Double Dip Recession???

Here is my commentary on an article I read today. I found this on CNN Money. Beware the double dip.

I know the talk is out there, and I know this is a very real risk during the recovery of a recession, but I don't think we are heading in that direction. Here is why:

1. Most secondary recessions follow a weak recession. Without the joint efforts of most of our world powers, the ability of businesses to conduct daily activities would have ceased to exist. That being said, we are going through a strong recession rather than spiralling into a depression. Definitely nothing weak here!

2. Secondary recessions are spurred on by an overzealous recovery. If a recovery happens too quickly, that is when you see inflation. As this recession drags on, I feel it is creating a stable, controlled recovery. Don't get me wrong though, interest rates will increase. That is a given at a Fed rate of 0%.

3. Now I am going to go out on a big limb here and say that OPEC is going to maintains some discipline as the world recovers. They do understand their role in the health of the world economy, and those that didn't before got to see it first hand. There wasn't a lot that was going to stand in the way of speculators running oil to $150/barrel, but as the economy turned for the worst, OPEC did contribute their form of stimulus by not slashing production. $60-80/barrel oil is probably the right mix of providing the Middle East with the revenue they need, and allowing the world recover responsibly. $150 oil too soon into the recovery would be VERY BAD.

Don't let the Bears scare you. Buy the dips if you have money to invest, and hold on to the investments you already have.

Where's the bottom?

So I have already touched on the indicators I used that signaled the big downturn in the economy. Now that I said "I am out!", now what? Here I am just sitting on the sidelines, not making any money, but not losing any money either. The first part of the recession was pretty easy to watch, kind of like watching 20,000 Leagues Under the Sea. The only volatility was if the market dropped 1% or 5% in a day. Nothing that pointed toward a bottom. Then there was a light at the end of the tunnel. Volatility mixed with irrational behavior! Whooo Hoooo!

Probably the best advise a professor ever gave me in college was that the current price, be it stocks, commodities, currency, is already factoring in the future. HUH? This just means that even though the economy on main street had not hit bottom, the stock prices have already factored in a further economic retraction. Everybody knew we were in a recession and it was going to take a while to dig out of it. So once almost everyone was assuming this, the price had naturally established a bottom. This can be seen in the fact that the Dow and S&P hit their bottom before we were officially in a recession.

If everyone knew, then why was there so much volatility at the bottom. I guess that just gets into the battle of the bulls and the bears on wallstreet. Analysts just feed the frenzy trying to push their position. Don't let all this static make you over think. Just pick a target price, stick to your plan, and don't lose sleep if you didn't quite hit the absolute bottom, or the top for that matter.

What Hit Me?

I know so many of you out there are still licking your wounds after the past year and a half’s worth of beat downs in the worst recession this country has seen in decades. Some of you have to be wondering “Why didn’t I see this coming?” I am not sure if I want to get into the whole world of technicals vs. fundamentals quite yet, but I do have to say that the technicals sure lured you right into a mess.

I do not discount neither fundamentals nor technicals when evaluating the market, but that is all secondary to just good ol’ common sense. The best indicator of the state of the economy is my check book. I am not part of the super rich, so fluctuations in the economy, inflation, fuel prices, etc. are reflected at the speed of sound directly into my check book. Let’s roll back, not 12 months when the stock market was spiraling down, but 18 months back. Everything seemed to be rolling along just fine, prices were good, sales were good, but fuel prices were just steaming along even faster. The day I filled up my truck for $117 for one tank of gas, I told myself, “I don’t know how long I can keep doing this?” Imagine being how much business’s were having to spend to keep their inventories in their stores. Then I started taking a look at my health insurance premiums, my electric bill, and my grocery bill. They were all going up significantly faster than my salary. RED FLAG!!!!! But the market was doing well, S&P was at record highs, but the volatility was through the roof. Daily 2 and 3% swings in the market are not normal, or even rational behavior. When the market had 2 or 3 huge gain days, and the S&P topped out around 1500, I said, “I’M OUT!”

Volatility is a great time to make money, both in bull and bear markets. I love volatility, but you need to pay the most attention to irrational behavior. If the market is going up, but you are going broke, well, you are most likely not the only one. Get ready for something big. When the market is being irrational, it is time to do a 180. Use you technicals to determine the volatility of the market, but use your senses when determining the true direction a market should be going. If EVERYBODY is selling, start watching for a good time to buy, and vise versa.

My Cyber World Initiation

Ok, so here I go at my first attempt at blogging. I never thought I would even try this foreign world, but my out-spoken mind just drove me to it. It is only natural that I talk about finances, the stock market, and just the economy in general, because I love to talk about it all. Maybe this blog will give my wife a little reprieve from my obsessiveness to talk about it.

I am sure the first question anyone has is: “What the hell makes this guy think he can give me financial advice!?!?” My response: “Common Sense!” Before even starting to write this blog, I was trying to think of a title for it. My first thought was “So simple it’s stupid”. The more and more I thought about it, the more I decided that was not the most accurate title, because none of this stuff is “simple.” The logic behind it is simple, but the actual guts to take this common sense knowledge and put $50K against it is not simple at all. The logic is there right in front of our eyes, but to trust it, and to not over-think it, is not easy at all. That is why I just went with an old nick-name of mine from college.

I won’t get into anything specific in this blog, but some of the topics I intend to cover include our recent economic hiccup, then expand on where we are going, what is influencing our economy, and maybe even some commentaries on news articles that I find either informative, or even amusing.

Enjoy, and stick with me here as I enter this cyber world.