Prepare for a US Slowdown

Feb 2, 2013


- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
Earlier this week, US GDP figures were released showing that the US economy contracted at an annualized rate of 0.1% in the last three months of 2012. Prior to that, the US economy grew every quarter since the recession ended in 2009. The primary culprit for the fall in growth is not surprising; it is mostly due to falls in government spending.

In fact, were it not for falls in government spending, the economy would have grown. Underlying private sector growth remained fairly stable. For example, the US job reports continue be strong, as witnessed by the most recent gain. Nonetheless, there is a very strong likelihood that the US economy will continue to slowdown.

Last Chance to grab StockSelect at more than 75% off!

This is it...

Over the last one month or so during which we ran our "Once-in-a-decade" offer for StockSelect, over 5,000 members have made use of the offer and benefitted from the instant savings.

And we hope and wish that all of them benefit greatly from StockSelect too.

But you'll understand that we can't keep giving away StockSelect for just Rs 1,200 for ever. It's practically and financially not possible for us.

So we will end our "Once-in-a-decade" offer for StockSelect PERMANENTLY at midnight today.

Which means you have only a few hours more to sign up before this offer closes...

You already know all the reasons why you should grab this offer. So go ahead and do that now!

This is your LAST CHANCE to grab this offer...

Click here for full details...

The reason is again government spending. Due to the high budget deficits, government spending is going to cut growth significantly throughout this year. Any drop in government spending leads to falling growth, even if the private sector remains strong.

In addition, taxes rose in the US at the start of 2013 (in particular, the payroll tax cut expired), meaning that consumer spending is likely to fall too. Assuming that this fiscal contraction continues over the course of the next year, the US may end up back in recession, or with growth close to zero.

What is interesting about this situation is that the stock market seems to care less. In fact, markets have remained strong despite this recent fall in growth. The reason is that the fall in growth is due to falls in government spending, while the private sector remains relatively strong.

Since the stock market reflects corporate earnings, the market movements reflect private sector activity more than overall economic activity. Chances are, at some point the stock markets will suffer, simply because private sector activity will decline as a result of the GDP falls.

This will impact Indian markets too, given the high stock market correlations. Furthermore, foreign inflows will suffer, meaning that the rupee is likely to weaken. Now would be a good time to position our portfolios to take into account a likely US slowdown.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "Prepare for a US Slowdown". Click here!

1 Responses to "Prepare for a US Slowdown"

santosh arora

Feb 2, 2013

Dear mr Asad Dossani, Author,
The Lucrative Derivative Report
thanks. May i request u to have more comments on indian market, Indian companies, Indian cooperates, Indian govt, Indian brokers, Illigaly transfer of share with the help of banks & brokers, illigal practises by hired companies by cooperates of India, fly night co with the help SEBI with faulty management, Indian banks & Govt companies like CIDCO in New Mumbai
please use expertise with ur flourshing mind of to do some thing to humans which r in billions arround u in India. Leave the USA for its own fate.
wish u all the best

Like (2)
  
Equitymaster requests your view! Post a comment on "Prepare for a US Slowdown". Click here!