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Two Ways To Play: Merrill's Recession Warning


Strengthen your portfolio in good times and bad.

Bloomberg reports analysts at Merrill Lynch are warning stocks will likely fall further because the U.S. is facing a worse-than-average recession.

With record food prices and surging fuel costs, Merrill's sector strategist Brian Belski warned that it isn't your average recession. "We would urge caution for investors attempting to call the bottom in the current environment," he said.

Belski said the S&P 500 index has never bottomed within the first three months of a contraction. David Rosenberg, Merrill's chief North American economist, added that the 19-month low experienced in March was only about two and a half months into the current contraction.

Given that the U.S. economy has always relied heavily upon the consumer, the analysts believe the recession will be worse than the typical slowdown. Belski warned that investors shouldn't be fooled by the S&P 500's 12% gain from the March low to May 19, because it doesn't indicate a turnaround in the economy.

See Professor Bennet Sedacca's Financial Tsunami Ahead.

From the Bull Pen: With gold futures dropping, and the miners rallying, did gold stocks give us a hint today? Professor Lewis has mentioned that these gold stocks will likely outperform the metal. Options for bulls may include GoldCorp (GG), Newmont Mining (NEM), or the Gold Miners ETF (GDX).

From the Bear Cave: Will the consumers be buying General Motors' (GM) products in such an environment? The stock is trading at multi-decade lows, and today's news of the company practically giving away their trucks at zero-percent financing for six years possibly showed its desperation.
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