Tags: Light | US | Chance | Recession

Author Larry Light: US Stands 50-50 Chance of Dipping Back Into Recession

By    |   Friday, 12 Aug 2011 10:33 AM

The United States stands a 50-50 chance of falling back into a recession, says author and former Wall Street Journal Editor Larry Light.

Stocks have also fallen close enough to officially classify as bear markets, but recovery will return thanks to low interest rates, even if it takes a little while.

“For the most part, the market usually goes up because, for the most part, the economy usually goes up and always has been since the Great Depression,” Light tells Newsmax.TV.

“Now, unfortunately, we haven’t gone up very fast or very far, and our recovery seems to be sputtering out, which is why some people may be fearing another Great Recession," Light says. "I suspect the odds of that happening, I’d say, are 50-50 that it could.”

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The market is close to falling 20 percent from its last high, which occurred in April, which would mean stocks are in bear territory.

The market has already slipped 10 percent, which means the market is officially in a correction.

“We’re already past that 10 percent correction, which is like that first slice of the knife. And the bear market, of course, is when the knife enters your belly,” says Light, also a former editor at BusinessWeek and author of the new book, "Taming the Beast: Wall Street's Imperfect Answers to Making Money."

Gold, meanwhile, recently has been soaring, mainly because investors like it during times of weakening currencies.
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The yellow metal is trading above $1,700 an ounce, and could continue making gains.

The problem with gold, Light says, is that it is a boom-bust asset.

“It wasn’t that long ago when it was like $200-$300 an ounce and it will return to that. Mark my words; this will happen.”

Debt issues in the U.S. prompted Standard and Poor’s to downgrade U.S. ratings to AA-plus from AAA, and fears are rampant that France is next.

Debt fears in peripheral countries like Greece are threatening to spread to larger countries such as Italy and Spain.

Should that happen, banks across Europe and beyond could feel the pressure, especially in France, although the ratings agencies say the European country still stands with an AAA rating.

A downgrade would be a non-event like it was here, Light says.

“I don’t think it would mean a heck of a lot. France is still a fairly vibrant economy.”

The U.S. downgrade has been largely a non-event, he said. “Its political symbolism in Washington looms larger than it does in the markets. I think the same would be true of any other major industrial power.”

European policymakers will probably work through problems there anyway, Light adds.

Back in the U.S., the Federal Reserve has said it will keep interest rates low for two years.
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“Eventually if interest rates are still low, then people will start to spend again once their household balance sheets are down, and that in turn will stimulate the economy and will stimulate a genuine recovery, which means jobs,” Light says.

Some feel some stocks are oversold, including Laszlo Birinyi, of Birinyi Associates.

"I want to go down to the lowest level, which is the hardest level, and pick individual stocks," Birinyi tells CNBC.

Good cherry-picking skills can pay off.

"The markets create some good opportunities, and I think that's what you should be looking at here and not be consumed by the level of the market."

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The United States stands a 50-50 chance of falling back into a recession, says author and former Wall Street Journal Editor Larry Light. Stocks have also fallen close enough to officially classify as bear markets, but recovery will return thanks to low interest rates, even...
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Friday, 12 Aug 2011 10:33 AM
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