BIS Chief Economist warned of possible "W Shape Economic Recovery...

Currently, most analysts are of the opinion that the economic recovery is V shape, ie. fast economic recovery. However, recently, Tharman (our Finance Minister) and Our Prime Minister Mr Lee warned that there is a possibility of a "double-dip recession, or a "W-shape Economic Recovery".

 

The fact is as early as May 2009, I already warned about the possibility of a "W shape economic recovery" in this newsletter.

 

http://www.housingloansg.com/web/index.php?option=com_letterman&task=view&Itemid=48&id=62

 

In June 2009, I warned again http://www.housingloansg.com/web/index.php?option=com_letterman&task=view&Itemid=48&id=67

 

Interestingly, on 16 Sep 2009 William White, the highly-respected former chief economist at the Bank for International Settlements, warned that world might slip back into a recession. (full article below).

 

Cheers!

 

Dennis Ng, http://www.MasterYourFinance.com

 

Below is extract of what I wrote in June 2009.

 

As a Retail Investor, what can you do if recovery is “W” Shape?

A simple way to reduce risks is to diversify your investments, do not put all your money into stock markets or unit trusts alone.

 

For instance, in the event of a stagflation, ie. Global economy remain stagnant but inflation goes up, the prices of “real assets” would go up. My investments into Gold and Silver, Land Investments and French Fine Wine would do very well.

 

In the event stock markets continue to go up, my 30% allocation to stock markets would also make me money. In the event that the economic recovery is “W” shape, ie. Prices might drop again in the months again, I can use the Opportunity Fund I have to go into markets to bargain hunt.

I have positioned myself to win and to make money no matter which scenario happens.

 

 

 

Source: MoneyNews, September 16, 2009.

 

Financial Times: Economist warns of double-dip recession


“The world has not tackled the problems at the heart of the economic downturn and is likely to slip back into recession, according to one of the few mainstream economists who predicted the financial crisis.

 

“Speaking at the Sibos conference in Hong Kong on Monday, William White, the highly-respected former chief economist at the Bank for International Settlements, also warned that government actions to help the economy in the short run may be sowing the seeds for future crises.

 

“‘Are we going into a W[-shaped recession]? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised,’ he said, referring to the risks of a so-called double-dip recession or a protracted stagnation like Japan suffered in the 1990s.

 

“‘The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.’

 

“The comments from Mr White, who ran the economic department at the central banks’ bank from 1995 to 2008, carry weight because he was one of the few senior figures to predict the financial crisis in the years before it struck.

 

“Mr White repeatedly warned of dangerous imbalances in the global financial system as far back as 2003 and - breaking a great taboo in central banking circles at the time - he dared to challenge Alan Greenspan, then chairman of the Federal Reserve, over his policy of persistent cheap money.

 

“On Monday Mr White questioned how sustainable the signs of life in the global economy would prove to be once governments and central banks started to withdraw their unprecedented stimulus measures. ‘The green shoots are certainly out there - the question is what kind of fertiliser is being used on them,’ he said.

 

“Worldwide, central banks have pumped thousands of billions of dollars of new money into the financial system over the past two years in an effort to prevent a depression. Meanwhile, governments have gone to similar extremes, taking on vast sums of debt to prop up industries from banking to car making.

 

“These measures may already be inflating a bubble in asset prices, from equities to commodities, he said, and there was a small risk that inflation would get out of control over the medium term if central banks miss-time their ‘exit strategies’.”

 

Source: Robert Cookson and Sundeep Tucker, Financial Times, September 14, 2009.

 

Financial Times: Lending in Europe continues to shrink
“The credit crunch in Europe worsened over the summer as corporate bond finance issuance failed to plug the gap left by a sharp contraction of bank lending.

 

“Net lending by banks went further into negative territory in July as companies paid back more loans than they took out new ones.

 

“Loans outstanding contracted by a net €25 billion ($36 billion) in the month, the fifth successive month of an increasing shrinkage of supply.

 

“At the same time, there was a retreat in the recent record corporate bond issuance.

 

“Bond issuance in July declined for the first time since March, by €20 billion month on month to €27 billion, although bankers are convinced that it was only seasonal.

 

“Bankers said the July trends had continued into August and would affect smaller companies most severely.

“Morgan Stanley, which compiled the credit crunch numbers from central bank data and Dealogic, said the scant availability of bank lending would penalise smaller companies that have no access to bond markets.

 

“‘As Europe’s commercial banks de-lever, lending is likely to be squeezed,’ said Huw van Steenis, banks analyst.

 

“According to Morgan Stanley, there was €319 billion of corporate bond issuance in the first seven months of the year and a decline of €33 billion in European bank-originated loans.

 

“That marked a reversal of the balance of corporate funding from the same time last year, when bank loans totalled €356 billion compared with corporate bond issuance of only €119 billion.

 

“Banks across Europe have insisted in recent months any decline in lending is due to a fall-off in demand, not supply.”

 

Source: Patrick Jenkins, Financial Times, September 13, 2009.

 

Financial Times: OECD warns 25 million jobs at risk from crisis


“Up to 25 million people in high-income countries will have lost their jobs by the end of next year as the recession pushes the unemployment rate towards a record 10%, the Organisation for Economic Co-operation and Development forecast on Wednesday.

 

“The Paris-based OECD said that, while recent signs of economic recovery might mean unemployment peaked earlier and at a slightly lower level than its forecast, governments must intervene ‘quickly and decisively’ to prevent the sharp rise turning into long-term joblessness.

 

“Its annual employment outlook underlines fears that a recovery without jobs might be in prospect, even if the return to economic growth seen in some countries in the third quarter is sustained.

 

“‘Most OECD countries are already facing a jobs crisis. This is likely to get worse before it gets better,’ said Stefano Scarpetta, the report’s lead author and head of the organisation’s employment division.

 

“The OECD said 15 million jobs were lost between the end of 2007 and July this year and 10 million more could go by the end of next year in the 30-nation area if the recovery failed to gain momentum. A total increase of that magnitude would be equivalent to the population of a country larger than Australia.

 

“In 2007 the unemployment rate in the OECD hit a 25-year low of 5.6%, but it rose to a postwar high of 8.5% this July.”

19-09-09-02

Source: Brian Groom, Financial Times, September 16, 2009.