Wednesday, November 21, 2007
Economy Headed For Recession ?
Here are images of the latest covers of The Economist and Business Week. As you can see both cover stories are about what is presumed by many to be an imminent slide of the US economy into a recession. The usual explanations for this prediction are the credit "crunch" brought about by the sub-prime lending mess coupled with the high price of oil and a dollar that I am constantly being told has nowhere to go but down.
Well, maybe so. But I should point out that this would be the first time in my memory that a recession was announced by cover stories in major magazines before it even started. In fact, I keep reading the major media in search of any positive story about the US economy and I can't find any.
This is a very unusual state of affairs with the major market averages just 6 weeks after and about 10% off their bull market peaks. Generally speaking, the media and the investing public remain quite bullish during the initial leg of a bear market, turning bearish only much later on subsequent drops to new lows.
I think that these covers and the associated bad economic news being highlighted by the media will prove to be false alarms. I think the stock market averages are near or at their lows. I think the bond market is at a temporary high and will drop once economic strength becomes recognized. Finally, I think the US dollar is making a multi-year low near the 75 level in the dollar index and that a dollar bull market is about to start.