Thread: Is the world heading into recession?

LONDON (Reuters) - Profit warnings, breaches of key index levels, record oil prices, stressed consumers and investors seeking safety provide the background for markets this week, and many people are wondering how long this will all last.

There has been no classic "capitulation" -- a market concept which states that heavy, sometimes panic, selling of stocks heralds the bottom and a beginning of an upturn. But there is enough gloom around to make a contrarian bullish.

"You are beginning to get into capitulation territory now," said David Bowers, joint managing director of Absolute Strategy Research and consultant to Merrill Lynch for its monthly global fund manager sentiment survey.

"Are we going to go from a narrow bear market to a broad bear market?" he said, meaning that investors may start selling not only poorly performing stocks such as financials but also those which have not done too badly this year.

This week may offer some sort of answer if only because of the depths that have been reached recently.

MSCI's main gauge of world stocks .MIWD00000PUS, for example, fell last week to a five-month trough. This was below the key March low it reached during the height of the Bear Stearns crisis when the U.S. Federal Reserve stepped in.

The U.S. S&P 500 index .SPX has joined its European and Japanese .N225 counterparts in formal bear market territory -- that is, at least 20 percent below a cycle's peak.

Investor sentiment indicators have also been hitting significant levels. Reuters global asset allocation poll last week, for example, showed equity holdings among leading investors to be at the lowest level in the more than four years it has been compiled.

IN THE BALANCE

Some investors, albeit tentatively, are beginning to scent a possible end to the stock slide. Swiss wealth manager Sarasin, for example, has told its clients that it is time gradually to build up their stock holdings again.

"We are seeing that the cycle is showing signs of stabilizing and appears to be bottoming out," said Philipp Baertschi, a strategist in Zurich for the bank, which manages 80 billion Swiss francs ($79 billion) in assets. "We think the markets will take advantage and rally," he told Reuters.

Reflecting a dilemma for investors, however, clients of Barclays' wealth management arm have been told almost the opposite. The firm has cut back its recommended stock weighting.

"Oil prices and inflation are unlikely to fall back sharply, and there are potentially severe problems stemming from wage/price spirals in some of the major developing economies," wrote Michael Dicks, head of research and investment strategy.

Next year is also beginning to look increasingly gloomy, he added.

The dilemma is essentially whether stocks have now fallen so far that they are a bargain buy compared with bonds, cash and other assets, or whether rising inflationary pressures and slowing economies spell serious trouble ahead.

G8 AND GE AHEAD

Leaders of the Group of Eight leading economies, meeting in northern Japan at the beginning of this week, are unlikely to do anything to solve this dilemma.

They will almost certainly touch on some of the elements of it -- notably the weak dollar, the soaring price of oil and the accompanying rising threat of inflation.

"Oil is the driving variable," said Emanuel Ravano, managing director of PIMCO Europe.

But with finance ministers and central bankers absent from the meeting, market reaction could be limited. Some analysts have suggested there is mismatch between the themes of the G8 summit and who is participating at a time of major economic and financial distress.

A key parameter in any decision to buy stocks is valuation. Sarasin's Baertschi reckons they are cheap. "The market is oversold," he said, estimating that earnings growth forecasts this year have been revised down by 5 to 10 percent, meaning expectations have dropped to a more realistic level.

But a lot of this depends on continued economic growth and last week's gloom was compounded by a series of profit warnings.

These included British retailer Marks & Spencer (MKS.L: Quote, Profile, Research, Stock Buzz), French supermarket Carrefour (CARR.PA: Quote, Profile, Research, Stock Buzz) and Swedish-Japanese mobile phone maker Sony Ericsson ERICbST(6758.T: Quote, Profile, Research, Stock Buzz).

Banks, including most of the U.S. giants, have already been buffeted by losses, so the latest warnings reflect a spread into more consumer-exposed stocks.

With this in mind, investors will be focused this week on the beginning of the latest U.S. earnings season, with a particular eye on Friday on General Electric (GE.N: Quote, Profile, Research, Stock Buzz).

The company is something of a proxy for the global economy. It is a worldwide business involved in commercial and personal finance, healthcare, industrial production, infrastructure and entertainment.

Is capitulation on the cards? | Reuters

I'd say things look dreary.

Old Alistair Cooke article. I wish I had the audio link for this...
BBC News | LETTER FROM AMERICA | Cycle of boom and bust

Spain has suspended an auction of sovereign bonds as investors take fright over the country's property crash and accelerating slide into economic crisis.

Spanish government officials have been shocked by the intensity of the downturn
The treasury pulled an expected sale of 15-year bonds after probing the market informally, saying it would wait until credit conditions began to calm down. "We are not facing financing problems. We placed a successful three-year note on Wednesday," said a spokesman.

Government officials have been shocked by the intensity of the downturn now engulfing the country. Car sales fell 31pc in June, industrial production has fallen 5.5pc over the past year and the collapsing property sector is shedding almost 100,000 jobs a month.
Miguel Sebastian, the industry minister, said the economy had ground to a halt in the second quarter and was now in "virtual recession".

Continued at:

Spain pulls bond sale amid economic crisis - Telegraph

^Implications for Euro break-up probability are a few more % to the positive...

Originally Posted by bkkandrew

The dilemma is essentially whether stocks have now fallen so far that they are a bargain

Last week I would have called it a dilemma, this week its a no brainer, sell the lot. Buy nothing. Short financials. Wait.

I'm wondering now if this is where the new rich come from?

10 years time they start buying cheap property and cheap shares from the crash and the cycle starts again.

Well, they say buy stocks when they are low but it's important that the company they represent exists in the future as well. The times are a changing.


With stocks getting hit so hard I would be a lot of older people are going to have to continue working a bit longer. This could add to the number of people in the job market. Actaully, a lot of people in the US probably can't retire anyways.

Originally Posted by mrsquirrel

I'm wondering now if this is where the new rich come from?

10 years time they start buying cheap property and cheap shares from the crash and the cycle starts again.

Someones got to pay for their lifestyle. Mostly us blue collar workers though.

But still, some wealthy dicks get done too. Imagine seeing your savings reduced from $20 million down to only a couple of million bucks overnight. Don't blame the fuckers for committing Harri Kari. Well, not really. I could think of a lot of ways to waste the rest.

So, according to the 'classic' graph, where does eveyone think we are?



I think we are just below the 'R' where it says 'Return to normal'

I say "delusion" which for me is S&P500 at 940
"New Paradigm" is S&P500 at 1000-1050 around Obamaday on the 22nd.

The only shares I see going up is CRH an Irish company! They supply concrete and tarmacadam products. Second largest in the world! Shares increased 5% today on the basis of Obama building US roads.

Other than that in Dublin, saw a sign today in a restaurant, Main course meal 5.50 Euro ( 250 Baht) Bring your own Wine!!!!!!!!!

Originally Posted by bkkandrew

I think we are just below the 'R' where it says 'Return to normal'

I'm with you Andy. Resources stocks have made a move up here (Australia) over the last few days. However, nothing has changed in the local or world economy, in fact there is the likelyhood of more bad news. Company reporting for period end December is yet to come and there will be some shockers in that.

I'll call 'Bull Trap'...

Originally Posted by bkkandrew

I think we are just below the 'R' where it says 'Return to normal'

return to normal will be the obama christening and despair will be mid april.

ok world in recession, companies laying off, WallStreet sheering

the usual pattern, markets will be going up again by April, new year hope etc...

I wonder if any of the current bounce relates to tax deadlines. People are forced to pay in by certain times or lose opportunities. Not sure if there are any year-end 2008 movements affecting the numbers.

Originally Posted by Khun Sabai

The only shares I see going up is CRH an Irish company!

Most shares in America are up about 25% since the mini-crash on November 20th.
Most likely a bear market rally, but tradable nevertheless.

Fear leading to despair (depression).

Despite bad year end reports, the US market bounced yesterday... HP up 7% on the day... Also think mini-rally around ObamaWama day... Gingerly putting toes back in water...

^ November 20 th was the time to be getting back in. Youve missed the run up and if you get in now you will most likely burned. wait until second week in feb, that will open up buying opportunities again.

Any new interesting news?

Not a recession but a reshuffle of the means of production into the hands of a new technocracy.We are entering a brave new world.More losers than winners one could say.

Still think things are going down. Today things are up but...why?

Listening to Bloomberg I've heard...

The British Pound has had it because it's based on oil. Two different people have mentioned this. One of them was the older American guy based in Singapore. Forgot his name.

Gold is going up for sure and wealthy investors are asking for the actual metal rather than some type of paper product representing it says Peter Munk, the Barricks guy.


Soros thinks: Chaves and the Iranian leader will be shortly be gone (within a year) as a result of the collapse in the price of oil. Putin will face hard times too.


Dreary days

Originally Posted by chickens

Not a recession but a reshuffle of the means of production into the hands of a new technocracy.We are entering a brave new world.More losers than winners one could say.

Just a redistribution of wealth throughout the world benefiting countries that actually produce things other than paper money.
Its going to be a long and painful process though, because a lot of currently wealthy countries dont want it to happen.