In this commentary we discuss our views regarding a potential ‘double dip’ recession. Our contention for some time has been that after an initial rebound, the economy would be mired in an extended period of below trend growth. This is based off of historical precedents in which recessions caused by financial crises have tended to be followed by weak expansions. Among other reasons, this phenomenon has typically been caused by the drag of deleveraging on economic growth. Of late, many US economic data points have disappointed investors, leading many to conclude that a ‘double dip’ recession is the most likely path ahead. It is important to note however, that much of the data has been emblematic of a decelerating economy, not one in absolute decline. One particular data point, the yield curve, actually appears to be projecting economic strength (see the linked article below). Of course this is only one item that we look at amongst a litany of others in assessing the economic environment. However, it is noteworthy that according to a recent Federal Reserve Bank of San Francisco letter, the yield curve is the best indicator amongst the ten factors which comprise the Conference Board’s Leading Economic Index in terms of predicting economic activity eighteen months out.
While we have not changed our base case scenario described above, we do acknowledge that other outcomes, such as a ‘double dip’ recession, are possible. We therefore attempt to construct our portfolios to allow for this possibility, though we believe it is a less probable outcome. For this reason we have hedges in place which will help to protect the portfolio should the economic environment turn out weaker than our expectations. Given the degree of uncertainty and volatility in the market, we believe that that this is the most prudent course of action.
This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.
Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.
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