Fed Chair comments on recession: This could be a 3-6 year down-turn

We have seen very strong attempts at stock market bottom buying. The bulls however have failed to get the market to do anything more than just go sideways.

The daily percentage changes sound big to the upside when they happen, but this is a relativity game, and on that basis the rallies have remained modest to say the least.

In the background, the true fundamental outlook continues to deteriorate badly.

We have seen US Manufacturing Production contract, Chicago Fed Economic Activity Index crash, and we already have consumer sentiment at GFC panic levels. This is just the USA. Around the world, virtually all economic indications are moderating, and it could be said tipping over across Europe.

China is already in a sustained 'muddle along' phase. Europe is nose diving toward recession as Germany has already quietly begun rationing of energy measures. The USA is not only at risk of the current slowing and recession, which we were among the first in the world to forecast, but is showing signs of developing yet another housing bubble bursting situation.

Property prices in the US are immediately in the final stages of that last euphoric push higher, before beginning to fall back in on themselves. Once a peak in home prices becomes recognised, this will add yet another considerable layer to consumer stress.

Our Recession forecasts remains far more imminent than most of the commentaries out there.

Speaking of which, the Fed Chair himself admitted a recession is possible. That he followed up with the remarks that he did not feel it was likely, is not reassuring. To the contrary it only goes to highlight that the Fed still does not understand the contemporary economic forces at play, and therefore will too aggressively continue to raise the Fed Funds Rate. The Fed’s position on the economy and rates represents a truly diabolical outcome for the US consumer not too much further down the road.

It gets much worse, than the other people who are saying this, that it will get worse, before it gets better. The angle most economists are not garnering is that this has the potential to be a 3-6 year economic slow-down period with a correspondingly long equity market correction.

The strong suggestion here is to continue to play defence. Doing so, will empower your future investment potential.

Many investors have not yet discovered that you can actually make as much money in a bear market, as they did in the prior bull market. This is an awareness that is likely to grow however. Leaving fund managers either having to shift to cash voluntarily, or face a run of withdrawals from their funds.