Double Dips Are Rare

The economic data do not reinforce the idea of a double dip recession,says Tony Crescenzi,Senior Strategist and Portfolio Manager at PIMCO.Yet sustainability is in question.Job creation doesn't match labor force growth today.Double dip recessions are rare,however;there have only been three in the past 150 years.
It really probably emanates from the sovereign debt crisis:if Europe stays stable,perhaps the escape velocity for growth will be reached.There is income growth at this time.The money market has improved and then moved sideways since May.Hopefully there will be clarity and transparency in Europe on the bank stress tests.In the meantime,consider Treasury securities as insurance for portfolios,Mr.Crescenzi suggests.
Apart from another recession,a slow growth environment is quite harmful in itself,hindering employment prospects and straining all levels of government.In that scenario,tax revenues may not recover fast enough to avert fiscal train wrecks.

Early Edition:Libor's Rise In Perspective

Libor,the London Interbank Offered Rate,the interest rate banks charge each other for loans,has been creeping up.This signifies a tightening of credit.On the other hand,it's nowhere near where it was at the height of the financial crisis.It was as high as 4.0 then;by last Friday,it was only at 0.54.Still,a decline in the rate would be more reassuring than an increase.Libor was at 0.25 three months ago.Now it is at its highest since July of 2009.
What's behind the rise in Libor is the European banks depositing in the European Central Bank rather than in one another-for safety.Money markets have been avoiding European banks as well.This decline of confidence in light of the Euro Zone debt problem is pushing Libor back up.The cost of money is going up as investors lessen risk.An unchecked rise could eventually result in corporate cutbacks again,bringing on another recession.

A Strategy for Today

I am very underweight equities-below 30%,Mohamed El-Erian revealed.I am increasing as the rally unfolds.Fade the strong rallies;buy the strong sell-offs.It's hard to do,taking you out of your comfort zone.There are four contracting sectors now:housing;finance;the consumer;and the rest of the world.At least two of the four must recover in order to be considered a turnaround.Now people are trying to get up.It's gonna be sequential.The federal programs are getting traction,but it's early.Commercial paper,money markets and mortgages are getting better,but it's a long lag between conception and effectiveness,Mr.El-Erian believes.