The crowd expects an economic slowdown. Even former Fed chairman Alan Greenspan has hopped on the bandwagon, warning yesterday that the risk of recession is “clearly rising.”
And so it is by a number of statistical measures. But even if we all think we know what’s coming, there’s still plenty of risk to waylay strategic-oriented investment portfolios. This, in short, is no time for complacency or immoderate confidence.
The primary challenge for the next several months is less about a slowing economy. Rather, the potential for surprises–positive or negative–are considerable, which could bring dramatic spikes in volatility. Ultimately, higher vol presents opportunity, as well as risks, although the price of entry will be making decisions that are in conflict with the crowd.
Our thinking about the possibilities arising from a new round of drama in the capital markets was inspired at yesterday’s press briefing at the New York office of Barclays Capital, where your editor heard presentations from several analysts on a broad array of economic and investment topics. On the matter of the U.S. market, the Barclays team, led by Larry Kantor, head of economics and market strategy, was in agreement: economic growth in America is turning sluggish. Barclays predicts that growth will slow to 1% in this year’s Q4 and 2008’s Q1. If so, that would be a sharp slowdown from Q3’s 4.9% rise.