People keep talking about a “double dip” recession and how catastrophic that would be for the world, and I have two problems with this notion.
First, who came up with “double dip”? The only worse term I could think of is… “skinny dip”. Double dip sounds disgusting - in fact, the word “dip” is disgusting. But, I suppose I digress…
My second qualm with the idea of a second recession is that I do believe that many of the developed world’s economies are already in recession. The CAC-40 index, France’s primary stock market gauge, is near 2008 lows. Growth in Europe and America has flattened out, and sectors such as housing and employment are showing negative growth suddenly. At this point, the world’s big shots are selling their stocks and bundling up for what could be a steep plunge in equity prices. If you are one to take stock advice from an undergraduate, I would advise you to hold on to your seat because you have a wild ride ahead. As panicky as it may sound, I would sell my stocks at this point. Nay, I probably would have sold them just a bit earlier - honestly, I’ve been anticipating a Greek default for months. Right then, once you sell your stocks, wait for Greece to walk out on its debts. European markets will plunge, while world markets will sag under the trauma of this event. This shall be the dreaded trough that will drain the colour in investors’ cheeks and send skittish old men running for bonds and treasuries. I don’t blame you all. I’m not invested in the stock market - I don’t have any money. But if I was I, I would be shaking in my boots right now.
Don’t worry, though. In fact, this is a great opportunity to make some money in the long run - if you have guts. After the Greek default, competitive industries in economically-healthy countries will get right back to work. Mexico is forecast to lose just about a percentage point of GDP growth in 2011, from 5.5 to 4.4 (World Bank). Brazil, a country facing alarming inflows of hot money, will suffer a more significant decline, from 7.5% in 2010 to 4.2% in 2011. Bangladesh, South Africa, and Angola are still poised to see GDP growth in the years to come.
I will grant that these forecasts are optimistic at this point. Growth may slump more than is forecast, especially in high-income economies. However, keep in mind that I am looking at this from a stock market point of view. If stocks in developing countries are artificially low, they will naturally rebound quickly. This happened after the 2008 financial crisis, and I am proud to say that I capitalised on the opportunity - albeit with virtual money. I invested in what is, in fact, a Spanish stock. Spain’s economy has been in the toilet since the implosion of that country’s property bubble, so there is no hope for companies to be posting meaningful growth domestically. Téléfonica, SA is a global telecommunications giant, though. With enormous operations in Latin America, this company was clearly exploiting growth in the developing world. All of the numbers coming out of Telefonica were encouraging; strong capital flows, aggressive investment, astounding earnings per share - in short, this company was significantly under-valued. I promptly bought in, and over about three months, Telefonica yielded about 30% on my investment.
This is just one example of how the aftermath of a recession is prime-time for buying. Isn’t it common knowledge? Apparently, people are scared out of their minds by volatile markets. I suppose I understand. If I had money, I would like to know that it will still be there from day to day. I thought I would try to lend a calming hand to all of the stressed-out investors out there, though. As much as I feel your pain, now is the time to be bold and brave. Stick it out, and you may have a handsome pile of cash for your sleepless nights.