Arnott: Odds Of Double-Dip Recession Better Than 50%

Posted By on May 5, 2010

Research Affiliates chairman, along with BlackRock’s Dennis Stattman, paint a gloomy picture of U.S. economy; prepare clients ‘to weather the storm’.   The U.S. economy could well be headed for another downturn  and advisers should be helping clients find opportunities overseas and in alternative-asset classes, two well-known investment managers said Tuesday.  Our basic problem as a nation is that we’re essentially consuming beyond our means, Mr. Stattman said. He added that U.S. investors are living in an artificial world of zero-interest rates.  Both investment managers were stark in their criticism of the world’s largest economy. Both pointed to America’s crippling debt, its dwindling labor force, and the sizable imbalance between consumption and production.
 
 By Hilary Johnson

May 5, 2010 2:45 pm ET

The U.S. economy could well be headed for another downturn  and advisers should be helping clients find opportunities overseas and in alternative-asset classes, two well-known investment managers said Tuesday.

Speaking at the InvestmentNews Retirement Income Summit in Chicago, Robert Arnott, chairman of Research Affiliates, and Dennis Stattman, managing director and senior portfolio manager of the BlackRock Global Allocation Fund, sounded a clear warning about America’s economic prospects.

“There’s a better than 50% chance that we will see a second dip in the economy, Mr. Arnott cautioned. The market is not pricing that in.

Both investment managers were stark in their criticism of the world’s largest economy. Both pointed to America’s crippling debt, its dwindling labor force, and the sizable imbalance between consumption and production.

“Our basic problem as a nation is that we’re essentially consuming beyond our means, Mr. Stattman said. We’re not producing enough with respect to what we spend. Until we get production moving up in line with consumption, we are building a bigger and bigger problem.

He added that U.S. investors are living in an artificial world of zero-interest rates. It’s pulling down the short end and long end of the yield curve, and keeping interest rates lower than they would otherwise be. It’s probably pushing stock prices higher than they otherwise would be. This leaves markets vulnerable to a correction.

“The opportunity to buy commodities and the opportunity to buy emerging-markets stock and bonds could be a generational opportunity, he said.

Both men see an austere future for retirees, especially those who haven’t saved enough, and who limited themselves to more traditional investments.

Mr. Arnott said advisers need to convince clients to ratchet down return expectations to reasonable levels and boost savings and investments.

That way, he said, they can be prepared to weather the storm.

http://www.investmentnews.com/article/20100505/FREE/100509949/-1/INDaily01

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