We’re told that a recession is coming, or something that looks and feels like a recession. In fact, we’re told a lot of things. Some of the predictions actually pan out; most just fade into oblivion. Alas, distinguishing one from the other is always a problem, and at times like this it threatens to be a bigger problem than usual.
The economy, after all, faces a number of risks, starting with ongoing pain inflicted from the housing correction. The collective toll promises to be substantial in the quarters ahead, or so we’re told by a fair number of dismal scientists and former government officials.
In the latter category is one Larry Summers, who’s receiving a fresh bout of media attention with his prediction that a recession awaits the U.S. economy. As the former Treasury Secretary wrote in yesterday’s Financial Times, “the odds now favour a US recession that slows growth significantly on a global basis.” He cited a number of reasons, starting with the housing sector, which he feared may be in “free fall.” The proper response, he counseled, may be one of cutting interest rates again, along with some other prescriptions. But even if his recommendations are carried out, he admits that there’s no guarantee that a recession will be averted.
Or, we might add, that a recession is coming. Yes, we agree that the warning flags are waving and that only a fool would ignore the economic risks at this moment. We’re of a mind to think that the risks are higher than usual and so a strategic-oriented portfolio should, within reason, be positioned to take advantage of any future volatility. But don’t confuse danger signs with absolute clarity about what comes next.