Double dip recession or just very slow growth?

Stock markets around the world had a very bad week. Everyone it seems is expecting a global recession and the accompanying deflation.

In a truly deflationary environment, all assets will suffer and see their prices fall. Equities and precious metals were all sold down across the board, therefore.

However, reading an article in Bloomberg, it is interesting to note that in the USA, "railroads shipments are the highest in almost three years." This defies concerns of an impending double dip recession.

Art Hatfield, a transportation analyst in Memphis, Tennessee, at Morgan Keegan & Co: “We’re not seeing declines in rail volumes that are synonymous with a recession... We remain in a slow growth environment.”
Read article: here.

If we were to look at the Baltic Dry Index (BDI), we see it rising in recent weeks and I wrote a piece on whether it could be time to load up on shares of Courage Marine again not too long ago.

The suggestion is that there is an increase in demand for shipping capacity and because "dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, ... the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity." Source: Wikipedia.

So, is there going to be a double dip recession after all? There are analysts who believe that a recession is a given and some who believe that Europe will get its act together and a recession will be averted. With such conflicting signs, at this point in time, however, it is just a sea of opinions.

Personally, I do not believe in being overly bullish or overly bearish. I believe in being pragmatic. Putting all our chips on a single bet either way could be quite disastrous if we should be proven wrong.

What is being pragmatic? Knowing what the current conditions are, what kind of investments are likely to do better and act accordingly. It is about wealth preservation, if not growth.

Related posts:
1. Courage Marine: Added at 10.5c a share.
2. Should we be staying invested or in cash?
3. Sleep well at night with a plan.
4. Why do I not panic?

Japanese Yen at 15 year high.

I have been following news reporting on the strength of the Japanese Yen as well as the actions taken by Prime Minister Naoto Kan's team.  I am, naturally, very interested in economic and financial news from the Land of the Rising Sun as I am vested in Saizen REIT.

I applaud Bank of Japan's (BOJ) decision to cut its interest rate to zero recently.  This would, in theory, make credit cheaper and more readily available in the country. This would encourage borrowing and could possibly give the economy a shot in the arm. However, taking note that the interest rate was near zero to begin with (at 0.1%), cutting its rate to zero could have limited positive effects.

For investors in Saizen REIT, a strong Yen is good because we receive income distributions in S$. However, a strong Yen is not good for Japan as, being an exporting economy, a strong Yen reduces Japanese companies' competitiveness. As Japanese MNCs repatriate earnings back to Japan, a stronger Yen reduces the value of repatriated earnings. A stronger Yen could also propagate the deflationary spiral which Japan is suffering from.

While, as investors in Saizen REIT, we want to have a strong Japanese Yen, we want it strong enough to give us good returns (i.e. an attractive yield on our investment) but we do not want it so strong as to jeopardise the well being of the Japanese economy as that would, in time, have negative ramifications for Japanese residential real estate.

Latest update:
The dollar was trading at 82.36 yen in Tokyo midday.
08 October 2010 1231 hrs, CNA.

Related post:
Japan's debt issue and Saizen REIT.