TUESDAY JULY 6, 2010

Double Dipping?

The stock market is in the process of pricing in the dreaded "double dip" recession.  Certainly, the recent economic statistics are demonstrating a slowing, albeit still growing, economy.  The housing and auto sales numbers are weak with a subsidy expiration hangover.  Unemployment remains stubbornly high.  Is the double dip imminent?

The reality is double dips are rare.  In the last 75 years, there has been only one double dip, in 1982.  But the circumstances of 1982 were unique and could not be more different from today's issues.  The 1982 dip was created by the aggressive monetary response of the Paul Volcker Federal Reserve to run away inflation.  Inflation was raging at double digit rates and the Fed responded by raising short-term interest rates to 20%!  In essence, the Fed manufactured a double dip recession to kill the inflation beast.  Clearly, with short-term rates at 0%, we are in no danger of high interest rates creating a recession!

Is a double dip possible?  Of course, and today's negative psychology is overwhelming the market.  But is a double dip likely?  Probably not, given the history.  What does it all mean?  The 15% market correction since April has priced in a double dip.  But absent a double dip, the market has created a great buying opportunity.  

POSTED AT 1899-12-30 17:25:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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