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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.
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:
- Bloomberg:
Greenspan Says Drop in Home Prices Might Bring Back Recession - Money Morning:
U.S. Economy: Headed For a Second-Half Slowdown - Money Morning News Archive:
Double-Dip Recession Stories - Money Morning:
The Baltic Dry Index is Shouting "Danger, Will Robinson!" But Are Investors Listening? - Money Morning:
Insights on ECRI: Is This Stock-Market Prophet Calling for a Double-Dip Recession? - Money Morning:
China Manufacturing Slowdown Not Enough to Cause "Double Dip" - Money Morning:
The CIVETS: Windfall Wealth From the 'New' BRIC Economies - Money Morning:
World's Largest Steelmaker Warns of Slowing Economic Recovery - Money Morning News Archive:
Defensive Investing Stories - Money Morning:
How to Pick Stocks in the 'New Normal' Economy - Money Morning News Archive:
Question of the Week Feature
sir i agree with you about dobledip reachtion now way for bull and this time economy emprove fast so very bad singnle for capital marcket
We'll be lucky if it is only a double dip. Connect all the dots and it gets much worse than the liars and frauds-in-suits in DC are admitting.
An unaudited Federal Reserve running out of ammo for their Ponzi gig. US government debt that is becoming mathematically impossible to repay without massive currency devaluation or default. Over 40 of the states flat broke and now advising of coming layoffs in the hundreds of thousands.
Public pension funds underfunded by some $4 – 5 trillion according to the latest tally. Unfunded obligations for Social Security, medicare and medicaid now estimated over $50 trillion. With an economy that is 70% dependent on consumers many of whom are losing their jobs, homes and savings.
The EU has their own debt mess. But at least they know how big the hole is. With their politicians choosing to face the dogs head on and inform taxpayers about it.
Unlike the lies, spin and fraud we get from our on-the-take politicians here in the US.
Ding-ding ding- and Moran takes the prize, good job, well done!
[…] We Want to Hear From You: Are You Preparing for a Double-Dip Recession? […]
Yup, I see a double-dip DEPRESSION on the horizon. My investment strategies are very practical as I live on a very limited income. First on the list is a chain saw. Next, a wood burner. I already have the dead trees:)
I agree Moran with that double dip is getting closer and maybe not would be the end of the recession process.. In EU have survived the countries which don't have euro (short-term?).Euro had been over-valuated too long period against the US dollar.Triffen dillemma still exists ?
EU as association of the "double speed "countries should be faceing a huge economic problems because it has no single government, no single treasury, no effective fiscal coordination and no mechanism for crisis management.
[…] Money Morning: We Want to Hear From You: Are You Preparing for a Double-Dip Recession? […]
There can't be a double dip recession because there was never any recovery in the first place. By all measures we have been in a depression for two years. Washington manipulates the jobless numbers, wall street's profits are due to cost cutting and moving overseas, and we now have more people employed by government than in manufacturing.
Absolutely preparing. You can't have a five year buying all the candy he can, with money he steals from his parents wallets and purses, without getting a very bad stomach ache.
Everything I have seen in the last two years and a good share of the previous eight says there is no longer intellligent life in any of the three branches of federal government.
I am definitely preparing for a double-dip recession. I know its going to happen and the only way to stay afloat is to be financially savvy. I have been financially educating myself for the last 3 months. Better late than never and I believe I can still make this work.
[…] Money Morning: We Want to Hear From You: Are You Preparing for a Double-Dip Recession? […]
[…] Simpkins, Managing Editor, Money Morning The last time the U.S. economy suffered through a double-dip recession, this country was struggling to overcome the fallout from an Arab oil embargo, Vietnam War-era […]
[…] Simpkins, Managing Editor, Money Morning The last time the U.S. economy suffered through a double-dip recession, this country was struggling to overcome the fallout from an Arab oil embargo, Vietnam War-era […]
Yes, I am bracing for a double dip recession. I've said from the beginning this recovery was fake.