Tags: economy | recession | election year | cnbc

Is US Headed for Election Year Recession?

Is US Headed for Election Year Recession?
(Dollar Photo Club)

By    |   Thursday, 13 August 2015 09:53 AM

Raoul Pal, Global Macro Investor, spoke to CNBC's Melissa Lee about why he thinks the U.S. economy could be headed for recession before the end of this year.

He warned of the “knock-on effects” of the slowdown in China and the effects the strength of the dollar could have on U.S. exports, causing markets all over the world to become “dicey.”

While U.S. markets are “the most protected,” Pal laid out a chain of events that began with Japan’s devaluation, which led to devaluations by other Asian nations and a rise in the U.S. dollar.

China’s economy slowed due to sluggish exports, oil prices fell, and the dollar continued to rise, causing a “collapse” in U.S. exports, emulating the late ‘80s-early ‘90s.

Pal estimated that the global economy is six months into a two-year scenario, and he recommended buying bonds and taking advantage of a cheap VIX in order to hedge the U.S. equity markets.

He concluded by predicting that the oil price can fall into the 20s amid a recession of unknown severity.

This writer notes that, as Peter Schiff has warned repeatedly, the Federal Reserve is bound to meet this with further rounds of QE.

Mitul Kotecha, of Barclays, said the Peoples Bank of China (PBOC) has been taking advice from the IMF to free up its currency and try to stabilize Chinese markets.

As this writer said yesterday, Kotecha didn’t think the markets should have been particularly “shocked.” He agreed with an interviewer that the opening of markets will have as a consequence a sustained increase in volatility rather than the stability the authorities are seeking.

Far from fearing a crisis in U.S. exports, Jeremy Hill, managing director of Old Blackheath Companies, finds that a “currency war” has been going on since 2010, when the Brazilian Finance Minister declared it.

Thus, high-yield bonds might be a buy, and he thinks, “The U.S. stock market still has some digestion to take care of.” He noted that Fed futures predict a greater chance of Fed action in September than they had just the day before, and he added, “We don’t think the global chase for yield is over in any way.”

He assured an interviewer that interns at his firm will be watching very carefully for signs of global systemic risk that “tend to be negatives for stocks.”

The reference to “systemic risk” confirms the suspicion of this writer that the Fed’s efforts to manage the ongoing, permanent financial crisis are not going to go as smoothly as it thinks.

At the same time, technician Rich Ross, of Evercore ISI, told Melissa Lee that he likes everything about the behavior of the charts from a bullish point of view. Following a seven-month trading range, once the 200-day MA was broken, an “heroic reversal” occurred that Ross thinks “sets the stage for a late summer surge into the high end of this range at 2130, followed by a breakout to 2180 in the intermediate term, with upside to 2220.”

He sees a continued uptrend in the tech and biotech stocks of the Nasdaq 100, and he further predicts a recovery in China and in Apple (AAPL), so he would be “a buyer tomorrow for the rest of the summer.”

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Raoul Pal, Global Macro Investor, spoke to CNBC's Melissa Lee about why he thinks the U.S. economy could be headed for recession before the end of this year.
economy, recession, election year, cnbc
Thursday, 13 August 2015 09:53 AM
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