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Wednesday, February 06, 2008

Is US racing towards one of the worst recessions?

Many of the stocks, especially the financials and retailers, have come to life with the Fed's recent 1.25% cut of interest rates. Stocks like Bank of America and Citigroup have all benefitted from these rate cuts, with some investment professionals saying that we have reached the bottom in the stock market.

However, as per CNNMoney.com/Fortune's interview of famous investor, Jim Rogers, the US is headed for hard times ahead.

Jim Rogers made a lot of money in commodities which had a tremendous run in recent years. He also had been shorting investment banking stocks and predicting a recession in the US. Despite the recent rate cuts and a subsequent rally in many stocks, Jim Rogers has a pessimistic view of the Feds as well as the markets.

"I'm extremely worried," he says. "I have been for a while, but I just see things getting much worse this time around than I expected."

To Rogers, a longtime Fed critic, Bernanke's decision to ride to the market's rescue with a 75-basis-point cut in the Fed's benchmark rate only a week before its scheduled meeting (at which time they cut it another 50 basis points) is the latest sign that the central bank isn't willing to provide the fiscal discipline that he thinks the economy desperately needs.

"Conceivably we could have just had recession, hard times, sliding dollar, inflation, etc., but I'm afraid it's going to be much worse," he says. "Bernanke is printing huge amounts of money. He's out of control and the Fed is out of control. We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene."

Rogers looks at the Fed's willingness to add liquidity to an already inflationary environment and sees the history of the 1970s repeating itself. Does that mean stagflation? "It is a real danger and, in fact, a probability."

Instead of the US, Jim Rogers sees better potential abroad, especially in China.

The weak job numbers that we got last week, along with on the bad Institute for Supply Management (ISM) number that we got yesterday does support many economists' view that we are already in a recession or are heading towards one in the near future. Of course, as always, there are many eocnomists who are also predicting that the recession, if it does happen, will be a short one. Personally, I believe that regardless of whether the economy is in recession or not, the thing that matters the most to most people is whether they have job or not, and whether they are able to take care of themselves and their families. If a person doesn't have a job and is having financial difficulty, then it doesn't matter to him/her whether the economy is booming or not. So from financial perspective, it's always best to have sufficient emergency funds so that if a job loss or slow times in ecomomy do happen, there's some emergency cushion to help tide over that period.

For complete article, see:

CNNMoney.com/Fortune: 'It's going to be much worse'

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posted by Ruby @ 7:58 AM

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