Saturday, January 5, 2008
Are we in a recession? This question has been thrown around a lot lately and everyone has a different response.
First, lets look at what a recession is. According to wikipedia "a recession is a decline in any country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year."
The only problem with predicting a recession is you can not tell when you are in one. Data has to be recorded and analyzed before a recession can be declared.
I think we are in the middle of a recession and don't even know it. The markets are slowing and the credit markets have slowed to a snails pace. There is no liquidity in the markets, because nobody can borrow. The past few years of growth have been driven by peoples ability of borrow against their homes or pull out equity to remodel, go on vacation, buy a new car, or invest in the markets. All of this spending and investing has come to an abrupt halt and the markets are going to be feel the crunch.
Institutional investors should keep the markets from dipping too low, but don't fool yourself into thinking that this market is not in serious trouble, because it is. The question may soon be, can we stay out of a depression?