February 13, 2010 at 20:50 PM EST
Double-Dip Recession Threatens Europe and US
double-dip recession threatens Europe and US
Double Dips Are NOT Tasty!

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Double-Dip Recession Threatens Europe & the U.S.

Wall Street, the GreekDouble-dip recession threatens Europe and the U.S. too. Three foreign affairs matters impacted the day's trade Friday, and highlighted reason for concern. First and foremost, the euro zone economies reported GDP data, offering little reason for traders to shift gears out of reverse as Europe's economy looks to double-dip into contraction or recession. Greece's Prime Minister Papandreou is always good for a straight take on things, and so he made headlines with his comments about what kept the European support statement for Greece relatively vague Thursday (it was infighting). Finally, just as China went on holiday to ring in the Year of the Tiger, the Chinese government put the reins on banks again, which may be a good thing over the long run.

Euro-Zone Economic Recovery Falters

The main driver of global economic concern last week was of course Europe's tough time. The 16 nation euro-zone saw only 0.1% economic growth in Q4, after posting 0.4% growth in Q3, according to EU stat agency Eurostat. The euro area nations experienced 2.1% year-over-year economic contraction. Weakness was broad-based, but especially important in Germany, where soft consumer spending weighed on the region's largest economy. Only France (+0.6%) and Slovakia (+2.0%) offered significant economic expansion. Greece's economic contraction was revised to an even worse level, recorded now at -0.8%. This, of course, expands its budget deficit beyond recent estimates.

Reflecting on my Greek experiences of the past year...

I remember the days, a little over a year ago, when I spoke with Greek government officials who still could not see the freight train bearing down on them. One individual was confident Greece would not enter into recession due to the special dynamics of its economy. I think most of Europe would say "not so special."

I visited the Greek Embassy, where I sat in on a meeting of Greek representatives and big-time telecommunications investors and corporations, as they sought to raise funds for a broadband expansion project. I asked a simple question of Greek officials that I thought was logical, "Are you sure the Greek government will still be able to fund this initiative a year from now?" The response I received was definite, and the tone was born from a feeling of insult that I had inspired, "Of course we will," the minister responded. On both of these occasions, I thought to myself, gosh people really want to believe in the day; they live in the day. It's amazing, really, how vulnerable human beings are to the future they cannot even fathom.

In any event, it looks as if Europe's economic union is about to return to economic contraction, after inventory restocking has given it all the gusto it could. We must ask then, what's next for the U.S., but more of the same. The American economy is seeing better benefit from inventory restocking due to the efficiency of American industry. Just-in-time has been perfected here in the States, and we don't take siestas or month long holidays in America. It's a crying shame I tell you, but it's true just the same. However, do not get lost in the illusion of inventory restocking, as it seems many of us have been. Retail spending and consumer sentiment, reported Friday, would seem to highlight that risk. Things may not really be improving as well as the economic data seems to portray (or in a sustainable way).

I say don't get fooled again my friends, because the naivete' and worst side of the ruling party are starting to show now. I do not see the Administration making the right moves with regard to China nor financial regulation, and so I'm worried that we will stumble. And even if the Administration were right on target, there is a regular trend that points toward a return to economic contraction; it happens post early economic recovery when just coming out of recession. It's due to inventory restocking hangover, so to speak (it's an illusion). The labor market is meaningful when joblessness is so high. People just cannot afford to spend. Given the depth of the latest economic decline, would not a typical retrenchment be in order here as well? I say yes.

Stocks sure seem to have caught wind of it haven't they... and the market is a leading indicator (a pretty wise one at that). Almost as wise as "The Greek," who told you to take profits weeks ago, and warned about China relations even then. I'm rewarning you now. China is going to rise to the top of the wall of worry, and for good reason. Look for an article from us on this topic soon enough.

Editor's Note: Article should interest investors in European Equity Fund (NYSE: EEA), Vanguard European Stock Index (Nasdaq: VEURX), Powershares FTSE RAFI Europe (NYSE: PEF), Europe 2001 (NYSE: EKH), S&P Emerging Europe (NYSE: GUR), Ultrashort MSCI Europe (NYSE: EPV), Vanguard Europe Pacific (NYSE: VEA), Wisdomtree Europe SmallCap (NYSE: DFE), Wisdom Tree Europe Total Div (NYSE: DEB), iShares S&P Europe 350 (NYSE: IEV), Morgan Stanley Eastern Europe (NYSE: RNE), DWS Europe Equity A (Nasdaq: SERAX), DWS Europe Equity B (Nasdaq: SERBX), Fidelity Europe (Nasdaq: FEUFX), Fidelity Europe (Nasdaq: FIEUX), ICON Europe A (Nasdaq: IERAX), Pioneer Europe Fund (Nasdaq: PBEUX), ProFunds Europe 30 (Nasdaq: UEPIX), Putnam Europe A (Nasdaq: PEUGX), Rydex Europe 1.25x (Nasdaq: RYAEX). Friday's earnings included reports from ADDvantage Technologies Group (Nasdaq: AEY), ALLETE (NYSE: ALE), Duke Energy (NYSE: DUK), Eni S.p.A. (NYSE: E), HCP, Inc. (NYSE: HCP), Ingersoll-Rand (NYSE: IR), Nordic American Tanker (NYSE: NAT), Precision Drilling Trust (NYSE: PDS), Ultra Petroleum (NYSE: UPL) and several other foreign companies.

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