What Is A Double Dip Recession?
Similar to a mythic beast from the childhood story that magically arrives to life
, traders are suddenly experienced with the very true possibility that we may actually face a double dip recession.
Investopedia explains a double dip recession as: "When gross domestic product (GDP) progress slides back to negative after a quarter or two of positive development. A double-dip recession refers with a recession followed by a short-lived recovery, followed by next recession."
Keep in mind, in the markets, perception is the one reality that matters.
Currently, market participants are in fact worried that the global recovery is in deep difficulty. As we experienced in the year 2008, recessions kill profit visibility. And when institutions have no earnings visibility, they sell shares. That is in fact as simple as that.
Let's not find in advance of ourselves yet, however -- it is still too early to inform if the growing economic restoration is finished or simply picking a breather.
We're extremely oversold, and positively due for various kind of relief rally. Still, it is hard for me to look at this pullback as a new buying chance.
My concern is that I'm struggling to see where the following wave of big development is going to arrive from.
Driven through extremely careless lending values, as well as good old fashioned company thievery, China looks being in the border of its own banking problem. Hence I do not guarantee China coming to the rescue of a global financial system.
The US is gradually crawling back, however the common US customer continues to be 15-30% below water on their house, along with still mired in personal debt. While most of that's true, yesterday's consumer confidence information are pointing to a more confident consumer. Consumer Confidence rose to 63.3, up from April's 57.7. This was approximately 4 points enhanced than estimated.
The one trouble with this number is that it doesn't take into consideration the recent market weakness plus the insanity occurring in North Korea right now. (North Korea sunk a South Korean Ship, they deny it, has threatened battle, and now have nowadays cut off all ties with South Korea.)
The three keys for the return of the US customer are job growth, job safety, and having access to credit.
Almost everyone believe that as long as they haven't been permit go yet, in that case they perhaps won't be. This helps people think safer in their employment. Then again, a crashing stock market does not bode well for improved corporate employment.
New economic system working their way through Congress may end up limiting credit for small business owners and individuals. Therefore I don't observe a new credit boom leading the way forward anytime soon.
Therefore, without having access to easy credit as well as a gradual supply of latest nice paying out jobs, I can truthfully speak that We have no thought where the fuel is going to arrive from to find consumers spending again.
And then we've Europe ...
The problems in Europe are very real. These guys fired a trillion dollar missile on their sovereign debt problems, and it even now doesn't appear to be enough. The European banks are into serious, serious difficulty. And see if the European financial system slips back to recession, you could short the complete European bank sector into the ground. I even now think that the European financial institutions are a short on just about any show of power.
Thus it really is difficult to me to view the bull occurrence now, but then again it always is while things seem this bleak. Seeing that oversold as we're, I am not seeing the sort of entire destruction that one generally sees at the capitulation bottom.
Therefore, long story short, in lieu of an announcement of some type of transformative strategy response, I'm likely to address some rallies with skepticism and err at the short side instead of the long side.
by: Greg Matthews
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