Inverted yield curve (again)

Deemy

blinko wrote:

what about me im inveted in india, japan and commodities would i at least get some return from a spike in gold if such a recession thing did happen.

and would it affect japan and india ??!!

A recession in the west would effect india and commodity funds, as to what degree i don't know, just that they will remain good long-term plays.

Personally, I will hold the minining and indian funds regardless unless the fundementals change, and I don't see any signs of those, i.e. india will continue to grow at a fast pace, so yes there would be short-term volatility in stock prices, (a buying opp), but in the long-term, given say 5 to 8% GDP growth, I can't see how stocks cannot appreciate quite substantially, since the indian finance system is far more mature then say china's.

And thats my approach at this point in time, to be in the market but within a comfortable level of risk that is able to brush off a substantial decline (if it happens), and take any decline as buying opp to double up ! Only about 12% of my assets are committed to the stockmarkets at this point in time, down from some 25% in Nov 05. So i intend on riding out any short-run bear market, IF it happens, it still is an BIG 'IF',

ReportInvestor

Unless, of course, there is political change to overthrow the elite who are benefiting from free market capitalism.

Deemy

ReportInvestor wrote:

Political change if the elite who are benefiting from free market capitalism loses control?

In India ?

Well, it could happen , its a risk thats worth taking given the potential rewards, after all thats why one invests in the stock markets, and also you could spread the risk amongst several asian economies, india, thialand, south korea and even japan, though I'm not so happy with japan given the demographics.

cloud_dog

Another interesting article for those inverted yeild obsessives :rolleyes:

http://www.safehaven.com/article-4686.htm

cloud_dog

Deemy

cloud_dog wrote:

Another interesting article for those inverted yeild obsessives :rolleyes:

http://www.safehaven.com/article-4686.htm

cloud_dog

the above article suggests a recession within the next 5 to 12 months... weighted in favour of being earlier rather then later. Very convincing, but I'm sure given enough effort, something could be cooked up to suggest the opposite

cloud_dog

Deemy wrote:

the above article suggests a recession within the next 5 to 12 months... weighted in favour of being earlier rather then later. Very convincing, but I'm sure given enough effort, something could be cooked up to suggest the opposite

Absolutely, couldn't agree more. Unfortunately I forgot to put my usual "I may not agree with everything, blah, blah............you can't beleive everything you read, etc, etc" - take that as read.

The thing that I am focussed on is the dollar and the US current account deficit. The US will have to come down to earth eventually. Perhaps this will only really affect the US perhaps with the US having the largest economy it will affect the rest of the world.

Recently the UK's growth has been consumer led very similar (although not identical) to the US. If the US consumer confidence deflates (house price fall, etc, etc) then they will stop buying things. The main beneficiaries of the US consumers are the markets currently making lots of money (China, far east, Japan). If you look at China their growth is being driven by exports, they do not have huge (relative term) internal demand for their products/service.

On top of this the new Fed chairmans statement that they can just print their way out of problems (dollar) is worrying (but only time will tell). Additionally why has the Fed decided to stop publishing M3 - money supply figures??

I see lots of problems for the US at some point - just don't know when that point will be. US debt is 6% of GDP (I think), europe is trying to stay below 3%.

Having said all this Deemy, I agree no one really knows and time will tell. The only thing I have waiting for action is to transfer some assets in to Gold for two reasons. If the US (possibly world) start going through economical difficulties then gold is a good place to be and if the dollar starts to depreciate then that will be another benefit for gold (as its priced in dollars).

cloud_dog

p.s. sorry forgot to add, if there is a recession then no one is saying it is going to last for a prolonged period of time it could be reatively short lived - lets hope.

blinko

nice post

just weondering
what exactly happens in a recession does the market just lose alot of its value,
how long do you you think it will be until the recession comes and how long do they usually last.

this is my first recession is there anything i should know,
what actually happens do you just wake up oneday and see the markets have crashed kinda thing and you lost half your money !!

free4440273

cloud_dog wrote:

p.s. sorry forgot to add, if there is a recession then no one is saying it is going to last for a prolonged period of time it could be reatively short lived - lets hope.

i do, and i have. the recession has just been postponed. the fact that the recession has not yet occured is worrying. in other words this recession will be far longer than in the past. stagflation is now on the horizon. I also think a recession will actually be 'a good thing'. :eek:

cloud_dog

Just thought I'd post a link to another interesting article. I know this thread is about the invert yield and some might argue that this is only related to gilts/ bonds and short / long term interest rates but my focus is very much on the dollar. As the world currency I think we will experience some relatively big changes. Dont forget come 20th March Iran will start an oil bourse priced in Euro's not dollars (mentioned in the article)........

.........oh yeah and just for Free the author mentions the words "mega" and "recession", together!!!

(again, you can't beleive everything you read, etc, etc,etc...)

http://www.safehaven.com/article-4698.htm

........but, who knows.

Blinko, to try and answer your question regarding the markets and their relationship to a recenssion - and I apologies if this is a bit too simplistic for you.

The fundamentals of a market/index are a reflection of its constituents (companies) prices, the companies share price is a reflection its prospects (many things go in to this and the impact of the verious elements differ between sectors and companies themselves), at a simple level the share price is a reflection of its earninfgs (profit), and the profit is a reflection of how well its sales stack up against its costs.

Different things can trigger a recession but since, ultimately, everything is produced to be consumend if you stop buying things (on a grand scale) this will affect the companies sales. So if consumer confidence declines people are likely to stop buying things.

Comparing the reduced sales against existing costs the company decides they need to reduce costs. The biggest overhead and quickest cost reduction is to reduce their workforce (redundancy). So now you could start a downward spiral - less people employed, or worryed about employement means less spending which, means less sales which, lead to lower profits which, impacts a companies earnings potential which, is reflected in the share price, which is reflected in the market/index.

The above is very simplistic and probably very pessimistic its the general idea. The other thing you need to remember is that the government is likely to do things to try and keep the economy ticking over, etc, etc.

cloud_dog

al_yrpal

Having lived through all those years of spiraling inflation, unemployment and turbulence, I think sophisticated western governments are at last getting a grip to control economies better. The last few years of high employment and low inflation reflect that. There are many threats, but because of improving communications and computing power we are aware of them and so are the economic managers. Wild card events like the internet boom and bust, 9/11 and its aftermath and the recent oil slick are the things that cannot be controlled. Mrs Thatchers recession in 1981 was Engineering and Manufacturing holocaust. During the 90's recession hardly any such companies went broke because they knew what to do, so we learn.

Heres an interesting article: http://business.timesonline.co.uk/article/0,,16849-2066804,00.html , which gives us clues as to where it might be profitable to invest for the longer term.