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Is it Time to Prepare for Another Recession?


I am not the superstitious type, but everywhere I turn these days it seems somebody (Bill Clinton, Warren Buffett), somewhere (Wisconsin), sees something (bond market) that makes them want to talk about recession. It's enough to make a guy a little nervous, even though all but the most bearish forecasters out there still don't think it will actually happen.

"The bond market is acting as if we are setting up for a financial panic akin to what we saw in 2008," says Charlie Smith, Chief Investment Officer at Fort Pitt Capital Group, in the attached video. As he sees it, it's more like we were never really came out. "I don't think we're going into recession, but I don't think the economy ever really got to the level where it reached escape velocity—where we were in a real recovery."

To be fair, President Clinton's comments, which were later clarified or sanitized (depending on your point of view), were more geared toward the need to avoid doing anything that would act as a headwind to an extremely fragile economy, like letting taxes go up or slashing federal spending.

And then there's Buffett, who believes that Europe could be the tipping point. Although, even that risk appears to be be heading lower again, at least in the past 48 hours, as hopes of action are up on the belief that Germany and the ECB would at least backstop a complete meltdown, not unlike the actual pledge of Fed Chairman Ben Bernanke who always ''stands ready to act."

Here at home setbacks for organized labor in Wisconsin and California have served as a confidence boost to certain fiscally conservative segments of the population, which some say has the potential to bring a Tea Party-like effect to the ballot box in November.

"The fact that the election is coming does tend to harden people's position," Smith says, but he also points out that the Republican win in Wisconsin's recall election will give them some room to negotiate.

Still, given the sub-par pace of growth we are currently seeing, the fact remains that there is truthfully very little cushion when it comes to GDP. As much as the pundits and politicians say we will make it through and avoid slipping back into recession, it is clear that even a modest, unforeseen external shock could be enough to trigger another slump.

We're still not out of the woods—don't let your guard down just yet.