A double-dip recession is more likely
With no country driving global growth and the US reining in banks, stocks and economies worldwide will struggle to gain momentum.
Are we headed for a double-dip recession?
On the "Today Show," Matt Lauer asked me whether it’s going to happen in light of unemployment claims and problems in Europe. Three weeks ago I would have said the odds don't favor it, maybe 25% chance, which is why I thought the Dow ($INDU) could stay north of 10,000.
But now it has to be considered a 35% chance, which is why we could see the Dow at 9,500. As Europe dithers, that odds of a double-dip recession will go up by the week. It’s that important.
We now find ourselves in a world where no government on Earth is pro-growth. President Barack Obama has done nothing but propose legislation that is anti-growth for the long and short term, instead favoring, if you want be all Marxist about it, labor over capital.
I don't think the stock market is a focus for Obama, and I understand that if you don't have a business background and you don't consider stocks the principal means of investment for the people he is trying to protect.
China was viciously pro-growth when it was time to be pro-growth, so excessively so that it’s proving hard to rein in without some serious tightening. Of course, in a world that is becoming deflationary, China's problem is high-quality. Still, everyone needs China to be in hypergrowth mode to give them the products we make.
There are some signs this morning that China is softening its stance and is going to subsidize some parts of its economy while staying tough on others -- commercial real estate? -- so there could be some relief there, but I will believe it when I see it in action.
Brazil and Australia, two robust economies, are in the same situation as China. That's totally unhelpful, because they were engines of growth and consumption for Latin America.
Europe is an engine of contraction, plain and simple. There's a cacophony of voices taking about different ways to resolve things, with different countries having different goals. It feels like the US in 1861, when the house was divided between the industrialized North and the South’s slave-based agrarian economy. They can't seem to stand together. We know the Union -- Germany -- ultimately wins, but this crisis could be the financial equivalent of the Civil War. It’s bad for business, to say the least.
We need a big rate cut and a definitive stance by Germany, and we can get bullish after this decline, but those are tall orders that are not favored by any odds-maker. Certainly not this one.
When you add these up and you have no champion for growth, you realize that Clorox (CLX) has it all over 3M (MMM) right now, and General Mills (GIS) and Procter & Gamble (PG) will go down less than United Technologies (UTX) and General Electric (GE). The banks are nowhere because we still don't know if Sen. Blanche Lincoln's bailout for Deutsche Bank (DB) is going to pass. Germany, like the Union, could be a big winner here in a pile of losers.
And then there’s deflation. Federal Reserve Chairman Ben Bernanke has been worried about it from day one. Forty-year lows in inflation are not what are called for when you want higher profits, especially when you don't even include the reduced price of housing in the equation.
So today reflects a 35% double-dip day, and you can see how that's shaking out already. As the clock ticks and we get no resolution within the week, I think we will be looking at 40% by the end of the month.
In that environment, you can't be too bullish, because the trend is going the wrong way.
You want to lose less than the other guys until you know that one of these governments is back on a pro-growth path instead of an anti-growth path.
And right now, none are champions of business, so pessimism builds.
How pessimistic? Although the 1,000-point decline was mostly made up of a couple of incredibly hard-hit Dow stocks, we are convincing ourselves that it was meaningful and correct.
That's as negative as it can get.
At the time of publication, Cramer was long PG.
Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.
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