1. 70% recession upcoming. Cause: housing slowdown -> elimination of equity as a form of ATM and direct and indirect elimination of jobs -> slowdown in consumption and as consumption is two-thirds (some say 70%) of US economy, impact would be big. What’s with the 30% reservation ? Again consumption. Despite recording the first full year of negative savings rate since the Great Depression, America continues to borrow and spend (I heard back-to-school sale is stronger than expected) and perhaps the trend could continue until it utterly collapses.
2. Start shorting the market except certain sectors but not yet because:
a) Stock market oscillates between extreme pessimism to extreme optimism as reflected both in stock price and valuation. History: latest bull run started in early 1980s but before that interest in stocks was destroyed (trough at 598 in Dec-74). To get there valuation has to go very low (PEs in single digits and yields double to triple today’s level). We’re not there yet and in my opinion we will eventually and the market may use the recession, if it happens, to push prices to that level. Plus mega trend stuff like the imminent retirement of boomers who would liquidate their stock portfolios to fund their requirements.
b) Why not yet ? There’s been much discussion about a bounce from the fall of mid-election year (2006 is one). In my previous post, I looked at SP500 charts going all the way back to the 1960s and found that to be true 100% of the time and that kind of accuracy just cannot be ignored.
3) a collection of hedge funds, gold-related investments, china, foreign currencies
4) reading investment newsletters is better than listening to famous bank analysts / economists
5) china … people here are just starting to get a taste of what money can do for them and are not afraid to work hard and sacrifice things that those of us in developed worlds cannot part with (like quality time with the family on weekends) … it’s a fundamental drive which I believe will translate to continued growth … short term I do believe that if the US slows down it will affect china but to what degree I have no idea … so advice is think long term and use techniques such as dollar cost averaging to reduce timing needs
