Thursday, March 13, 2008

Economists agree: US is in a Recession

The Wall Street Journal is reporting that several prominent economists now agree that the US is in recession. In a recent survey the vote was 70% / 30% that the US has entered a recession. The turning point was apparently the payrolls decline from last week.

This is an interview with the WSJ's Phil Izzo, who wrote the story.

So far as I know, there is still no official word from the National Bureau of Economic Research, the "official" declarer of recessions.

A recession and job loss and a major increase in unemployment is certain to put further strain on the housing market in the US. All of the bricks are now falling into place for the worst economic catastrophe since the 1930s.

As usual, the Federal Reserve is largely to blame. It helped to bring about both the real estate booms of the 1920s and 2000s and the subsequent crashes.

As an investor, I continue to keep money in cash, because major economic downturns tend to produce deflation and not inflation (though inflatinary recessions are possible as the 1970s have taught us) and invest only in securities with firms who will do well regardless of economic cycles and monetary expansion or contraction (think consumer staples).

I believe that the housing market will be indicative of the investing climate going forward, liquidity will pay dividends - bargains will be available for investors who can "write the check". But there is no need to be hasty - scavenging cheap assets in 1932 was lots of fun, and profitable, if you had any money. We'll be saying the same things in 2025 about the investing opportunities of 2009-2011.

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