The Definition of a Recession
The S&P 500 (even with yesterday's huge bump) is still down about 12% from the early July highs.
But... let's back up. What is a recession? Is it characterized by a drop in the stock market? Should it be?
If a bunch of wealthy corporations get wealthier, and a your 401(k) account gets a bump, does that mean we're NOT in a recession?
The most depressing and hilarious article I’ve read all year
I know - I'm supposed to talk about gold or oil or coal again today. That's what you were promised as a reader of this publication.
I hope you'll forgive me, but today's missive has little to do with commodities.
I read an article that just can not go unmentioned. It's either the funniest and best written nod to George Orwell I've ever seen, or it's a frightening representation of the world we live in.
Before I go on, you should take a look for yourself - it truly must be seen to be believed.
The most important single factor for your investments
The most important thing for your investments isn't gold or the dollar, or the consumer price index or Treasuries or even the stock market.
It's energy. More specifically, it's crude oil. Oil absolutely dwarfs everything else.
As I wrote back on June 3:
"...in April of this year, a new daily volume record was set on the Intercontinental Exchange (ICE) for West Texas Intermediate Crude (WTIC) contracts - with an astounding mark of 464,381 contracts traded in just that one day. Each contract trades 1,000 barrels of oil.
With oil prices around $84 that day, each contract was worth about $84,000. So, it means that over $38 billion worth of oil contracts traded hands in that one day alone.
What to look for in gold investments TODAY
I'm going to write today's issue under the rash assumption that we're already experiencing a double dip recession. I think such a recession has important implications for gold and gold investments, for the simple fact that severe downward trends in the broad market usually have deleterious effects on every asset class - at least for the short term.
If it happens again, we'll get another great opportunity to load up on gold stocks as they get temporarily dragged to hell by the broad market.
So, before I tell you what to look for, here's my brief reasoning for why I think we're in a double-dip recession.
Q2 of 2010 is in the books, and the broad market is down nearly 12% over that 3 month period. I'm using the S&P 500 as a proxy for GDP. Typically, stocks in the S&P 500 are a leading indicator for GDP, so it's not a perfect system, but it's good enough for today's discussion.
I know - the usual definition of a recession is: "a decline in GDP for two consecutive quarters" - but if you look at a chart of the S&P 500 over the past two quarters, that definition is small consolation:
