Harrison: We Could Be In for a Double-Dip Recession

Your Real Vision Daily Briefing for June 9, 2020

Ash Bennington joins Ed Harrison to discuss market sentiment in light of NBER’s recent announcement that the U.S. slid into recession in February.

  • Market participants are betting that liquidity will mitigate the credit cycle’s severity, but this could be a miscalculation that catches investors off guard, leading to a “double-dip” recession.
  • Today’s markets resemble the dot-com era where trading is based on pure momentum and not fundamentals.
  • Lack of visibility into earnings is enabling the irrational optimism but come Q3 and Q4, reality may set in and the excess will be taken off.

GET REAL VISION'S FREE DAILY BRIEFING DELIVERED DIRECTLY TO YOUR INBOX EVERY DAY AFTER MARKETS CLOSE

Get the latest information as we analyze the first phase of our new global economy and discuss what we think is to come.

Liquidity has been so massive that it will likely be positive for stocks and dive the economy forward through 2020, Ed Harrison told Real Vision during today’s Daily Briefing.

However, the influx of retail investors who are using the market as a betting vehicle instead of an investing vehicle may eventually face the rude awakening that we’re in the midst of a negative economic scenario, he said.

The durable destruction in demand, evident in behavior shifts and altered consumption patterns, will drive many to bankruptcy and make credit cycle more severe. This structural drag on the real economy could cause a double dip recession as we move into the end of the stimulus.

Harrison said that the current climate is reminiscent of the markets during the 2000 Internet bubble, where we see a narrowing of performance and irrational optimism as markets trade on pure momentum instead of fundamentals. In this environment, no amount of contortions can justify the price movements, which is just not sustainable over the long term.

Harrison thinks the reopening was a trigger event for outperformance but cautioned that there are headwinds. When earnings visibility comes back into the picture in Q3, Q4, and 2021, we’ll see the downside, he said, and retail investors could get hit really hard in the fallout.

Lack of visibility into earnings has been giving companies the opportunity to see these pops, but once earnings come to the fore that’s when people will realize they’ve been overly optimistic and need to sell, Harrison said.