The double dip probability exists and is not trivial. My outlook is as follows.
The ongoing recovery is not from the consumer, who has been busy cutting back and deleveraging. The key drivers are
- Inventory replenishment: As companies start to build back inventories that they cut back in anticipation of GDII and make the investments they postponed. The investment portion of the economy will recover. The likely beneficiaries include Factories, Manufacturers, Tech.
- Foreign Export Recovery: As the ongoing Asian rebound and European moderation pulls exporters back in a weak dollar environment, coupled with pressure on imports from weak dollar, weak US demand. Net exports will contribute to GDP growth.
- Government: The Stimulus package will replace the drastic cuts at the state level to maintain total government spending relatively flat.
The ongoing risks are
- Consumers continuing to reducing spending in the face of bad unemployment, loss of assets (home & stocks)
- Banks continue to deleverage and reduce credit that reduces activity. Either in response to things in the past or the continued deterioration in Commercial Mortgages or sharp rise in foreclosures or business failures
- Foreign demand for US goods starts to shrink because of their GDPs shrinking
- Commodity prices spiking causing both consumer and business expenses rising
- As industry replenishes inventory, they will have to restart hiring, improving the employment picture
- Improvements in the stock and home prices are really helping to improve household and business balance sheets and slow down the deleveraging process
- Stimulus spending is about half in 2010, keeping the government portion from shrinking
Long GE ORCL NRTLQ.PK DELL