Hardly a day goes by that I don't hear a discussion or read an article about "the" forthcoming double-dip recession and today was no exception. The market tanked on more bad economic news and every self-appointed expert on the history of the Depression alleges to see striking similarities with today's political, economic and financial conditions. That may be so, but I do not believe a double-dip recession is likely to happen.

Yes, the economy is slowing down and even the Federal Reserve has lowered its forecast of economic growth. Unemployment is still near 10%, the housing market is still weak, retail sales have slipped for two consecutive months and consumer sentiment is sinking fast. But inflation is benign, interest rates are extraordinarily low and corporate earnings are rising. This combination of factors is bullish, very bullish, for stock prices.

Supporters of the double-dip theory can talk all they want about government debt, slowing consumer spending, the oil spill, LeBron James or whatever. It doesn't drive the economy like inflation, interest rates and earnings do. So why is the economy slowing?

The economy is slowing because small business owners are not spending money and creating jobs as they have done in the past. They are concerned about the political turmoil within the country and uncertain of the future. Those who need the money to grow, can't get it. Those who can get the money, don't want it. Those who have it, won't spend it. The traditional effect low inflation and interest rates have on stimulating the economy will be inhibited until government policies become more business friendly. So where do we go from here?

It is my contention that regardless of government policies, a double-dip recession will not occur as long as inflation remains benign, interest rates stay low and corporate earnings continue to rise. The Fed has repeatedly said it will keep interest rates low as long as it takes to keep the economy growing. That's great, but it may not be possible. They can control interest rates, but they cannot control inflation.

If inflation turns into deflation, the economy will shrink. If inflation takes off, the Fed will be forced into raising interest rates. When that happens, a double-dip recession is a virtual certainty. So it all depends upon what inflation does. It's The Wildcard.

MOVING TO THE SIDELINES.
I hate to say this, but it appears that we have gotten caught within the jaws of another Wicked Wedge. What does this mean and what to do now? Mr. Bryan Barnes, Consultant and Instructor, will explain what it all means and what to do now. So visit the VectorVest University to see this week's insightful "Strategy of the Week" presentation: "Moving to the Sidelines."