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Recession Proof Your Portfolio: Buy Gold, Reduce Exposure to Stocks; Mild Recession?

Economics / Recession 2013 Oct 18, 2012 - 03:05 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleInquiring minds are playing an interesting video on Yahoo!Finance with  Robert Wiedemer, managing director at Absolute Investment Management and the co-author of the book The Aftershock Investor.



Wiedemer says there are only two choices Hike the Deficit or Hit Another Recession.

What I like in his message is he fully understands that hiking the deficit is not the answer because it will make problems down the road even bigger. Moreover, "down the road" is closer than anyone thinks.

Wiedemer advocates lightening up on stocks and buying gold, the latter because of QE. This has been my position as well.

Here are a few snips from the article ...

"I think recession is (inevitable), but you can avoid it," Wiedemer says in the attached video. "The way to avoid a recession now is to increase that deficit, just like we did before. If we take that deficit from $1 trillion to $2 trillion you'd find we would be out of the recession" and everything would get turned around, including the housing and job markets.

As Wiedemer points out, there are already signs of QE3 fatigue, brought on in part by a "700% increase in government borrowing since 2007" in an economy that's already starting to slow down on its own. Add in headwinds from the global slowdown and he says it's clear, "we're facing a lot of problems down the road."

To be fair, he does not see a washout type recession but rather a more mild one, helped (temporarily) by QE3, but that's not without concern. ''When you start telling everybody that you're going to print money forever, I think it gets people worried that we really will get inflation," he warns.

As for avoiding a dip into the fiscal red sea, that will take an act of Congress. And failing that, Wiedemer says, investors would be wise to reduce exposure to stocks and hang on to a little gold.

Mild Recession?

I think the recession has already started, but in terms of job losses I believe like Wiedemer that it could be mild. My reasons, not discussed in the article or video, are three-fold.

  1. Corporations are already running pretty lean and may not be able or willing to fire as many workers as necessary to maintain profit forecasts
  2. Corporations are already turning away from full-time employment to part-time employment so there is likely to be a reduction in hours rather than mass layoffs, especially in retail jobs
  3. Housing starts and new home sales are bottoming and will likely be a positive contribution to GDP
For a discussion of point number 2, please see ...

In regards to point number one, the impact of corporations not firing a lot of full-time employees coupled with reduced consumer purchases means that corporate profits are likely to take a huge hit, and the stock market right with it.

Bernanke's reaction of course is more of the same thing (QE) already proven not to work. The beneficiary is likely to be gold.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2012 Mike Shedlock, All Rights Reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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