Tags: Defense Investing, Double-Dip Recession, Economic Recovery, Home Prices, Housing Market, Jobless Recovery, U.S. Economy, U.S. Unemployment

We Want to Hear From You: Are You Preparing for a Double-Dip Recession?

By , Associate Editor, Money Morning •

The "pause" button has been hit on the U.S. economic recovery, fueling worries that we're headed for a double-dip recession.

"We're in a pause in a recovery, a modest recovery, but a pause in the modest recovery feels like a quasi-recession," Former U.S. Federal Reserve Chairman Alan Greenspan said in an interview on NBC's "Meet the Press" broadcast Sunday.

Greenspan touched off speculator interest in a double-dip downturn when he announced that a further decline in home prices could push the economy toward a new recession.

"If home prices stay stable, then I think we will skirt the worst of the housing problem," Greenspan said. "But right under this current price level, mainly 5, 7 or 8% below, is a very large block of mortgages, which are under water, so to speak, or could be under water. And that would induce a major increase in foreclosures, foreclosures would feed on the weakness in prices, and it would create a problem."

With unemployment stuck around 9.5% - and mortgage-lending standards stricter than they've been in years - don't look for housing prices to escalate anytime soon.

Question of the Week
Greenspan's double-dip fear-mongering isn't the only signal that there's still trouble ahead for the U.S. economic recovery.

For instance, consider the fact that Greenspan-successor Ben S. Bernanke has referred to the economic outlook as "unusually uncertain."

Then there's ArcelorMittal (NYSE ADR: MT), the world's largest steel company, which lowered its third-quarter forecast, and voiced its concerns about the slowing pace of the global economic recovery because of a trifecta of troubles: A seasonal dip in demand during the European summer, slower growth in China, and higher costs for iron ore.

And don't forget the two often-overlooked-but-telling economic sources that are pointing south: the Economic Cycle Research Institute (ECRI) and the Baltic Dry Index (BDI). The ECRI charts weekly changes in leading economic indicators, and is extremely good at calling market tops and bottoms, while the Baltic Dry Index tracks worldwide international shipping prices of various dry bulk cargoes.

So what are they telling investors?

"The ECRI has a 100% hit rate and is right now warning anyone who will listen that another downdraft is in store for the U.S. economy," said Money Morning Guest Columnist Jack Barnes.

Meanwhile, the BDI "has shown itself to be the EKG of future industrial demand," said Barnes. "And, right now, the BDI is screaming 'Danger, Will Robinson!' to any investor who will read it and heed it as a true leading indicator."

With signs of a slumping economic recovery, Money Morning published its "Defensive Investing" series to provide readers with strategies they could use to protect themselves against the possibility of a double-dip downturn.

Other articles have provided readers with related strategies. Money Morning Contributing Editor Shah Gilani advised investors how to pick stocks in the "New Normal" economy of ultra-slow growth and sub-par expectations, while Contributing Editor Martin Hutchinson pointed investors toward the "CIVETS" - the foreign markets that are continuing to grow, even as the United States works to regain its footing.

This brings us to the new Money Morning Question of the Week: Are you preparing for a double-dip recession? Have you tweaked your portfolio to handle a double-dip downturn? Have you employed defensive investing techniques to adjust to the economy's direction? Do you think double-dip concerns have merit, or will the nation's economy avoid another downturn?

Send your thoughts, questions and concerns to mailbag@moneymappress.com.

[Editor's Note: Is there a topic you want to see covered as a Question of the Week feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "question of the week suggestion" in the subject line.

We reserve the right to edit responses for length, grammar and clarity.

Thanks to everyone who took the time to participate - via e-mail or by posting their comments directly on the Money Morning Web site.]

News and Related Story Links:

Trackbacks