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More Than 60% Chance of a Recession in the Next 12 Months, Warns This Chief Economist

recession One economist just issued a sobering warning for investors who are feeling euphoric about the "Trump bump": Don't get too comfortable.

"While the market at large sees less than a 10% chance of recession, we at Saxo – together with our friends at South Africa's Nedbank – see more than a 60% chance," said Steen Jakobsen, chief economist at Saxo Bank, to CNBC today (April 10).

Even worse, the Copenhagen-based exec added this potential recession is "more likely than not" to occur in the next 12 to 18 months.

Jakobsen attributed this slowdown in the market to three concerning factors…

The "Trump Bump" Is Over

The end of the bull market is coming, according to Jakobsen.
We caught a glimpse of this a few weeks ago, when Trump's unsuccessful healthcare bid spooked the markets…

On the first business day after the failed vote, the dollar sank to a four-month low, U.S. bond yields dropped, and investors fled to safe-haven investments.

Now, investors continue to lose faith…

"As stocks fall, recent optimism in the various confidence surveys is likely to also become more subdued, leading to perhaps more economic uncertainty and as a result, more businesses putting more investments on hold. The cycle goes on. It's Trump slump all the way down," reported Fortune on March 23 – the day of the failed bid.

Indeed, the Dow Jones Industrial Average has remained stationary at just 0.18% growth since March 23.

Asia Is at a Standstill

Forget about America; Europe is seen as the "main region driving global growth," according to Jakobsen.

However, the economist believes Europe's momentum is not followed in other parts of the globe…

"One thing is absolutely clear: Asia is not going to contribute anything in 2017 to growth. China is on total standstill," Jakobsen said to CNBC.

You see, China now has a total debt-to-GDP ratio of close to 400% — levels frighteningly familiar to those of Greece and Italy.

And as the Chinese economy slows down, the level of borrowing is quickening…

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"Such accelerating borrowing with slowing GDP growth is the classic definition of a busted credit bubble," said Ivan Martchev, an investment advisor, to Seeking Alpha on Feb. 14.

"Hope Belongs in Church on a Sunday"

Perhaps the most concerning factor of the economist's prediction is why he thinks U.S. markets are still afloat…

The main driver of U.S. equities right now seems to be not earnings or growth, but hope, said Jakobsen.

Indeed, the S&P 500 has reached historic highs since Trump's victory in November. The index has added over 229 points since Nov. 8, or 10.77%, as investors expect the new president will deliver massive tax cuts and infrastructure investments.

However, Jakobsen believes these expectations – or hopes – fueling markets are practically useless…

"A dominant part of the equity analysts sees a significantly higher S&P, but it's based on hope," said Jakobsen. "Hope to me belongs in church on a Sunday."

Regardless of what catalysts cause the recession, there are three simple steps investors can take to protect their investments…

How to Play a Market Reversal

Money Morning Chief Investment Strategist Keith Fitz-Gerald – a seasoned market analyst with over 30 years of global experience – believes there's no time like the present to prepare for market chaos like a recession.

Best of all – contrary to what a lot of people believe – you don't have to "sell everything" to play along.

In fact, Fitz-Gerald has outlined three "recession-proof" plays that will keep you in the game and aligned with the profit potential that can help you build the retirement you want and so richly deserve.

Here they are…

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  1. Myron Holter | April 10, 2017


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