There are so many opinions out there right now about what the prognosis for the economy is. To some degree, and I have stated this before, the governments of the world are doing the best they can to put a bright spin on the flow of data coming out. And I will admit that a lot of these reports have been encouraging – but there are too many invariables still out there that give me an uneasy feeling about it all. The prevailing thought, and one of the reason why the stock market has been on a tear as of late, is that the bottom has been reached and the re-ascent into positive territory and towards unjustifiable heights is at its beginnings. But I don’t buy it, and I found someone who agrees.
William White, the chief economist for the Bank of International Settlements and one of the only people to question Alan Greenspan, the revered former Federal Reserve Chairman, believes that 2010 will bring about a double-dip recession and could quite possible flatline at the bottom for some time. The W shaped recession (double dip) is where an economy falls into an abyss, hits bottom only to quickly and steeply rise again, it then repeats the same process – which means, that the foremost economist on Earth who was one of the only people (next to Nouriel Roubini) who predicted the current situation almost exactly as it happened is not optimistic about this recovery. And to my surprise his reasons give me confirmation that my nay saying ways are justified.
Mr. White believes that the actions of specific governments by the stimulus policies they have implemented have given economies a boost – but they will come back to prove detrimental. He alluded to the bubble that was being created by the influx of cash to various industries – noting that eventually it had to stop but pointing out that at present time it could not. The cash-for-clunkers program is an example of this, the US government subsidized 2 ½ Billion Dollars for Americans to buy cars, it helped 35,000+ people keep their jobs and injected life into the auto sector – but now what? Are consumers buying cars on their own now? With no help from the government the answer is no, for now. How long will the administration need to keep the program alive in order to maintain those 35,000+ jobs? Eventually if consumers do not start spending again on their own, the cycle of last year will continue.
The relationship to all of this and the Forex is astonishing. We are watching a US Dollar fall while the Australian Dollar creeps closer to parity. We are looking at the Aussie climb on strong risk aversion when investors are seeking safety AND risk appetite when investors are seeking a good chance at a meaningful profit. We are looking at the British pound, arguably one of the most solid and consistent performers throughout time, stagnate. The times are different – and we are in un-chartered waters. And it is becoming a more popular opinion that we will be staying here for a while.
