Tags: us | recession | economy | slump

Spring Slump May Provide Roots of the Next Recession

Wednesday, 11 Apr 2012 09:04 AM

By Ashish Advani

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Last week, I discussed the possibility of QE3 being a matter of "when," not "if." And I suspect that after the recent declines in the stock markets, we will see it sooner rather than later.

While the excuse being given is the jitters about Europe, one only needs to take a look in our own backyard and we will find more jitters here than in Europe. Not to say Europe isn't in bad shape, but we are definitely in worse shape.

Earnings season has just begun. It’s a time when all listed companies start giving us the scorecard of their last quarterly performance. If expectations are anything to go by, the market is expecting this quarter to be the weakest in the past few. This is in addition to the overall nervousness that already exists.

In other words, we are in for a deep slide in the stock markets for the next few weeks.

The new slide began last Friday when the latest jobless numbers were released. As I had predicted last week, the number was quite poor and this got the markets into a tizzy. As a result, we have now seen then Dow Jones Industrial Average break below the 50-day moving average, which is the first signs of the rot.

If this continues for a week, we will see it break some major levels and then go into a deep dive.

If that is to happen, the Federal Reserve will have no choice but to jump in and attempt a rescue by pumping more cheap money into the system. When this happens, the markets will rally but the fundamentals of the economy won't improve one bit.

The last nail in the coffin will be the next month's jobless number, which will be weak to very poor. That will start the slide in earnest unless the financial results before then are really awful.

Now one can make money shorting stocks or buying put options. Most savvy investors may do that as a short-term strategy. However, this isn't a long-term play for investments as the markets will continue to lurch and sway like a drunken sailor.

The wiser and longer-term monies are making their way over to Asia where the growth isn't in doubt. The only thing not known is whether the growth will be in the 5 percent to 7 percent range or in the 7 percent to 10 percent range.

As I have advocated, diversify your portfolio to Asian stocks, commodities (gold has started rallying again) as well as shorting the U.S. stock markets.

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