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 Ray Unger: The recession is coming, the recession is coming!

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Registration date : 2007-07-01

PostSubject: Ray Unger: The recession is coming, the recession is coming!   Fri Sep 14, 2007 11:30 pm

Ray Unger: The recession is coming, the recession is coming!

9/14/2007 8:52 am


If you took a long weekend last week you
missed the big news -- the recession is coming!

Last Friday the Labor Department announced
that 4,000 jobs were lost in August, the first such decline in four
years, and a shocking reversal from the expected gain of 115,000
jobs. On cue, the Dow Jones industrial average dropped like a
stone, losing 249.97 points, or 1.9 percent of its value.

I was working at home on Friday and watched
CNBC's business TV show "Squawk Box" and saw economist after
economist, along with a number of investment strategists, expound
on how this momentous change signaled an "imminent" recession.

Those who have read past columns probably
think we're going to devote the next 600 words to why investors
shouldn't worry and just ride out the impending storm. Well, guess
what, we're not going to do that. Instead, we think the events of
the last few days warrant a full-scale examination of one's
portfolio for possible changes.

But before that, let's talk about the
recession. Is it imminent? You bet.

Los Angeles-based money manager TCW's chief
global strategist Komal Sri-Kumar used that term in his current
forecast. Of course, eventually he'll be right because we haven't
taken the cycle out of the business cycle.

So you will be seeing, reading and hearing a
lot more about that malevolent R word.

Some, like "Mad Money's" Jim Cramer, have
been ranting wildly that the Federal Reserve has been starving the
economy of money. He thinks we're heading into an economic
Armageddon.

Interesting to note that, according to Don
Rissmiller of New York-based economic consulting firm Strategas,
the Federal Reserve's Open Market Policy Committee has already
sprung into action. Over the last four weeks it's injected some
$183 billion into the economy via what's called "repo operations."
In effect, they've increased a key money supply measure by an
annual rate of 19 percent. That's a big-time increase. Maybe Cramer
struck a nerve. Strategas, however, puts the odds of recession at
less than 50 percent. Previously, those odds were much lower.

At this stage of the game, however, such odds
are almost meaningless.

Perception is reality, as they say, and a
recession is now baked into the market. In fact, one of the "Squawk
Box" traders dubbed Monday's initial 160-point burst in the Dow
Jones average as the "recession rally."

In any event, it's been six years since the
last recession -- from March to November 2001, according the
National Bureau of Economic Research -- so talk of recession is
timely.

What's different from past recessions is the
current one's visibility and our opportunity to prepare for it.
Yes, the market is down from its peak but the Dow Jones average is
still up some 7 percent for the year. So the stock market is
actually allowing us to make adjustments without the usual
nerve-wracking panic selling that usually accompanies such
events.

Past recessions have generally struck the
profit and loss statements of Corporate America. In the 2001
recession corporate profits collapsed.

Michael Metz, chief investment strategist for
New York-based Oppenheimer and Co., told a national audience on
last Friday's "Squawk Box" that domestic sales and profits are
already in decline, and as a result, he's very pessimistic about
the economy and stock market. But he also acknowledged that
overseas sales and profits are still healthy and that overall
profits will not be hit like they were in 2001.

Further, he agreed that corporations are at
record high levels of liquidity -- cash and equivalents now make up
some 9 percent of total assets.

In any event, the recession is coming and
investors should be prepared for more bad economic news ahead.
Investors, therefore, need to examine their risk tolerance --
recessions mean volatile market conditions and possible declines --
and sell a portion of their risky assets. How much? That depends on
your sleep factor. If you could sleep with 25 percent of your
assets in the market during 2000-2002 bear market, that's where you
should be.

Am I predicting another three-year bear
market like 2000-2002? No. The recession of 2007 may turn out like
the "panic" that occurred during the 1966 comedy movie, "The
Russians are Coming, the Russians are Coming" starring Carl Reiner,
Alan Arkin and Jonathan Winters. Yes, a Russian submarine did run
aground off the coast of a small town in Massachusetts, but the
"invasion" was little more than a few sailors who came ashore
asking for help.

This well telegraphed and highly visible
recession may well turn out to be just as uneventful.

Ray Unger is chairman of Unger Capital
Management in Madison. He can be reached at 833-9400; e-mail:
rayu@ungercap.com
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