A popular topic of conversation nowadays is whether or not there will be a double dip recession. Supporting the "no" camp is the rarity of such a thing, pointing out that it has only happened one time in modern history in the early 1980s (I read one thing that said despite what people say, that double dip was recorded as two separate recessions).Supporting the "yes" camp is the employment situation and lately Edward Harrison has been very interested in the ECRI Weekly Leading Index which, if I am reading him correctly, are almost saying double dip.
Recessions are typically very bad for equity markets, averaging a 40% decline if memory serves. I've been asked a couple of times in different contexts whether I thought there would be a double dip but really I'm not sure this is the best question. Whether there is technically a double dip or not we have problems with indebtedness, jobs, the banks are still in trouble (I've never thought they were fundamentally sound since this all started) and all the other things you know about and of course this is the "worst financial crisis in 80 years."
Double dip or not, these are formidable obstacles that US equities need to overcome and thinking it will take more than two years (my opinion) is quite reasonable. I would again point out that there are quite a few foreign markets that simply do not have these obstacles in front of them. I've been talking about Chile almost since the start of my site. Since the peak of the US market in October 2007 the S&P 500 is down 30% while the IPSA is up 25%. It went down plenty, dropping almost in lockstep with the S&P 500 for about a year to a 30% decline but has been mostly working higher since.
If this has been a time to focus on protecting assets, and I believe it has, then certainly one way to protect assets would be to invest in countries with relatively little fundamental connection to the US's obstacles. The other day I made a comment about avoidance as a valid protection strategy so here the point is avoiding a systemically vulnerable economy.
I'm glad to let other people devote time to assess the reality of double dip or any other economic event. There are times to let assets grow and a time to protect assets and this continues to be a time to favor protection.
