Are we already in a global recession?
Evidence suggests that, despite a lofty stock market, the world economy is already shrinking again.
For weeks, I've felt like the only voice shouting against the growing chorus of overconfident optimists.
The data and the fundamentals didn't justify the stock market's slow drip to new highs this month; nor did the internal technicals, with breadth and volume fading away.
Of course, for those who cared to look, things weren't as peachy as they seemed on the surface.
In reality, large-cap stocks continue to slide sideways -- as they've been doing all month. Small-caps are stronger. But leading sectors, such as materials and emerging markets; leading assets, such as copper and tin; and leading stocks like Caterpillar (CAT) have all started to weaken significantly.
What gives? Well, despite impressions to the contrary, much of the world has already technically fallen into a new recession. Here are the details.
Some 45% of the countries in the Organization for Economic Co-Operation and Development have logged at least two consecutive quarters of negative GDP growth. And more than 70% have logged at least once negative GDP print.
As the chart below from the folks at RecessionAlert shows, we're in the midst of a pullback that, before the 2008 downturn, hadn't been seen since the early 1980s double dip recession. Yes, that means the current economic climate -- in the midst of multi-year highs in the stock market and widespread enthusiasm -- is worse than what was in the depths of the 2000 recession.
What will it take to bring the market back to reality?
Oh, I can think of a few things. Like the way the inflation hawks at the Federal Reserve are getting nervous about their extreme stimulus measures. Or the way the Chinese are starting to draw liquidity out of their financial system for the first time in seven months on inflation and credit bubble fears. Or the way Japan trade deficit has fallen to a record as its exports to Europe fall (due to a weak economy there) as import prices rise (due to a weaker yen). Or the way Islamic militants out of Nigeria, a critical oil supplying state, have become active in Cameroon -- threatening to push gasoline prices even higher.
The more data that is released, the more political events that transpire, the faster this farce ends since the market has been rising in a bubble, ignoring all the clear and present threats. And given how extreme investment positioning and sentiment has become, the realization that we could be falling into a new recession right now will not be a pleasant surprise for most people.
But a few are already showing signs of awareness. Consider the stocks the led the way higher on Tuesday, stocks like Pepsi (PEP), Merck (MRK), and CVS (CVS) as cyclical, economically-sernsitive stocks lagged. Stocks like CAT and Alcoa (AA).
Or consider the way materials and energy stocks are being hammered in trading Wednesday, such as Cliffs Natural Resources (CLF), which is down nearly 24% since I added a short position to my Edge Letter Sample Portfolio back in January.
I think the selling pressure will soon pull down a wider swath of the market. Thus, I'm adding the high-risk/high-reward Direxion Daily 3x S&P 500 Bear (SPXS) to my holdings. For those looking for less leverage, consider the ProShares Short Dow 30 (DOG).
This post was updated at 3:20PM ET to reflect the results of the FOMC minutes.
Disclosure: Anthony has recommended the SPXS and the DOG to his clients.
Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
I don't need a stock market guru or an economic analyst to tell me that we are in a recession because we really never emerged from the first one five years ago. Since then I've been living on P&J sandwiches, beans and soup ... and it looks like I will have to continue with this 'feast' for the foreseeable future.
Peace to all ~
Or the SH, s&p 500 short that i got in yesterday morning. No Tony you aren't alone.
KOO, gold can, and will, fall with stocks. Maybe as low as 1300 depending on how you read the charts. Charts look bad. If you are into that type thing.
AM is a trader and has at times been bullish. Going into the end of the year he was. I agree with him 100% on his outlook. FED stops printing and things could get very interesting.
Obama wants to end social security and medicare but wants Obamacare?
No wonder this country is falling into the blackhole of the sun, following Barry Obama Sorretor Hussein Gonzalez Conchita, the first non-American President of these United States.
Have you noticed Tony "Meerkat" Mirhaydari "pops-up" right after every sell-off pronouncing the mantra of MSN MONEY which is always Doom and Gloom???
Why did the market drop? It's quite simple.
1. Gold is in freefall mode because stocks are going higher with no inflation.
2. Oil is in decline because of more fuel-efficient cars and because oil company executives fear the loss of your federal tax dollars from Obama which they used under Bush to pay off murderous dictators and mercenaries to protect their oil fields in Africa and the Middle East and Central and South America. No more free money means a decline in profits.
3. Too many illegal aliens still on American soil sucking federal benefits.
4. Too many bankers leaking false stories to the press because they want QE to end.
5. Too many short-sellers like MSN MONEY writing false stories to crash the market.
6. Too many street gangs and criminal organizations driving up city and state enforcement costs.
7. Too many do-nothing Congressmen getting a paycheck.
Don't believe the hype, things are improving dramatically and new money is flowing into stocks.
Shame on you Meerkat.
Even without current global economic conditions as a whole, phony stiumulus efforts by the admin and politicians coupled with high oil/gas prices, climbing as we read this post assure a no recovery future as far as we can see. The perfect model for this admins approach is Spain which after massive building of roads, bridges, airports, green energy facilities as stimulus, now finds those facilities unused or shut down, unemployment at over 25% and the country BROKE. Any government attempts to grow an economy through monetary policy and distribution of public wealth through politicians pet projects will always fail in the long run.
Only a Caterpillar, Boeing, John Deere, oil and gas explorers, etc can stimulate an economy with permanent jobs that dont rely on breast feeding from the government. I fully expect GM to fail again when the give aways $ to unions and accounting trickery has run its course.
And once the global recession hits the US, Obama will blame it on sequestration. Mark my words.
That's why he's out on his Blame & Shame tour right now preaching all the doom & gloom crap - to cover his A*S*S..
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