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Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School

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A double dip – maybe, but more of a BLIP

The double dip question has increased in intensity over the past few months. The fragile UK recovery and the stuttering US recovery (combined with Obama’s decreasing authority) have served to undermine confidence and drive investors away from equities to treasury bonds, gold and other safer havens. This, despite the fact that corporations are generally performing well and certainly far better than a year ago. Even the airline industry looks healthier. Cash piles are also being amassed in the corporations. The cash pile in US large businesses is around $2 trillion – enough to effectively wipe out the US national debt.

So why might we get a second dip?

Consumer demand remains moderate and many are still reducing debt and those that have cut personal debt are being more cautious – conspicuous consumption is less fashionable now. In the US, recovery has brought about a sharp increase in imports and a very unhealthy negative trade balance  in recent quarters.  Confidence in the government’s ability to manage the recovery is shaky and Bernanke’s open cautiousness is not sitting well with the markets.

In the UK we have above expected inflation and very low growth – the impact of food prices continues and the VAT increase is looming in January. Before that we will learn of the scale and scope of the government spending cuts. On top of this, China’s boom is also slowing.

None of these things worry me except for one – it all adds up to a climate of self fulfilling prophecy. Every one becomes a little more cautious and as a result most indicators go the wrong way.

In my view this is likely, but not certain to cause a second dip within the next three quarters. But as I have always said, the recovery will be bumpy (some call it choppy) and so we must not read too much into a new negative trend. It is to be expected and it will quickly revert to the more positive trends.

The seismic shock of the crunch is merely being followed by tremors and the odd bit of falling masonry!


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