Alliance Consultants Altruistic Advisory Is There a Double Dip Recession In The Making?

There are things happening out there that make us suspicious that although this was considered a remote possibility until now, it may soon come to be graduated as a possibility. Lets us look at some of the recent news (in chronological order) that have been flowing out of the US economy painting clouds of doubt over sustenance of its economic recovery. The recently concluded meeting of the Federal Open Market Committee carried the undertone that indeed there is a slowing down of the economy and the growth in the second half would be more muted than was originally estimated. This they said, was mainly owing to the fact that employers are uncertain about adding to their payrolls given the global uncertainty and legislative changes. Then there is a report from Moodys Analytics that says that one of the reasons why the recovery has lost momentum is that high-end consumers have become more jittery and cautious. The spending by Top 5 percent income earners (earning USD210K or more) accounts for about one third of consumer outlays, which means that spending decisions of the rich have an outsized effect on the economic data. As per Gallups chief economist Dennis J Jacob a lot of the feeling that the worst was over has abated amongst the US consumer as is depicted by average daily spend stats of the upper income consumers. The average daily spend was US$ 145/day in May (a surge of 33% Y-o-Y) which is down to about US$ 119 in June. Adding to the gloom is the release of another disappointing data on the number of housing starts which fell to 549k, 5% less than a month ago and 6% less than a year ago. This is a worrisome sign as it was what had pulled the US economy into a recession nearly three years ago. This drop has beaten the air out of the consensus view on housing starts, what could possibly explain this phenomenon is the expiration of tax credit, uncertainty of jobs, and a general economic slowdown. Meanwhile making matters worse is the fact that the delinquency ratio in higher-end homes (with an original mortgage of US$ 1 mn.) is now at 23%, thus a staggering one in 7 homes in this segment is in default. Also as per an estimate 24% of the homes are underwater (i.e. they owe more than their house is worth). Thus there are signs that trouble is once again brewing in the US and while it cannot be firmly concluded at this juncture that there will be a double dip recession, the possibilities of that happening cannot be written away either. In such a critical scenario even a gentle headwind could cause the pack of cards to come down causing a domino effect that may once again bring us face to face with the horrors of market blow offs. What then is the best investment strategy in such an uncertain investment scenario? Well there is growth in India and the good thing is that it is largely due to domestic demand, however one cannot undermine the role of exports more particularly that of the IT service firms that are largely driven by global markets. Any external eventuality is bound to have a toll on them and consequently on their employees that today have one of the largest propensities to consume amongst the Indian demographic landscape. So even India may see some sort of a moderation in growth. Taking into account these global uncertainties and the correction that may ensue following outflows of FII monies it is better to invest in avenues where there is sufficient liquidity so as to be able to get into cash with little liquidity costs, should the need arise. What stands out as a very good investment option in these uncertain times is gold, which has both an upside potential and also very good liquidity. The case for gold is further strengthened by the latest testimony of Ben Bernanke to the US House committee, where he has said the central bank is prepared to take further policy action if the economy doesnt continue to improve. So should there be a double dip and should further stimulus measures be induced, it would greatly strengthen the case for buying gold as it is not only an effective hedge in uncertain times but also a good hedge against inflation.

Contact:- Premal B Thakkar M:- 990 900 8490

Email:- premalbthakkar@gmail.com

Alliance Consultants Altruistic Advisory

If you are an existing Alliance Consultants Client you would appreciate why we insist on not making lumpsum investments, it is precisely for times like these that give you an opportunity to average out your investments. Also there are other specific measures that we have taken like ensuring that you have sufficient debt exposure as well, while other Mutual Fund Agents with vested interests continue to promote equities to their clients. The importance of Asset Allocation is all the more accentuated in troubled times like these, where in a good asset allocation strategy will not only support your portfolio during down side but would also leave you with sufficient liquidity and allow you to make bargain buys when the opportunity presents itself. An excellent strategy to deploy during such uncertain times is that of 100% portfolio protection, that ensures that your capital is completely protected and yet allows you to invest in Equity Markets!!! To know more about it and invest accordingly, contact Alliance Consultants at (0091) 990 900 8490 immediately.

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Contact:- Premal B Thakkar M:- 990 900 8490

Email:- premalbthakkar@gmail.com