Use access key #2 to skip to page content.

fransgeraedts (99.92)

Double dip, state of play 10

Recs

14

August 20, 2010 – Comments (22) | RELATED TICKERS: QID , SKF , SCO

The chance of a double dip of the world-economy (creating a recession in many national economies and a growth-recession in others) has risen substantially. I am positioning my Caps picks accordingly.

(Repeat warning: I do not pick individual stocks. I make sector bets up or down based on a macro-economical analysis combined with a "technical" analysis of the financial markets.)

Deep background: The globalisation of capitalism and the ongoing IT revolution have created an unprecedented growth potential within the world-economy. (See my long view series of blogs)

Middle background: The massive intervention of central banks and governments have prevented a meltdown of the financial system. Because of the recapitalisation of the banks the risk of systemfailure is low at the moment. As an intended sideeffect of those interventions the creditcrunch eased -almost out of existence. The massive world wide stimulus on top of the lowering of the systemrisk and the easing of the credit crunch have lifted the world economy out of recession.  That lift came from a steep inventory cycle and genuine growth in some emerging markets. Together those measures have prevented the onset of a depression -for now.

But there is no follow through. The economy seems to be faltering again.

Stimulus and inventory cycle have for the most part played themselves out.

Because of the continuing housing crisis, rising unemployment and high household debt the American consumer (and some of the European consumers as well) will stay defensive. Downpayment of debt will stay the priority. That means that low interest rates and even direct subsidies will not create much growth. The consumer in the emerging capitalist societies have not yet the buying power to take up the slack.

Business investment is subdued. Uncertainty over the prospects of the economy, the wish to reduce debts further, the continuing consumer strike and an unclear direction of public investment will keep it that way.

All of that points to (very) low growth at best. But because the political sentiment has turned towards the reduction of public debt i think that even that is to optimistic. In Europe unprecedented large cuts in public spending have already been decided by governments in britain, germany and the netherlands.  The mediterrenean countries will be forced to cut even more. In the US a move to the right in november will make it almost impossible to stimulate again. That makes a double dip almost certain.

I am also keeping a close watch on developments in China. While it is very difficult to get information that can be trusted it seems possible that we are seeing there a huge real estate bubble on top of the usual misallocation of capital. A deflation of that bubble could be the nasty surprise, the system shock that again raises systemic risk.

I believe the stockmarket in the US and Europe is priced for a continuing "normal recovery". It is even a bit overpriced for that. A new recession certainly has not been priced in.

I have therefore in Caps now done away with all the winners from the leg up since the march 2009 lows. I am beginning to build a bearish position again. To start with i use the ultra etf's. I have redthumbed individual stocks from a wide variety of sectors and with a wide variety  of technical profiles to gauge who will lead the leg down. Timing of course is always a problem. Therefore i am building out the position carefully. If i convinced that we have established a downward channel i will again go to 200 picks. I am now at 80 -and growing.

I am still trying to reason out what the sectorrotation will be within this downturn. I would very much appreciate any suggestions about that.

 

fransgeraedts 

 

 

22 Comments – Post Your Own

#1) On August 20, 2010 at 10:00 AM, binve (< 20) wrote:

Hey frans, great write up! I agree with a number of these points. Thanks!

Report this comment
#2) On August 20, 2010 at 11:00 AM, TigerPack1 (97.88) wrote:

frans- 

I will keep you on my short list of possible replacements and someone to contact if we "expand" the WSS experiments.

You have been one of my Favorites on CAPS for a while.

I have been preparing for double-dip recession since Decmeber 2009.  The odds are very good that it has begun already... That is the biggest reason the stock markets of the world have been in decline for 3-6 months already.  I am hoping/praying it does not spiral out of control, but an unexpected shock to the global economy like a confrontation between U.S. and China or a large Middle East war could mess things up royally!

HYPERINFLATION starting in 2011 as a reaction to the double-dip is my biggest fear right now.

-TigerPack

Report this comment
#3) On August 20, 2010 at 11:27 AM, portefeuille (99.60) wrote:

I think the main stock market indices of the majority of the following countries will make new post 2008 highs in the next few months.

Argentina, Belgium, Brazil, Chile, Colombia, Denmark, Estonia, Finland, Germany, Hungary, Iceland, India, Korea, Latvia, Lithuania, Malaysia, Mexico, The Netherlands (home of fransgeraedts, I suppose, or is it Belgium?), Norway, The Philippines, Poland, Russia, Singapore, South Africa, Sweden, Taiwan, Thailand, Turkey, The United States of America, Venezuela.

Report this comment
#4) On August 20, 2010 at 11:34 AM, portefeuille (99.60) wrote:

#3 Maybe dragonlz can write a "these countries are hot" post and keep us updated. He should like at least a few of the charts ...

http://noir.bloomberg.com/markets/stocks/wei_region1.html 

http://noir.bloomberg.com/markets/stocks/wei_region2.html

http://noir.bloomberg.com/markets/stocks/wei_region3.html

Report this comment
#5) On August 20, 2010 at 12:07 PM, BendOregonHomes (< 20) wrote:

Great insight.. thank you for qualifying your position. I believe the real estate market will bottom in the first quarter of 2011. I am in Bend Oregon, and although real estate prices are not climbing, the volume of sales are... nice to see since our Bend real estate prices have been cut in half since 2006. We have over 1200 homes pending/contingent YTD (August 2010) in Bend, Oregon - and we are only a town of 82,000. Double tip? Sure it's possible... but I probably support the idea of stagnant growth and pricing both with stocks and homes for 2 years versus a double dip. Cheers.

Report this comment
#6) On August 20, 2010 at 12:19 PM, davejh23 (< 20) wrote:

"I think the main stock market indices of the majority of the following countries will make new post 2008 highs in the next few months.

...The United States of America..."

You believe the S&P will rise 30%+ in the next few months?  Do you have leveraged long trades in place?  I don't see how this is possible.  Forward EPS estimates are being revised downwards left and right...and are likely still FAR to high.  Right now, the odds that GDP is currently contracting are VERY high...June revisions alone wiped out ~60% of Q2 GDP growth. 

Report this comment
#7) On August 20, 2010 at 12:29 PM, davejh23 (< 20) wrote:

"In the US a move to the right in november will make it almost impossible to stimulate again. That makes a double dip almost certain."

"Stimulating" doesn't heal an economy...it plugs a hole.  Private sector GDP declined by 15%, so the government plugged the hole...that's all.  They didn't want people to see the underlying depression, so they ran up a huge deficit so they could report relatively mild contractions in GDP.  Projections for $Trillion+ deficits for a decade while we still experience anemic growth prove that this is FAR worse than many like to admit.  So, a move to the right will not result in a "double dip"...it will just be revealed that there was no recovery in the first place.  I'd bet that the NBER won't declare that the recession ended last year like many like to claim either.  If the current administration can hold things together for another few months they will certainly claim that the right collapsed the economy when things fall apart, but it will be clear to everyone that this is far from the truth...nobody has faith in either party right now.

Report this comment
#8) On August 20, 2010 at 12:41 PM, fransgeraedts (99.92) wrote:

Dear portefeuille,

(1) keeping within the double dip scenario:

i would not exclude the possibility of those indexes making new highes. Timing like i said above is as always difficult. There is still a (whole) lot of speculative capital circulating the globe looking for investment possibilities. So if there is even a hint in the next weeks of the recovery gaining steam again -an economic headfake? -a run up to the highs of 2010 is certainly possible.

I would however think that if that happens the chances are great that the move up stalls around those highs. Creating what would be in effect a double top. And it would represent a great position to redthumb from, because the market is not pricing in a double dip. (I actually had hoped for a run up to the highs of this year over the summer...grin.)

But if i had to wager .... and Caps is that of course... i would say that what is forming here is not a double top but a downward channel.... .  And i have begun to position my picks on Cap based on that assumption for now. We will see my friend....grin. As you can see (100 out of 200 picks) i have committed not totally yet  ..

Caveat: i am almost always early in my calls for a change of direction in the market. (But seldom wrong, grin.)

(2) Of course it is possible that the double dip scenario does not materialize. I see two possibilities. One is that we squeeze by with a period of very low growth but not actually go into recession. For the stockmarket that would make no real difference i think. In the sense that it has not priced in extreme low growth either. The other is that we actually go into a robust recovery from here. That would be possible if the political will to cut the budgets falters and the growth in the emerging capitalist countries is strong enough to pull the world economy through. if that happens a serious push higher could of course follow.

I hope of course for the the third possibility, dear porte. But i have to say i do not think it very likely. (Even if there is more growth in the tank then i expect that would strengthen the will to cut!)When it comes to double dip versus sloooow growth i believe because of the european cuts the chances of a double dip are just a bit greater.

I would be very interested to read your macro-economic reasoning to understand where we diverge.

And ..thought experiment for you...grin..if there is a double dip...any thoughts on the sector rotation? 

fransgeraedts

ps. Netherlands

Report this comment
#9) On August 20, 2010 at 1:03 PM, portefeuille (99.60) wrote:

#8 I don't have any macro-economic reasoning to present, I'm afraid ...

Report this comment
#10) On August 20, 2010 at 1:04 PM, portefeuille (99.60) wrote:

any thoughts on the sector rotation

have it not almost always been the usual suspects?

Report this comment
#11) On August 20, 2010 at 1:32 PM, portefeuille (99.60) wrote:

You believe the S&P will rise 30%+ in the next few months?  Do you have leveraged long trades in place?

15% would be enough. I have call options on ATPG, EMC, DAX and KOSPI (see here).

Report this comment
#12) On August 20, 2010 at 1:33 PM, Momentum21 (95.08) wrote:

A new recession certainly has not been priced in.

Just as recently as May we were discussing the possibility of European nations imploding. Any of the global concerns currently on the radar would indeed spark another (or continued) recession.

Our obsession with calling tops and bottoms...beginning and ends...blacks and whites has caused a mild case of insanity across the investment community.

I am not so sure that you can be so certain as to what has been priced in by this market. The macro environment has way too many moving parts to keep track of...my glass still looks half full and my long term channel reads up... : )   

Report this comment
#13) On August 20, 2010 at 1:34 PM, Momentum21 (95.08) wrote:

A new recession certainly has not been priced in.

Just as recently as May we were discussing the possibility of European nations imploding. Any of the global concerns currently on the radar would indeed spark another (or continued) recession.

Our obsession with calling tops and bottoms...beginning and ends...blacks and whites has caused a mild case of insanity across the investment community.

I am not so sure that you can be so certain as to what has been priced in by this market. The macro environment has way too many moving parts to keep track of...my glass still looks half full and my long term channel reads up... : )   

Report this comment
#14) On August 20, 2010 at 1:35 PM, portefeuille (99.60) wrote:

Creating what would be in effect a double top.

The main stock market indices ofsome of those countries would have to drop first. They refuse to let a week pass without making new highs currently, hehe ...

Report this comment
#15) On August 20, 2010 at 1:38 PM, fransgeraedts (99.92) wrote:

Dear Porte,

 

some..grin yes...

 

fransgeraedts

Report this comment
#16) On August 20, 2010 at 1:43 PM, portefeuille (99.60) wrote:

Jakarta Composite Index (good old Dutch East Indies ...).



enlarge

Report this comment
#17) On August 20, 2010 at 1:55 PM, fransgeraedts (99.92) wrote:

Dear Momentum,

looking at historical precedents the S&P is now rather expensive for a normal recovery...

looking at the forward earnings estimates of analists for 2011 those can only become reality if there is a robust recovery....

So if instead there is a double dip?

fransgeraedts

Report this comment
#18) On August 20, 2010 at 1:58 PM, fransgeraedts (99.92) wrote:

Dear Porte,

is there an ETF to short Jakarta?

fransgeraedts

Report this comment
#19) On August 26, 2010 at 11:52 AM, cbwang888 (25.92) wrote:

fransgeraedts,

Ya the man.  You hits it right on.

 

What to expect when the economic viagra has run out? QE 2.0 is coming ... call Fed now

 

Report this comment
#20) On September 29, 2010 at 6:40 PM, portefeuille (99.60) wrote:

#16 update.



enlarge

Report this comment
#21) On May 30, 2011 at 8:00 AM, portefeuille (99.60) wrote:

#16,20 update.



enlarge

 

Summer is approaching, time to cheer up, we need you on the "right side" again ...

Report this comment
#22) On May 30, 2011 at 8:01 AM, portefeuille (99.60) wrote:

#18,21 I hope you have not found an "Indonesia ETF" to short yet, hehe ...

Report this comment

Featured Broker Partners


Advertisement