Nouriel Roubini told CNBC on Tuesday that he believes the world's advanced economies are headed for recession number two despite what happens in Europe. He correctly predicted the 2008 recession and believes data he is reading suggests that the USA, UK, and Europe may be headed into their second recession within a couple of quarters. “The question is not whether or if there is going to be a double dip, but whether it’s going to be mild or severe with another financial crisis.” He said this answer depends upon the Eurozone. Investors will flock toward precious metals as this bares its ugly head.
US Recession Probility at 60%?
Liz McCormick with Bloomberg writes: "The bond market indicator that has predicted every U.S. recession since 1970 shows that the economy has about a 60 percent chance of contracting within 12 months." Short-term bond rates (are now) and have been higher than long term during each of the last 7 recessions since 1970. She goes on to write that Ruslan Bikbov, a fixed-income strategist in New York, at Bank of America (BAC), one of the 22 primary dealers of U.S. government securities that trade with the Fed admits that the numbers give a powerful argument for an upcoming recession.Instability in the Future of the Euro
If you haven't heard the quote yet, Sir Mervyn King, the Govenor of the Bank of England, says the stability of the euro is in "...the most serious financial crisis we’ve seen, at least since the 1930s, if not ever." That was said after they had printed more than $115 billion (in US dollars) to flood their economy. We continue to print money to fight off inflation and recession. The 'quantitative easing' as it's called, is another sign of a coming slowdown. But how long can you just keep printing money and expect inflation to be kept at bay?
Europe's Direct Affect upon the USA
Patrick Heller, an author for Numismatic News, wrote Tuesday in an Article called Euro about to Resolve, "Last week, Dow Jones cited “recent research papers written for Congress” as stating “given that U.S. banks have an estimated loan exposure to German and French banks in excess of $1.2 trillion and direct exposure to the PIIGS (Portugal, Ireland, Italy, Greece and Spain) valued at $641 billion, a collapse of a major European bank could produce similar problems in U.S. institutions.” His article shows how we are all linked together and crisis on one side of the pond with affect the other.Consider the probability of another recession (or at least another slowdown) combined with the continued crisis in Europe. Accounting for the instability in the euro and how the debt in Europe will have a ripple effect upon the US markets, there is a lot for investors to worry about. Continued reports of this nature can have a massive affect upon the markets, sending investors scrambling for stability. They will go back to precious metals, gold in particular.
This will send gold on another journey upward. The SPDR Gold Trust ETF (GLD) will continue to follow gold's trend. GLD is a good long-term investment, but the question of when to enter should be asked. If one believes this 4th quarter will follow statistics, then we are going to be profitable over all. This may also mean the dollar will rise and precious metals will not fair so well. So entry into GLD should be timed with what one believes will happen with the markets this quarter. There is plenty of news out there to make next year a great investment for gold.
If you like options, the end of the year may bring an opportunity to invest in some longer term LEAPS in the GLD.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
