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Make Room For Gloom and Doom

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Given the recent onslaught of bum tidings -- among them a weakening economy, renewed softness on the employment and housing fronts, the threat of spreading sovereign debt crises and a resumption of wicked stock market losses -- gloom and doom are suddenly back in fashion.

Accordingly, long-standing members of the end-of-the-world brigade are once again shouting from the rooftops, spouting one doomsday scenario after another. They're easy enough to spot, given the extremity of their forecasts and the headlines that follow their grim projections.

Among the more ominous predictions making the rounds:

  • Another Great Depression.
  • A dive in the Dow to under 1,000.
  • A new and impending wave of layoffs, with unemployment jumping to 15%.
  • Another housing bust.
  • Broadening sovereign debt crises.

Agreed, it's enough to give anyone a nervous breakdown. Still, given a bevy of worrisome and dangerous current events, the days are over when you can write off the fears of the doomsday fraternity as pure hokum. However, since most of the current crop of princes of darkness, have been dead wrong, probably 99% of the time, the $64,000 question is which, if any, of these doomsday scenarios should we believe?

For credibility purposes, it makes sense to me to allow a respectful hearing to someone who's been right and zero in on the more reasonable and hotly debated issue that's presently on everybody's mind -- the question of whether we will or wont have a double-dip recession.

In this context, Michael Larson, associate editor of the Safe Money Report, a monthly newsletter out of Jupiter, Fla., seems like a fella whose views are especially worth hearing.

Though by no means a household name, Larson should not be taken lightly since his prowess at the crystal ball is pretty darn impressive, having very early on called the recent credit, housing and employment crises and a sharp downturn in both the economy and the stock market, all of which is documented in the newsletter.

His view is you don't need a compass to ferret out a double-dip scenario, since a double-dip is already here, with all the attendant consequences for stocks, currencies, commodities and more.

The signs are clear and ambiguous, he says; the economy is sinking yet again despite the biggest economic stimulus package in U.S. history, near-zero interest rates from the Federal Reserve, the biggest bank bailouts on record and the government's takeover of such ailing companies as Fannie Mae, Freddie Mac, General Motors and AIG.

"The bought and paid for economic recovery is coming to a close," he says, "and it's time to deal with the very sobering new reality."

In arguing his case, Larson says the bright red warning lights of a double-dip recession are flashing everywhere. In particular, he points to a number of very recent warnings. Chief among them:

  • New home sales imploded 33% in May to a seasonally adjusted rate of 330,000 units. That's the lowest ever recorded.
  • May retail sales dropped 1.2%, which was the first decline in eight months and much worse than economists had excpected.
  • Durable goods orders tanked 1.1% in May, while housing construction skidded 10%.
  • Consumer confidence plunged 52.9% in June. That was a huge drop from 62.7% in May and well below the 62.5% that economists had expected.
  • The Dallas Federal Reserve's gauge of manufacturing activity fell to -4% from 2.9%, while steep falls also occurred in Chicago, Philadelphia and Richmond.
  • The Economic Cycle Research Institute's weekly leading index, a well regarded economic indicator, is falling off a cliff. Its growth rate just fell to negative 6.9%, the worst reading in a year and far below the high of 28.5% positive in October. The last time this index plunged so much, a recession struck within a few months.

To make matters worse, says Larson, the risk of a double-dip is occurring at the same time the sovereign debt crisis is gathering steam.

Relating his bleak outlook to the stock market, he warns that what he sees is no recipe for a new bull market. Instead, he cautions, it's the kind of toxic brew that could send equity prices back to their 2009 lows -- all the way down to 6,470 in the Dow and 667 on the S&P 500. Currently, the two indexes are trading at 9,896 and 1,022, respectively.

Meanwhile, the major media outlets tracking the market, continue to beat the drums for the purchase of so-called dirt cheap stocks that you're crazy not to buy.

My thought: Do they have their heads up their butts?

What do you think? E-mail me at Dandordan@aol.com