Wednesday, July 7, 2010

Is doube Dip recession really exist on horizen?

Sunny side up, but stocks may correct ..........Taken from todays's ET

The chances of double-dip recession are remote, but we may be entering a phase of a healthy stock market correction that is likely to play out till September this year, says Sunil Kewalramani

AGREAT aphorist, the 19th century clergyman Sydney Smith, defined heaven as eating pâté de foie gras to the sound of trumpets. The fans of the local Bloemfontein Celtics side are wellknown for singing as well as for blowing their vuvuzelas the controversial plastic trumpet favoured by South African supporters unrestrained at every football match, from pre-game kickabout to injury time.

During the Second World War, governments realised that unrestrained talk could cost lives. Now they are realising it can cost them money too.

Kolbászból lesz a kerítés?(Will the fences be made of sausage?) is the question Hungarians are asking. The new ruling party Fidesz had made campaign promises incompatible with Hungarys $25-billion IMF and EU-led stabilisation programme. When Fidesz vice-president conjectured that Hungary would be lucky to avoid a Greek-style crisis, it led to fears Hungary would join the market goulash. Hungary which has its own currency, the forint is better off than Greece in terms of indebtedness (only 79% of output).

France, meanwhile, is suffering from unwise words of Francois Baroin, budget minister who said it would be a stretch to keep the countrys AAA credit rating.

We also had Japans new Prime Minister Naoto Kan pledging a fiscal policy overhaul to reduce the countrys massive public debt, warning of a Greecestyle meltdown.

Economists too are enjoying a bit of a renaissance. If Greece is the new Lehman Brothers, Lehman Brothers itself was the new Argentina (2001), and Argentina was the new CreditAnstalt (1931), and CreditAnstalt was the new previous Argentina (1890), and the previous Argentina was the new South Sea Co (1720), which was the new Philip II of Spain, who through his multiple defaults (1557, 1560, 1575 and 1596) managed repeatedly to be the new himself.

Forecasts say gross general US government debt will hit 100% of GDP next year. But $4.5 trillion (47%) of that is categorised as intragovernmental holdings.

US paid nearly double todays interest levels (2.2 % of GDP) from 1984 through 1996, and that was during two mega bull markets.

Theres $1.84 trillion of cash on the balance-sheets of US corporations up a record 26% year-over-year. If cash were a nations GDP, US would rank 11th in the world. While high cash balances arent of themselves bullish, they typically lead business spending and investment.

Over the past four quarters, non-farm productivity in the US had its sixth-biggest jump since records began in the 1940s. US unit labour costs are dropping at their fastest pace in 40 years. The 1.5% increase in the average workweek that we have seen over the last seven months has only occurred two other times in history. Those occurrences came in the first half of 1982 and the first half of 1996 both at the start of major bull markets.

Simultaneously, Chinese labour cost is rising. But labour costs can be a small fraction (7%) even for labour-intensive industries like Foxconn. China is responsible only for about a quarter of the value of manufacturing a computer.

The ECRI weekly leading index (WLI) composed of stock, money supply and housing starts has suddenly dropped to 5.7%. A significant decline in the WLI has been a leading indicator for six of the seven recessions since 1965. It lagged one recession (1981-82) by nine weeks. The WLI did turn negative 17 times when no recession followed, but 14 of those were only slightly negative (0.1 to 2.4) and most of them reversed after brief declines.

THREE of the false negatives were deeper declines. The Crash of 1987 took the Index negative for 68 weeks with a trough of 6.8. The Financial Crisis of 1998 took the Index negative for 23 weeks with a trough of 4.5.

The third significant false negative came near the bottom of the bear market of 2000-02, about nine months after the brief recession of 2001. At the time, WLI seemed to be signalling a double-dip recession, but the economy and market accelerated in the spring of 2003, and a recession was averted.

Double-dips are rare, occurring just twice in the past 100 years: once in 1920 and again in 1981. When inflation-adjusted GDP has come out of a decline and posted three or four quarters of gains, it has historically never immediately begun to fall again at least not since quarterly numbers began to be issued in 1947. We have had a year of improving global GDP.

The S&P 500 and the MSCI World Index have averaged declines of 0.37% and 4.34% respectively in the three months following the Soccer World Cup.

Investors are fretting slower-than-expected growth in Chinese Purchasing Managers Index. Slower exports to Europe, disruptions caused by higher minimum wages and restrictions on secondary property market all weighed. But the index was expansionary 16th month in a row. Just a few months ago, many fretted superfast Chinese growth would lead to overheating.

Historically, unemployment is a lagging indicator and shouldnt be used to gauge improving economic conditions.

Since March 2009 low, Shanghai, S&P 500 and Sensex are up 12.5%, 51% and 114% respectively.

Death crosses transfixed market chartgazers round the world last week. They appeared over the London FTSE, Eurofirst 300 Nikkei 225 and nearly the S&P 500. A cross forms when an indexs 50-day moving average, measuring its recent trend, dips below its 200-day moving average. It happens rarely only four times in the past decade for the S&P 500 and many believe it signals a bear market. But dark crosses have signalled four of the past two US bear markets, and five of the past two Japanese bear markets.

Whether done by rhetoric, as with BPs dividend, or new laws, as with the UK bonus tax and the Australian mining tax, new levies are on the cards.

Unrestrained talk and unbridled legislation could trigger a healthy stock market correction between July and September 2010.

(The author is a Wharton Business School

MBA and CEO of Global Money Investor)

My Comments:
I have been hearing and reading many articles about double dip recession.Everybody are gearing for that.Experts are already selling to remain in CASH.Some have started selling.
To them double dip recession is imminent.World can't aver it.They are sure about it.
But I have been writing about positives only.I have been criticized about the manner in which I remian optimistic.I have been advice that I am again going to go wrong as the massacre is about to start and then what I will say to my readers.
Well, I remained bullish throughout 2008 and still I am here.Actually, the fall was britle from 21k to 8k .It came down very quick.Just in 9 months?Can anyone imagine a market can lose 70% in 9 months?Never ever one hass saw such a downfall in our history of stock market....and I did wrote about it when that was happening.I was giving calls to buy at 8000 level as well as I gave call to buy at 16k level as well.
I have been telling here since long,the world has become very big and hence we can't compare the charts of 1929 recession with 2008-2010.
Sunil Kewalramani is saying exactly what I am telling here since long.All the debacle of financial crisis we are seeing now are replica of 1929 or even 1879! So what we need to compare?
Another thing I would like to write here is that, USA has just come out of a very big recession.The situation which were compared to with 1929 recession.Now,do you think USA will let it again happen with Greece or Hungary or Ice land going broke?When their Dollar will be gaining strength , do one think USA let go that opportunity?
Under no circumstances will USA give in .....when a situation arised that Dollar can be replaced by Yuan can take front sit, will US let go this chance to make dollar stronger?
Major deals in commodities and Oils futures are done in dollars.There was a time when Euro or Yuan may replace dollar but with PIIGS countries debacle, dollar has again got the lost glory back.
Note of Caution:
I may prove wrong in my analysis.So readers are suggested to take a call on their own research....


  1. Dear Rajeev,

    Is paramount communications ( Rs 11) a buy at current price with possibilities of good returns ???

  2. Mitz,
    I do not track Paramount Communication....

  3. Dear Rajeev,

    Advice on entering jamna auto at Rs 115 ,i am ready to hold for another 6 months