Recession clouds darken 2007 outlook

Long time sine I wrote the last lines of my last article... consider it a X-mas break. Now we'r back on track, and this time is to write a little bit about U.S. slowdown and how it can turn into recession.

Most economists expect slower growth and no downturn, but some recent signals are flashing red.

The economy is stumbling at the end of 2006, setting off alarm bells that growth might not just slow next year but that the nation could tumble into a recession.

The recent trend of slower growth is not expected to be reversed any time soon. Home building and the broader real estate market are both already in a recession by most accounts and are expected to stay there well into next year. Manufacturing could soon follow.

While most traders are still expecting the economy to avoid a full-blown downturn next year, many of us say (at least) the odds of a recession have risen.

Even the more optimistic analysts are looking for a slowdown in growth in gross domestic product (GDP) to between 2 and 3 percent next year, from 3 percent or better this year.

Many don't think there'll be a recession, but at least you have to have to have in mind, as we do, that the risks have risen.

Some of the Christmas spending wasn't as strong as anyone'd hope, and I think we have not reached the bottom in housing yet.

With the yield curve in the shape it is now, the economy is more susceptible to shocks. For example, if oil went to $80 a barrel, or there was a sharp drop in the dollar, the U.S. could fall into recession, in my opinion with no chnce of recovery.

Not all declines in manufacturing lead to recession. But if the economy is going to go down, it's going to be led by manufacturing and construction.

On the other hand, others look at continued strength in consumer spending, even at the end of a year that saw record energy prices, coupled with low unemployment and rising exports and they say the chance of a recession next year is pretty slim.

So as I usually say, now it's your turn to look at this situation and think. You can always add some feedback to the article... hope you do!!

Till my next post.

Happy New Year and my best wishes.

Cheers to you all.

The new days: the boost of Ethanol

You don't need a crystal ball to see a ramp-up in government support for ethanol coming down the pike. Just look at who's in charge of next year's doozy of a farm bill.

The reauthorization of the massive 2002 bill is likely to dominate the next session of Congress, and it will have a whole section set aside just for energy.

Already, ethanol producers benefit from a constellation of government supports, including a tariff on imported ethanol, subsidies for growing corn and blending the fuel, crop insurance and a guaranteed market: The Energy Act of 2005 required refiners to ramp up ethanol use from 2.5 billion gallons last year to 7.5 billion gallons by 2012.

Now, the farm bill may lavish even more on the industry.

Turning the farm bill into a bonanza for ethanol and other biofuels is smart politics for the Democrats, who would be wise to court voters in red states if they want to hold onto Congress. It will also garner the support of Republican lawmakers from farm states and President George W. Bush, who seem equally glossy-eyed over biofuels.
But there will be brush-back from places that don't have a stake in ethanol, and this is where the refining industry will focus its influence.

A hike of the blending subsidy, currently set at 51 cents per gallon of ethanol, or any new support for ethanol producers would be fair game. Environmentalists, for one, are eager to see ethanol plants, which are powered on natural gas or coal, switch to renewables such as wind.

With the Iraq War and entitlements busting the budget, it seems far-fetched that such a windfall would go to an industry that has already gotten so much. But, as any ethanol booster will tell you, Wall Street's support of ethanol would dry up in a flash without all the government support.