sell stocks, no matter what the market is doing.

It’s called “meeting redemptions.”

Component #4— Leading Economic Indicators

chart3 GDP Report Adds to My Bearish Forecast

The weekly leading indicator from the Economic Cycle Research Institute (ECRI) has plunged from its cyclical high. It entered the negative threshold at the end of May and has since declined to -10.5 percent.

If you look back in history, you’ll see that when this indicator came down to a level this low, we were either already in a recession or a recession began shortly thereafter.

I’m also looking at many more supportive indicators.

Just to name a few: Quality interest rate spreads — spreads between government and junk bonds have widened; interest rate spread between short- and long-term U.S. Treasuries has also fallen in the last few months; the stock market, S&P 500 index is another component; the ISM indicators; plus, some unemployment statistics.

Each indicator in and of itself does not indicate a recession on its own. And the summer’s short-term stock market rally may have a few more weeks to go.

But all are negative now. And when you toss in the recent GDP figures, I’m more convinced than ever that you should consider bracing for a double-dip recession.

Best wishes,


This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules