Investors have a lot to mull over while relaxing on the beach this weekend. Double dip recession investment strategies, and potential government reactions, in case recent data points offer hints of the future direction of economy.
In my last post I highlighted that I expect the government to resort to more fiscal stimulus and non-traditional monetary policies. The decision by Congress to extend the home buyer tax credit (http://www.cnbc.com/id/38030877/) after dismal May housing data (http://www.cnbc.com/id/38036138) is an example of what I believe will continue to happen. With a President in his first term and increasingly focused on re-election, Obama cannot afford a passive economic approach. Personally, I don't believe the extension will have much of an impact on the economy since the recent tax credit likely accelerated home purchases to the first third of this year, especially since the slowdown was broader with slumping car sales in May. At some point the fundamentals largely determined by past investment decisions just take over.
The jobs data was weak with only 83,000 net private jobs created during May, below expectations and lower than March and April. A large number of people "gave up" looking for a job, specifically 652,000 people. The trend is clearly not great and it will be interesting if the government enacts more fiscal stimulus to drive job growth. Unless the government is willing to significantly add to outstanding debt, I do not believe government action can drive near-term economic growth.
These data points suggest to me the following actions:
(1) Investments in more non-discretionary sectors are prudent,
(2) Interest rates likely continue to decline as deflation worries increase,
(3) Volatility likely picks up in one to two weeks with economic data points and earnings offering conflicting messages,
(4) Sharpen your pencils on what does well when US debt levels move up as a % of GDP and US$ declines.
