Is the dreaded double-dip recession going to come?

[lzen5]

They say history always repeat itself. But it looks everyone is optimistic enough not to worry about another dip. Even that some people thi k that the general economy in the US is still weak and doubt Asian countries ability to drive demand, which makes the current upsurge in stock market unwarranted.

What's your take on this? Is the stock market going to crash again soon?

 

[pedalofogus]

I don't know if it will crash, but my opinion is that the markets will begin to realise that the US and European economies are going to take longer to improve than people were originally estimating. Once all of the stimulus has had a chance to flow through the system, i think we will see the true state of these economies.

It wouldn't surprise me to see zero growth in sharemarkets around the world over the next 18 months / 2 years. Possibly even some negative growth, but I personally can't see it going backwards more than say 20%. We certainly won't go back to the levels seen in March 2009.

Pedalofogus

 

[grace]

We certainly won't go back to the levels seen in March 2009.

Pedalofogus

Such confidence Pedal. I notice though Marc Faber agrees with you when I was listening to one of his interviews recently.

It's kind of like betting on the Melbourne Cup really. Throw your money in and hope for the best.

 

[drsmith]

Such confidence Pedal. I notice though Marc Faber agrees with you when I was listening to one of his interviews recently.

Relative to bonds (US) ?

http://www.bloomberg.com/news/2010-10-12/faber-sees-global-turning-point-credit-bubble-update1-.html

 

[yonnie]

agree with ped

no double dip.

and no, there is no upsurge......we`re just see-sawing between 4200 and 5000 until the future starts to look more rosy.

at the moment there is no real growth, but nothing to get upset about.

people see problems everywhere

 

[Sean K]

If QE2 is insufficient and fails, then a DD is almost a certainty, and may be worse than the previous for the markets. Faber is probably right in the short term, that liquidity will flush the market, but only temporarily. If he is right, QE2 most probably fails and the US goes bankrupt. Disaster for everything including confidence which is what the market runs on to the upside. Or, his plan C is the US really goes to war. Most probably invades Pakistan at this stage. Then it gets untidy.

 

[Julia]

If QE2 is insufficient and fails, then a DD is almost a certainty, and may be worse than the previous for the markets.

At best, it's hard to imagine any improvement will be other than very short term.
Too hard to ignore that the US is effectively bankrupt even now.

Disaster for everything including confidence which is what the market runs on to the upside. Or, his plan C is the US really goes to war. Most probably invades Pakistan at this stage. Then it gets untidy.

Good lord, Kennas, do you really think - given the existing utter mess in Iraq and Afghanistan, they would take on another war in Pakistan?

 

[Sean K]

Good lord, Kennas, do you really think - given the existing utter mess in Iraq and Afghanistan, they would take on another war in Pakistan?

Yep. They will do all they can to divert attention from their local poverty.

Even Bob Katter is saying that we are going to follow them into Pakistan, so it's gotta be true.... he he

Maybe just NW Pakistan with their tacit agreement...

It seems obvious that no one is really in charge of either country.

Off topic now. Sorry...

 

[Alex Barton]

A douple dip is certain for America I believe. Australia on the other hand is sailing into another commodities boom.

 

[nulla nulla]

They say history always repeat itself. But it looks everyone is optimistic enough not to worry about another dip. Even that some people thi k that the general economy in the US is still weak and doubt Asian countries ability to drive demand, which makes the current upsurge in stock market unwarranted.

What's your take on this? Is the stock market going to crash again soon?

Definitely tomorrow.

I heard it from a good sauce...sort...source! The U.S is going to print twice as much greenbacks as they have gold to back up, then they are going to have a totally unexpected fire at Fort Knox.
Accordingly they will submit an insurance claim with their insurer, who will seek bankruptcy protection under chapter 11...you know, the chapter the paperback always falls open at because everyone keeps going back to it to read the sexy bit...this will require an act of congress to bail them out.

They'll call this one QE3. Because it will be three times as big as the cumulative expenditure of all the previous Presidents of the U.S, all the way back to George Washington (including the expenditure of George W and Obama).

Then someone will point out that this will take 1000 years to work their way out of..... So some redneck will say what about "A War".

Problem solved. Double dip recession/depression followed by a global war. However this time the Kids will go to work in the factories etc instead of the women as the women will be fighting, side by side, with the men at the front.

 

[pedalofogus]

If QE2 is insufficient and fails, then a DD is almost a certainty, and may be worse than the previous for the markets. Faber is probably right in the short term, that liquidity will flush the market, but only temporarily. If he is right, QE2 most probably fails and the US goes bankrupt. Disaster for everything including confidence which is what the market runs on to the upside. Or, his plan C is the US really goes to war. Most probably invades Pakistan at this stage. Then it gets untidy.

If QE2 fails, QE3 happens. If that fails.....QE4....and so on. I think a DD is almost a certainty aswell, but the QE's will be swifter and more pointed, and that will stop it from being as bad as the previous one.

The US is already technically bankrupt. If it was an ordinary business, the creditors would have stepped in ages ago. Luckily for the US, China & India & Co have too much $$$'s tied up in US and wont let it happen. Not to mention that they need the US consumer to be buying to continue their boom (and our resource boom).

In the end, the world will end up bailing out the US (and Euro to a lesser extent) because we have too much at stake. They will still have a DD, but it will be cushioned by world $$$'s. And in typical US style, when they get back on track (many years down the track!) they will forget what the world did for them and go back to screwing everyone over.

Re war in Paki. It is inevitible. As long as the NW of Paki continues to be a safehabour for BinLaden and his boys, it will be on the war radar. Australia will support it, if for no other reason than the Paki's made a mockery of the Test arena! haha

 

[Tanaka]

I agree with Pedalofogus.

I've said it b4 on another thread, the US has made 4 surpluses in the last 40 years That makes it no better than a speculative penny dreadful stock.

China on the other hand keeps making money and their population keep buying from their savings, very low debt.

If QEing is the only way the US can keep up and it's the only thing the Fed can do with near zero interest rates, then god help the US economy.

While typing this several US babies were born, each inhereting over $40,000 of the national debt.

I have my money on a double dip

 

[pedalofogus]

I agree with Pedalofogus.

I've said it b4 on another thread, the US has made 4 surpluses in the last 40 years That makes it no better than a speculative penny dreadful stock.

China on the other hand keeps making money and their population keep buying from their savings, very low debt.

If QEing is the only way the US can keep up and it's the only thing the Fed can do with near zero interest rates, then god help the US economy.

While typing this several US babies were born, each inhereting over $40,000 of the national debt.

I have my money on a double dip

4 surpluses in 40 years, that sums up the US way. Stealing from the future to fatten up the present.

The sooner that gold replaces the USD as the accepted worldwide currency, the sooner that the US will be exposed as the bankrupt state it is, whose only export to the world was the USD.

 

[Smurf1976]

The US is already technically bankrupt. If it was an ordinary business, the creditors would have stepped in ages ago. Luckily for the US, China & India & Co have too much $$$'s tied up in US and wont let it happen. Not to mention that they need the US consumer to be buying to continue their boom (and our resource boom).

In the end, the world will end up bailing out the US (and Euro to a lesser extent) because we have too much at stake.

On a much smaller scale, I have personally been in a very similar situation of being owed a substantial sum of money but having a need to not let them actually go broke.

Ultimately however, a point came where the extent of potential losses (to me) and the probability of that actually happening exceeded the benefits of continuing the relationship. And so I effectively cut off credit in an orderly manner.

Whilst it is true that China etc needs US consumers now, a point will inevitably come where the extent of debt already incurred, the scale of ongoing borrowing and the probability of default will be such that it ceases to be in China's etc interest to continue lending. That's when the fireworks start...

When that will occur is anyone's guess since it is not simply a matter of the finances of the US "business" as such. Incurring some loss on credit in order to keep the local economy going does make sense for China etc up to a point. But that point is not unlimited.

In due course China etc will ramp up domestic consumption and no longer need the US as a consumer of its manufactured goods. As that transition gradually happens, the benefits of ongoing lending diminish and ultimately turn negative.

On a smaller scale, Ford (for example) has an obvious interest in not having key component suppliers go out of business and so may be willing to take a loss on credit in order to keep Ford's overall business running. But a point would come where Ford would be better off simply setting up their own component manufacturer rather than bleed cash propping up somone else's failed business. That's essentially the situation faced by China - they need US consumers now, but a point will come where they are their own consumers and no longer need to prop anyone else up. They'll export if it is profitable, but they won't actually need to do so.

If you are already owed a fortune by someone who is bankrupt, and the original reason for you lending that money no longer applies from your perspective, then there are really only two reasons why you would continue lending given that you already effectively own them, and there's no benefit in you owning them two or three times over. Reasons to continue are (1) Insanity or (2) some non-financial reason, which in this case would realistically be military threat. It's not as though the US is able to cut off the supply of something of real value as a threat or simply repay debts through exports of goods in the normal manner. But they do have the export nobody wants to receive - the actions of a massive military.

 

[Julia]

Whilst it is true that China etc needs US consumers now, a point will inevitably come where the extent of debt already incurred, the scale of ongoing borrowing and the probability of default will be such that it ceases to be in China's etc interest to continue lending. That's when the fireworks start...

When that will occur is anyone's guess since it is not simply a matter of the finances of the US "business" as such. Incurring some loss on credit in order to keep the local economy going does make sense for China etc up to a point. But that point is not unlimited.

As always, Smurf, an erudite and logical summary in a great post.

I suppose, though, the Americans have little choice? With unemployment already at almost 10%, the consequences of anything other than their present path seems unthinkable socially and politically.

Their great dilemma is that to continue the QE will simply postpone what seems inevitable, but not to do this would be social and political suicide.