Double dip fears provide shrewd investors with some prime opportunities – 1438

6th September 2010

"The US has run out of bullets," according to Nouriel Roubini, professor at New York University in The Daily Telegraph

"More quantitative easing (bond purchases) by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5% yet credit spreads are widening again. Monetary policy can boost liquidity but it can't deal with solvency problems.

"We have reached stall speed. Any shock at this point can tip you back into recession. With interbank spreads rising, you can get a vicious circle like 2008-2009.

"There is a 40% chance of double dip recession in the US, and worse in Japan. Even if it is not technically a recession it will feel like it," he adds.

When America sneezes the UK catches a cold

It makes for grim reading. Especially when you know that what happens stateside, tends to have a knock-on effect over here. So the big question is, will we avoid another recession in the UK?

Craig Heron, manager of multi-manager funds at Henderson Global Investors, believes that the global economy is likely to avoid recession, but is in the process of undergoing a significant slowdown led by the US. 

"This has prompted the US Federal Reserve to downgrade their forecasts and to maintain the monetary supply by reinvesting the proceeds from its last round of QE into Treasuries."

He says that this could be the forerunner to further QE in the US, which may be enough to prevent the American economy from going into recession.

Heron also thinks the global economy may soon be bolstered by the Chinese authorities relaxing monetary controls. These were introduced earlier in the year to keep inflation in check.

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