It's Gonna Get Worse
Research for Online Investors

by John Dalt

9/30/11

The Economic Cycle Research Institute ECRI released a report last week to their clients forecasting a recession for the U.S. Lakshman Achuthan, the ECRI’s managing director, said “It’s either just begun, or it’s right in front of us.  But at this point that’s a detail.  The critical news is there’s no turning back.  We are going to have a new recession.”

There is no shortage of economists, market pundits and commentators that have expressed worries about future earnings for U.S. companies and the economy.  Here is the important point, ECRI’s prime mission is to predict recessions and recovery calls for their clients.  The Economist reports the ECRI has NEVER issued a false alarm on a recession call.  You can read a short summary of ECRI’s report.

Achuthan says he cannot predict how deep the recession will be.  He said if the eurozone sovereign debt crisis “shocks” the system, the recession could become very deep and serious.  He does expect higher unemployment and increasing deficits for the U.S. government.  He believes the recession either began in the third quarter, or will begin in the fourth quarter.

The last recession in the U.S. lasted from December 2007 through June 2009, and saw the U.S. economy shrink by 5%.  This was the longest and deepest since the Great Depression.  Another recession coming so quickly is rare.  Only once in the last 50 years has the country had a period of expansion of less than three years after a recession.

The National Bureau of Economic Research officially calls recessions, but since they wait on government data, they usually take at least a year after the recession starts to identify it.  A recession is defined as a period of decline in GDP lasting for two or more quarters.

It is going to get Worse!

Achutan refutes that the U.S. has been in a recession ever since 2008 with “Just because it looks and feels a certain way doesn’t mean it’s a recession.  You haven’t seen anything yet.  It’s going to get a lot worse.”  You can watch CNBC’s interview with Lakshman Achuthan.

Many of us own gold or some derivative of precious metals.  Today's chart illustrates the long term bull market since 2001 with the pace of its uptrend increasing over time. Recently the price of an ounce of the shiny metal has dropped after bumping up against resistance (red line) and is now down $300 in a little under six weeks. This sharp pullback has brought gold back down to long-standing support (green line) of what has been a nearly three-year accelerated uptrend.

Chart courtesy of www.chartoftheday.com

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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