Sunday, September 5, 2010

Perhaps there will be no"V' shaped recovery or double-dip disater

Another week of cross-currents with 1) stronger economic data from China and Australia, 2) the Institute for Supply Management's index on U.S. manufacturing activity rose to 56.3 in August (expectations were for a decline to 53.2) and 3) while the US unemployment report on Friday was mixed, the results could be interpreted as "while not getting much better, it was not getting much worse". President Obama's comments on Friday presented his view of the situation in the US: "There's no quick fix for this recession. The hard truth is that it took years to create our current economic problems, and it will take more time than any of us would like to repair the damage."

MY TAKE: Investors have significantly debated the potential for deflation, inflation, a double-dip or a "V" shaped recovery as they position their portfolios. However, what happens if we just end up with a "muddling-along" economy? If this is the case, some investors and money managers, in an attempt to generate positive returns, may move beyond their traditional comfort zone and extend the reach of their processes. Such approaches can lead to costly mistakes. In this environment, job number one remains "risk management".

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