Mainstreamcommentatorsarestillreluctanttoadmitit,butthere’saverystrongchancethattheUSeconomyissettogointoreverse。

Butjusthowearlycouldsucharecessionstart?

Well,there’snotimelikethepresent…

ThefinalthreemonthsofthisyearcouldwellgodowninhistoryasmarkingthebeginningofthenextUSrecession。

Recentdatashowsthatwholesaleinventoriesrose0。

8%inSeptember,farmorethanthe0。

2%thatanalystshadbeenexpecting。

Thatcouldbebadnewsforgrowththisquarter。

Companieswillhavemorestocktosell,whichmeanstheywon’tbeorderingasmuchfrommanufacturersinthecomingmonths。

AsReutersputsit,usuallyaninventorybuild-uplikethisisseenasatemporaryproblemthattheUScansoonsortout。

“Butwithconsumerconfidenceslidingandrecessionfearsmounting,thisinventoryspikeraisesquestionsaboutdemand。



Indeed,theInstituteforSupplyManagement’ssurveyforOctobersuggestedthatcustomerinventorylevelswereattheirhighestsinceJanuary2001,whichwastwomonthsbeforetheUS’slastrecessionbegun。

Meanwhile,accordingtoresearchgroupRetailMetrics,70%ofretailchainssawweaker-than-expectedOctobersales。

Withconsumptionslowing,andshopsorderingfewergoods,DavidRosenbergatMerrillLynchreckonsthatGDPforthefourthquartercouldcomein“perilouslyclosetoflat,orevennegative。



Ofcourse,thisisn’tgreatnewsfortheUS。

Butitcouldbeverybadnewsfortherestofustoo。

TheworsethestateoftheUSeconomy,theworsetheoutlookforthedollar。

Andthewobblierthedollargets,themorechancethereisoftheyencarrytradeunwinding。

Theyencarrytradeisabitlikebirdflu。

Everysooftenthepaperswillgetasniffofitandit’llbefrontpagenewsforaday,andthenit’lldiebackdownagain。

Butit’salwaysthere,waitingtocausehavoc。

Asregularreadersareprobablyaware,theyencarrytradehascomeaboutbecauseJapanhasextremelylowinterestrates。

Thatmakesitattractiveforinvestorsbothdomesticandinternationaltoborrowmoneyinyenandtheninvestitsomewherewhereitpaysabiggeryield。

Troubleis,whilethiscanseemlikeano-losesituation(whichithasbeenformanyyearsnow),ifthecurrencyexchangerategoesagainstyou,yourgainscanrapidlyturnintolosses。

Andasinvestorsbecomemoreriskaverse,thispotentialproblempreysontheirmindsmore,andtheytrytoclosetheiryenpositionsbeforeanythingnastyhappens。

Butifeveryoneclosestheirpositionsatonce,thenofcourse,thecurrencystrengthensrapidly,whichcancauseapanickedrushfortheexits。

In1998,aftertheRussiandebtdefaultandtheproblemsatLongTermCapitalManagement,thedollarfell10%againsttheyeninthespaceoftwodays。

Themoreparanoideveryoneisfeeling,themorelikelythisistohappen。

Arapidunwindingofcarrytradescouldseeanothermarketsell-off,ashedgefundsandothercarrytradersareforcedtoditchprofitablepositionstocovertheirloss-makingyen-fuelledpositions。

Andinanunstableenvironmentwhereshocksarehittingthemarketleft,rightandcentre,thisseemsaverylikelypotentialoutcome。

“Carrytradesdonotworkinthissortofenvironment,theyworkinalow-volatilitystableenvironment,”DavidBrickmanofLehmanBrotherstoldReuters。

“Thereforecarrytradesgetunwoundanddollar/yenhasfurthertogo。



Certainly,ofthetwocurrencies,IknowwhichoneI’dbebackingoverthelongertermparticularlyasthemarketvolatilityisonlyjustgettingstarted。

We’llhavemoreonthedollarandtheyeninthenextissueofMoneyWeek,outonFriday。

JustbeforeIgo,Iwantedtoalertyoutoaverytelling–andentertaining–littledisputepostedonthisismoney。

co。

uk。

ThisIsMoney–whichasmostofyouwillprobablyknow,isthesitefortheDailyMailgroup,sowe’renottalkingaboutanobscuresourceherehasrecentlyfeaturedahousepricecrashcalculatorfeature,whichclearlyhasupsettheCouncilofMortgageLenders。

Iwon’ttellyouanymore–justclickonthelinkfollowingtogetasenseofjusthowworriedtheCMLisaboutthestateofthepropertymarket:Thehousepricecrash-ometerthathaslendersworried

Ohyes,andjustareminderthatforthosewhoarestillsearchingforthatelusiveperfectChristmaspresent,MoneyWeekcancometoyourrescue“HowMuch?

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LondonsFTSE100indexendedyesterday33pointshigher,at6,337,thankstoabounceforbanks。

RoyalBankofScotlandandBarclaysledtherisers,whilstlowermetalspricessawminersdominatethefallers。

Forafullmarketreport,see:Londonmarketclose

ElsewhereinEurope,theParisCAC-40wasup11pointsat5,535。

AndinFrankfurt,theDAX-30fell5pointstocloseat7,806。

OnWallStreet,theDowJonesendedanup-and-downday55pointsinthered,at12,987,thefirsttimeithasfallenbelowthe13,000markinthreemonths。

Thetech-richNasdaqwas43pointslower,at2,584。

AndtheSP500was14pointslower,at1,439。

InAsia,theJapaneseNikkeiwasdown70points,at15,126。

AndinHongKong,theHangSengwasup137points,at27,803。

Crudeoilhadfallenbackto$94。

12thismorning,whilstBrentspotwasat$91。

03。

SpotgoldextendedMondaysheavyfallstoday,fallingaslowas$790。

80inAsiantradebeforereboundingto$806。

20。

Silverwasat$14。

75。

Turningtothecurrencymarkets,thepoundwasat2。

0683againstthedollarand1。

4167againsttheeuro。

Andthedollarwasat0。

6847againsttheeuroand109。

91againsttheJapaneseyen。

AndinLondonthismorning,theRoyalInstitutionofCharteredSurveyorsannouncedthatitshousepriceindexfelltoitslowestlevelintwoyearsinOctober。

Thenumberofestateagentsreportingfallingpricesoutnumberedthosereportingrisingprices,addingtoevidencethattheUKpropertymarketiscooling。

Finally,ourrecommendedarticlesfortoday

WhatCityexcitementmeansforyourinvestmentsLastweekwasadramaticoneforthoseworkinginfinancialinstitutions。

ButrecentchaoshasmadeformorethananadrenalinrushforCitytypesithasalsochangedthewholeinvestmentenvironmentandthatmeansitstimetoreviewyourinvestments。

Clickheretofindouthowtoavoidlosingmoneynow:WhatCityexcitementmeansforyourinvestments

ThetwoUKbanksthatstilllookgoodIfyoureadyesterdaysMoneyMorning,youllknowthatwerestillnotkeenontheUKbankingsector,butwethoughtyoudliketoreadaslightlydifferenttakeonthesector。

WiththereportingseasonforUKbankingstockssoonsettocommencesoon,JeremyBatstone-Carrlooksathowfinancialshavebeenaffectedbythesummerseventsandwhichtwoheremainspositiveon,here:ThetwoUKbanksthatstilllookgood

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