Sunday, October 2, 2011

ECRI calls for U.S. recession

On Friday, the Economic Cycle Research Institute (ECRI) a research firm widely followed because of its “better than most” ability to pick economic turns, said, “A new recession isn’t simply a statistical event. It’s a vicious cycle that, once started, must run its course. Under certain circumstances, a drop in sales, for instance, lowers production, which results in declining employment and income, which in turn weakens sales further, all the while spreading like wildfire from industry to industry, region to region, and indicator to indicator. That’s what a recession is all about.” and “because the “Great Moderation” of business cycles (from about 1985 to 2007) was now history, the resulting combination of higher cyclical volatility and lower trend growth would virtually dictate an era of more frequent recessions.”

MY TAKE: Globally, the economic healing process will require the passage of time, a lot of hard work and many difficult decisions. During this period, a focus on capital preservation is essential. In the short term, long only equity investors may increase cash levels (potentially driving markets down further), value/deep value investors are seeing more opportunities, and investors with the ability to navigate current global equity volatility and credit market trends are
likely not feeling much pain. The playbook for many investors continues to be rewritten.

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