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Investors’ Most Crucial Decision – U.S. Recession Or Not?

Investors’ Most Crucial Decision – U.S. Recession Or Not?
by: Jeremy Robson December 7, 2011

I posted an article here on the likely course of the S&P 500 over the next 12 months. This post is intended to fill in the gaps from that article.

Europe is headed into recession (assuming that it is not already there). Europe comprises 49 nations, 27 in the E.U. and 17 in single currency. The single currency countries have no access to currency depreciation and so can only improve their competitiveness through internal devaluation. This is an extremely difficult economic change and involves the type of contraction to GDP we are presently seeing in Greece (-5% in 2011). However internal devaluation is now being taken up in Spain and Portugal and it will likely be encompassed by several other Eurozone countries. The countries outside the single currency can try and depreciate their currencies to improve their outlook, but can they all do it together, along with the US dollar and the Euro? There are presently no countries in Europe with a budget surplus (you could argue that Norway has one, with the gains to its sovereign wealth fund) so it is likely that all countries will be attempting austerity to reduce their debt levels in the near future. I can’t see any other result than a recession in Europe.

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