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Another global recession likely to hit as early as 2012 but governments will be helpless, financial experts say

Wednesday, July 28, 2010
Opalesque Industry Update – A new round of global economic recession is likely to hit soon but governments around the world may not be able to raise bailout plans, some leading financial experts and hedge fund managers believe.

Jim Rogers, chairman of Rogers Holdings, told CNBC on Tuesday that the U.S. economy had been experiencing a recession every four to six years “since the beginning of time.” "When the next one comes, the world is going to be in a worse shape because it has shot all its bullets. Is Mr. Bernanke going to print more money than he already has? No, the world would run out of trees," Rogers declared.

The assessment given by Robert Shiller, professor of economic at Yale University and co-developer of Standard and Poor's S&P/Case-Shiller home price indexes in an interview with Reuters Insider the same day was similar. Shiller opined that while he was uncertain where home prices may be headed, he was confident the economy was on a precarious path.

"For me a double-dip is another recession before we've healed from this recession ... The probability of that kind of double-dip is more than 50 percent. I actually expect it,” Shiller said.

It is only a question of when
Indeed, several respected hedge funds and financial experts have agreed that a global recession is looming. The predictions, however, differ on the timing.

According to Tony Tan, deputy chairman of GIC, a global investment management company that manages Singapore's foreign reserves, risk of shocks may trigger world recession “sooner than expected.” Tan said last week that risks to the global recovery had increased due to Europe's debt turmoil, continued deleveraging in the U.S. and protectionist pressures.

In its June monthly market commentary released last week, U.K.-based listed hedge fund Brevan Howard forecasted a looming double-dip recession in the U.S. as risk appetite faded further last month in response to domestic and foreign threats expansion. The report added that investors are questioning the sustainability of the U.S. economic recovery which was stalled due to consumption spending, housing roll over, and the downshift in the labor market.

A research paper released by Man Group, one of the largest hedge fund groups in the world, yesterday warned of a bond crisis within the next three and five years if structural issues in the economy were not resolved. In its report entitled: ”Japanization of the West? A closer look at the looming global debt problem”, Man Group said that government debt exploded due to stimulus packages in the most advanced economies (See Opalesque Exclusive: here).

Hedge funds prepare for recession
Leading hedge funds across the globe have started to position their hedge funds in anticipation for a double-dip recession, the Financial Times reported last month as many of these funds have observed a major shift in the macro-economic environment over the last month.

Part of their preparation is to dramatically de-risk their portfolios or reposition their assets more cautiously, particularly after a disastrous performance in May.

Many large hedge funds try to protect their portfolios while taking a cautious stance on the global financial developments. Global hedge fund firm BlackRock, with $3.15tln in AuM, said it is taking a conservative positive outlook while acknowledging a high level of uncertainty (See Opalesque Exclusive: here).

Some remains optimistic
Although there is one hedge fund manager who does not believe in the “double-dip recession scenario”. Barton Biggs, head of New York-based hedge fund firm Traxis Partners, told Bloomberg in a radio interview early this week, that he remains confident in the U.S. economy and does not believe it is headed for a double-dip recession. In fact, Biggs said he took his fund to a 75% long position, from 35% long just three weeks ago.

“The odds of the world slumping into a significant slowdown have diminished,” he said.

Also yesterday, TPG-Axon Capital’s founder Dinakar Singh, who overseas $9bn in AuM, said he believes that U.S. companies are in a “much better shape” than the market is pricing and sees growth opportunities even if the economy slips into a "double dip" recession.

"I think people are right to worry about the fear ... but I think they're wrong in ignoring that there's a ton of upside potential as well," the hedge fund manager said.
- Precy Dumlao

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