Weekend Edition: Global Growth Forecasts Cut, Are We Double Dipping?

It looks like the risk of going back into recession is increasing. The economic data coming out of the US is disappointing and the European debt drama is not helping as contagion will certainly reset the financial system a la 2008, except uglier.

Less than a month ago Credit Suisse still believed the global economy will expand 4.1% in 2011 (a lower revision than the 4.3% they had in May). I’ve always followed these figures closely especially for Asia as they are the main drivers in oil demand due to their robust growth.

asia growth forecasts 2012But here we are with a set of cuts starting with Morgan Stanley cutting its forecast for global growth down to 3.9% from its previous 4.2%. China’s forecast was cut down to 8.7% from 9%.  The US growth rate was also cut down to 1% (from 2.5%) for Q4-11 and a measly 0.5% (down from 1.5%) for Q1-12.

That doesn’t stop India from targeting 9% economic growth for the next 5 years. You should also note that the growth in China and Asia in general (excluding Japan) is still stellar compared to the US and Europe. While I always held to the view that emerging economies will support oil prices and the world economy, there’s a chance the stagnating economies of the US and Europe might well end up sinking the global ship thanks to political indecisiveness in tackling the debt problems.

According to Bloomberg, The S&P’s PE ratio is down to 12.2, the lowest since March 2009 and below its average of 16.4 (calculated since 1954). Corporations are cash rich, profits have been decent and then you have Buffett buying all he can:

“I like buying on sale,” said Buffett, Berkshire’s chief executive officer. “Last Monday, we spent more money in the stock market buying than any day this year.”

Finally, we have a bunch of strategists at Barclays Plc, Citigroup Inc. and JPMorgan Chase who believe the S&P 500 will continue to push  higher by the end of the year. While Goldman Sachs Group Inc. cut its year-end target for the S&P 500 to 1,400, Barclays held its 1,450 estimate.

Are we going back into a recession triggered by fear or by the debt crisis blowing up? Is this just a transitory weakness until a haircut is given to holders of European debt? I wish I knew….

Economic Roundup:

A slower recovery, not a recession

What “Uncle Warren” Buffett Doesn’t Mention

Revenge: US Investigating S&P Over Mortgages

Swedish Banks Told to Gird for 2nd European Credit Crisis

Saudi Arabia’s policy of stability at all costs may backfire

Blog Roundup

Canadian ETF List for Investing in Oil Stocks (Canadian Oil Stocks)

My Top 7 Posts (Invest it Wisely)

Paypal Currency Exchange – USD to CAD Workaround (Sustainable Personal Finance)

Where Is The Uptick Rule? (Money Reasons)

Pestiferous Pests in the Remote Garden (101 Centavos)

Dividend Income – August 2011 (The Passive Income Earner)

My Own Advisor – 7 Links Project (My Own Advisor)

What Kung-Fu Can Teach You About Investing (Investorz’ Blog)

The Next Rare Earth Material (Invest in the Markets)

What is Stagflation? (DIY Investor)

Have a great Weekend

20 comments to Weekend Edition: Global Growth Forecasts Cut, Are We Double Dipping?

  • Hey, thanks for the inclusion.

    Your question is the Trillion $ question it seems… one thing is for sure… we are trending in that direction!

  • I sure believe that we are headed for a double-dip and am planning accordingly. I am looking for several more years of malaise.

  • The numbers look bleak, but Uncle Buffett is buying so it can’t be all that bad, can it?

    • Mich

      at this point, no one knows and he who claims he does is lying!

      Buffett can afford to buy because he has deep pockets and can afford to wait 25 years for a recovery if he has to.

  • CashisKing

    My logic: the lower the prices of stocks, the less risk I bear. Sticking to quality companies and scaling in are my current strategy. I really don’t mind much about double dip and save myself from worrying things I don’t have control on. I always keep my skin in the market all the time.

    • Mich

      Cash, You have a point with your logic: the lower stocks go the closer we get to a bottom. However, at this level there might still be a long way to go if we are to repeat 2008 all over again…got to keep enough reserves to fight back!

  • I think we’re heading into the double-dip, and maybe it will become as bad as the 1930s at some point, but even if it does, we will eventually recover and there is light at the end of the tunnel. In my view it’s the best time to be saving heavily and investing as much as you can, as you will benefit the most when the economy does turn around.

    • Mich

      No doubt about eventually recovering, the question is how long will it take us and why are we double dipping?

      I believe the politicians in the US and Europe should be held responsible for this if we double dip.

  • Hey BTI!

    I believe a double-dip will occur, and I say this because the fundamentals haven’t changed. We aren’t doing things any differently than we were. The politicing that we saw over the debt was a joke, ill-timed, and probably helped to trigger the whole thing, but regardless, it would’ve happened eventually.

    you can’t have a boom like the one we’ve been riding for so long without having a bust to compensate, and unfortunately, the bust we saw in 2008 wasn’t what we needed to create the balance that the markets are trying to create. A good example was the incentives to buy new cars, you created an increased demand now, to the detriment of future demand. So once the incentives dissolved, so did the demand for vehicles.

    By creating the demand now, you ruined the demand in the future. This is all natural economics (although, I know I’m abusing some of the textbook terms) and is a good example of what I’m describing. We’ve been living an awesome boom with a ridiculous quality of life, and eventually, we’ll need a bust that balances all of this consumption out. It’s hard to put into words what I’m saying, but it just makes sense to me. Hopefully I’ve verbalized it well enough :).

    With all of that said, I’m buying like crazy right now to average the cost down. I’ll continue buying the whole way down, and eventually, I’ll see it payoff in the future once the recovery comes. I don’t believe recovery will come until we let a real bust happen.

    Thanks,
    Timothy

    • Mich

      Tim, what you’re saying is a point of view that makes sense. So I will not disagree with you, we need a natural re-balancing of supply and demand in this economy.

      My question is, if this theory is true, we should be revisiting the lows of 2008. Why are you buying now? why not wait until we go 2000 points lower?

      • Because, despite my confidence, I never attempt to pick tops and bottoms. I prefer averaging. My total return may not be as amazing as it could be, but I’m not a greedy person, and I tend to regret moves less when I do them this way.

        I also try to buy extremely strong stocks, which may not experience as large a downturn as the market overall, which makes picking tops and bottoms a bit more interesting. I just like averaging down :). It lets me keep a calm head and keeps me from making rash buy/sell decisions. Excellent post :).

        Thanks,
        Timothy

  • I like buying on sale,” said Buffett, Berkshire’s chief executive officer. “Last Monday, we spent more money in the stock market buying than any day this year.”

    Awesome stuff from “the man” for sure.

    Yeah, I think we’re headed to a double dip.

    On a PF front, my wife and I are busy plowing money into our LOC, get that paid off. Then we just have the mortgage left if !@#$ really hits the fan!

    Any extra money will go towards dividend-paying stocks, of course :)

    Hope you have a great weekend!

    • Mich

      A prudent approach MOA, closing off that LOC will give you peace of mind. Dividend stocks are not going anywhere, you’ll have plenty of time to buy back in at good prices given how we seem to be heading towards a major crash.

  • Thanks for including us here. Hope the workaround helps.

  • Melting Markets and Last Week’s Random Links | 101 Centavos

    [...] Mich @ Beating the Index: Global Growth Forecasts Cut, Are We Double Dipping? [...]

  • In a selfish way, I kinda hope that we are double dipping. As a 23 year old trying to repay his mortgage as quickly as possible (love the low interest rates) and invest at the same time, a double-dip would mean at least another year or two where I can get in at the ground floor of the new world economy. I have little doubt that global growth will resume once we shake off the yoke of some of these ridiculous self-inflicted debt wounds, and I hopefully will be very close to debt-free and in a great market position to take advantage.

    • Mich

      The problem with those debt wounds is that it might take longer than 1 or 2 years to shake them off. for you this means you might graduate into an economy in limbo giving you a hard time to find a good paying job.

      But you’re right on growth resuming sooner or later!

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