Double Dip?

(To increase the font size of this essay – hold down the Ctrl key and keep pressing +) Will the world economy slip back into a deeper recession? Is it time to cash out of the market? To be honest with you; your guess is as good as mine or for that matter any of the experts out there.

What I do know is the global market is pretty fucked up – fears of a double-dip have lingered throughout the long road to recovery but of late they have intensified as the economy shows little signs of real healing – this is suggestive when you consider the recent sharp trend in bond investing.

3 main indicators will remain: (1) employment figures – watch as I may, I have absolutely no idea where it’s going. (2) The US housing market is more or less bottom skimming and languishing. (3) As for consumer spending it’s so-so.

The prognosis in a nutshell is as follows: the market seems to have taken a wrong turn and it’s suddenly found itself in a lousy neighborhood and no one in the car knows how to read the map – this would suggest a double dip is the cards – then again, it may just mean the market is just working out stuff in the way a balding man eventually makes peace with how hair loss products are all useless. As he settles down to make the best of what little bitty bit he still has.

If I had to choose which side the market is going to go – I would have to say it could very well go either way. And one phrase plays a preponderant role here: It all depends…..

Ironically one quirky way in which a double dip recession may pan out is when governments, especially those in Eurozone begin to cultivate a shambolic idea of how austerity measures alone can be the best way to solve their economic woes – don’t get me wrong. Basically, I believe some basket case economies such as Greece can certainly benefit from a strict regimen of fiscal policies – the danger as I see it is when every politician in the Eurozone begins to buy into that same unimaginative single track idea; not realizing that even the most liberal austerity measures is not disimilar from putting a kink into the money supply – and without money circulating within the system, it just doesn’t come around – take the logic of fiscal austerity too far and what it may very well precipitate a full scale recession.

That incidentally was what happened in the 1930’s when some flat headed bureaucrat decided to stop the money flow (in the hope of jump starting the economy) and that set into motion a series of unstoppable events that culminated in a recession slipping into a depression.

Another thing that may trigger a double dip recession is when politicians begin to believe they know what’s best for the economy – to paraphrase; they actually believe that they know more about businesses than those who are currently in business – that sort of know it all attitude is just poison and the reason is simple Simon. Truth of the matter is governments know fuck all about business – as everything they drive either goes over a cliff, explodes or ends up producing stuff that no one in their right frame of mind will ever consider buying, like soviet build cars, apparels and cigarettes – so it is quite possible that when Obama & Co doesn’t even see the moral dilemma of deploying arm twisting methods such as forcing BP to create a escrow fund from its dividend pay out – or overruling the courts to stop deep water rigging – and attempting to roll out banking bill and the associated regulations – that’s just another indication we are definitely heading for a double dip.

Fortunately when it comes to both the US and EU, the vast majority of bankers and industrialist still regard their politicians as just glorified comedians dressed up in a top hat and tails – that’s important as it means the private sector will have plenty of reserves to continue fixing the system and getting back on track again irrespective of political bent.

In summary, I don’t think we’re headed for a double-dip but I don’t think we’re headed for a stellar growth either. As concerns about the Eurozone and really crummy housing and employment figures are problems that reside deep within the marrow of the bones of the system – and I don’t see them going away with a wave of the wand. These are systematic problems and the market just needs time to deal with them to spit out the bad and keep the good to get in shape again – so it’s fair to say what we may expect to see is jagged growth, that’s the slow and iffy type of growth; where the world economy takes 3 steps forward, slips, falls and gets back to recover 2 and so on and so forth – it will be a very long road to recovery, of that I am certain.

The long and short of it is this: if you happen to be a bunny rabbit trying to ace the market with double digit growth – I don’t think the conditions are ideal for that sort of game - sure, you could make that in a week (if you’re lucky). But in a slow and iffy growth market; you could just as well give back everything you once made to the market the following week. Having said that, one thing is certain – these are perfect conditions (and mind you, it’s rare to have such ideal playing terms) for the long term / high stamina players who are prepared to bear out even double digit free falls for the short term – fortune I am certain will favor the tortoise this time round – no doubt about it.

Darkness 2010

(Published in Ekunaba, SLF 1-13, Strangelands and PBK as well – the Brotherhood Press 2010)