Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21
Bitcoin Halvings Price Forecast and Stock to Flow Analysis - 18th Jul 21
Dell S3220DGF Unboxing and Stand Assembly - 32 Inch 165hz Curved Gaming Monitor Amazon Discount - 18th Jul 21
What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand? - 18th Jul 21
Will the US stock market’s worsening breadth matter? - 18th Jul 21
Bitcoin Halving's Price Projection Forecasts Trend Trajectory - 18th Jul 21
Dell S3220DGF Price CRASH to £305! 32 Inch 165hz Curved Gaming Monitor Amazon Bargain - 16th Jul 21
Google, Amazon and Netflix are Scrambling For This Rare Gas - 16th Jul 21
Sheffield Millhouses Park New Children's Play Area July 2021 Vs Old Play Area - Better or Worse? - 16th Jul 21
Inflation Soars, Powell Remains Unmoved. What about Gold? - 16th Jul 21
Goldrunner: Gold Could Jump To $1,900-$2,100 In Next 30 days – Here’s Why - 15th Jul 21
Tips For Finding The Right Influencers - 15th Jul 21
ECB Changed Monetary Strategy. Will It Alter Gold’s Course? - 15th Jul 21
NASA And Big Tech Are Facing Off Over This Rare Gas - 15th Jul 21
Will the U.S. Dollar Lose Momentum In the Second Half of 2021? - 15th Jul 21
Bitcoin Stock to Flow Model Forecasts Infinity and Beyond! - 14th Jul 21
Proteomics: The Next Truly Massive Investing Opportunity - 14th Jul 21
Massive Solar Storm to Hit Earth 2025, Coronal Mass Ejection (CME) Danger and Protection Solutions - 14th Jul 21
Is This The Best Way To Play The Coming Helium Boom? - 14th Jul 21
Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown - 14th Jul 21
How NFTs Are Shaking Up Arts Trading - 14th Jul 21
Gold: High Time to Move Out of the Penthouse - 13th Jul 21
Climb Aboard! Silver Should Run Up To $38 In Next 30 Days - 13th Jul 21
How Will Remote Work Impact the U.K. economy? - 13th Jul 21
Why Helium Stocks Are Set To Soar in 2021 - 13th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A Double Dip Recession? How Do We Protect Ourselves

Economics / Double Dip Recession Aug 04, 2011 - 10:45 AM GMT

By: George_Maniere

Economics

Best Financial Markets Analysis Article           Today I am going to do something really amazing. I am going to tell you that in my opinion the U.S. economy has not entered a second recession; it never came out of the first one. Well, before you professional economists start writing me that the Webster’s definition of a recession is two consecutive quarters of negative growth I will simply say for who? Indeed there are many Americans who have been so economically ravaged by this crisis that they have not lived through a recession - they have endured a depression. A Gallup poll that was released in April (when the DOW was 800 points higher than today’s close) said that 29% of the people polled didn’t care what the definition of a recession was. They said they were in a depression. Add to that, another 26% polled said that they felt they had never come out of the original recession.


           Please ask yourself if it is any wonder that most Americans believe that an economic downturn is still in progress? One only has to look around to see all the evidence they need to draw that conclusion. Home prices are at levels we have not seen since 2002 and add to that in many parts of the country like Florida, California, Nevada and Arizona values of homes have dropped a staggering 50 percent. According to the National Association of Realtors home prices will likely drop another ten 10 % nationwide. They also reported a staggering statistic. If you had bought a home under the program set forth by President Obama that gave you $8500.00 towards the purchase of a home, and if you had put down an additional 20% towards the purchase of the home you would now be underwater on your mortgage.        

It is painfully evident to most average Americans that there are signs that a full blown recession is firmly in place. I guess it is harder for the myriad of professional economists hired by the Fed to see the forest for the trees.

In my opinion there is nothing that damages the confidence of a consumer as badly as rapidly rising prices. When I am not writing my posts I have the dubious distinction of doing the heavy grocery shopping for my family. I have been amazed and appalled at the spike in the price of groceries. A pound of coffee that used to cost $2.99 now costs $6.00. Milk is almost $5.00 a gallon. My children are grown and my wife and I don’t drink milk but as I walk by the dairy aisle I keep an eye on the price of milk because I often wonder how parents with children can afford to buy milk.  Clothing has gone through the roof as cotton prices nearly doubled in 2010.  The consumer’s ability to buy the most basic clothing necessities has been undermined.

While the auto industry has staged an impressive comeback, much of its profitability has been based on layoffs as much as new car sales. Slower car sales are not only a sign of lagging consumer confidence but also a sign of tougher times ahead. Car firms have only just begun to hire again but that trend will die as the sales of cars plateau.

The circus that took place over raising the debt ceiling is going to make it very difficult for Dr. Bernanke to institute another round of quantitative easing. He will have to be more ‘stealthy’ is his approach because while the FOMC remains tight lipped many prominent economists like Nobel Prize winner Paul Krugman say another round of quantitative easing is essential to create a full recovery. His theory has seemingly been borne out by last week’s GDP numbers which had a revised estimate of 0.04% for the first quarter and a 1.4% estimate for the second quarter. For a robust economy I have read that economists see the need for a minimum of 5% GDP. The debt ceiling agreement has caused a call to arms for severe austerity measures which is exactly what our already fragile economy does not need. The fact is that people are afraid and they have tightened their belts and are saving every penny they can. While a healthy savings plan  is the watchword of a healthy society I’m sure the Feds wished that the American people practice this kind of economic restraint on somebody else’s watch. What the Feds need are the American people spending to stimulate the economy. It certainly is a Catch -22 situation.  Add to this that today’s employment numbers promise to be anemic as Cisco has said they would lay off 6000 people, HSBC has promised to lay off 2000 people and state and local governments have said it is their intention to trim the payrolls by 450,000 jobs this year and next. These government cuts are already well underway. One can barely open a local newspaper without reading of battles between state unions and governors over employment, benefits and pensions.

A slowdown in the Chinese economy is usually seen as a cause of global commodity price inflation, but this coin has two sides. While China’s appetite for energy and raw materials may fall, the demand for goods and services by its very large and growing middle class drop along with it. As China has raised the interest rate in an effort to slow down the exploding growth rate the U.S. exports to China have also fallen. According to the U.S. – China Business Council, over the last decade we have seen exports to China grow from $16.2 Billion to $91.9 billion a staggering 468% increase. However, as that rate slows it has a profound impact on tens of thousands of American companies and their employees. U.S. firms with large operations in China are also affected. GM is one of the two largest car firms in China along with VW. Large U.S. corporations like Wal-Mart and Yum Brands rely heavily on China to boost global sales. Without vibrant consumer spending in China, American companies suffer.

Unemployment creates two problems. People without jobs drastically curtail their spending, which ultimately affects GDP growth and secondly is the need for tens of billions of dollars every year in government aid to keep the unemployed from becoming destitute. That support has increased deficits and the domino effect is that cash – strapped governments need to make more spending cuts. The continued high rate of unemployment may well be the biggest challenge the economy faces.

Unemployment has worsened because people over 65 continue to work because their homes, which were once thought of as the financial base of their retirements have dropped so sharply. Older Americans also fear that cuts in Medicare and Social Security are inevitable which will increase the cost of their “golden years”.

The worst part of the unemployment problem is the roughly 5 million Americans that have been unemployed for over a year. Their unemployment benefits, in many cases, may have run out. The burden of their care falls to their families, friends and community organizations. To the extent that the federal or state governments can support the unemployed, the cost to run support programs increases.

Housing is considered by many economists to be the single largest drag on the American economy and the housing market has gotten much worse in the last three months. Whether right or wrong, the American home was the rock that families built their economic future on. It was the primary source of equity that was used for college educations, car purchases and ultimately retirements. While this may once have been true the drop in home prices wiped out the equity that many people saw as their life savings overnight. Their ability to consume was severely damaged, further harming the GDP. High mortgage payments bankrupted people who had lost their jobs or have found that their incomes had stagnated. The building Industry became a shambles overnight. Whatever the effects have been over the last three years, they are getting progressively worse as home values drop to unprecedented lows. Sadly, there is no relief in sight because potential buyers perceive that the price erosion of a home has not come close to ending.

So in conclusion, while I reread this essay, it certainly paints a very bleak picture. You may rightly ask where the harbor is. In which direction do I set my compass? The answer is the same as it has always been – follow the money. China, India and Brazil all continue to amass large amounts of physical gold and silver. Several days ago it was reported that South Korea had bought $1 billion dollars worth of gold. Even the people of Greece who are bankrupt are taking what little paper money they have and buying gold and silver.

I would advise my readers to continue to look for opportunities to open positions in gold and silver. While I have been amazed by the parabolic run in gold and there are a lot of people that say gold which was had a target price of $1,600.00 an ounce has blown through that level and seems to have no intention of correcting. Indeed, I read several analysts report that we may see gold reaching $2,500.00 an ounce before it pauses. While my Instincts tell me that the probability for this is remote my brain tells me to follow the money. As global currencies are debased and global fears continue to grow it seems that this shiny yellow metal will continue to rise.  Let us not forget its baby bother silver which has broken the $40.04 resistance level and seems on its way to my predicted level of $55.00 - $60.00 by year’s end. I had a reader chide me yesterday that my $55.00 level was ridiculous. Silver would be $100.00 an ounce by the year’s end. So look for the Silver ETF (SLV) to pull back to $38.00. If it does pullback to $38.00 buy in there. I’m not sure how to advise you on the gold ETF (GLD). As I have already written the levels that GLD are trading seem over bought but I see no red lights in front of it. I would advise that you stand aside until there is more certainty. I am fond of quoting Doug Kass who likes to say “I would rather lose an opportunity than lose capital.” In the mean time don’t forget about the miners. There are still great opportunities in these stocks as gold and silver under the ground have continued to lag gold and silver above the ground. Some names that continue to stand out are Silver Wheaton (SLW), Barrick (ABX), Goldcorp (GG) and for a longer term investment US Gold (UXG) have significant upside potential.

By George Maniere

http://investingadvicebygeorge.blogspot.com/

In 2004, after retiring from a very successful building career, I became determined to learn all I could about the stock market. In 2009, I knew the market was seriously oversold and committed a serious amount of capital to the market. Needless to say things went quite nicely but I always remebered 2 important things. Hubris equals failure and the market can remain illogical longer than you can remain solvent. Please post all comments and questions. Please feel free to email me at maniereg@gmail.com. I will respond.

© 2011 Copyright George Maniere - 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.


© 2005-2019 http://www.MarketOracle.co.uk - 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