Nicholas Colas, the chief market strategist at the technology and trading firm ConvergEx Group, has a growing following on Wall Street as an outside-the-box analyst who’s not afraid to call it like he sees it. In his daily commentaries he’s focused a lot lately on the difficulty of finding noncorrelated assets, save, perhaps, for precious metals. But when IndexUniverse.com Managing Editor Olivier Ludwig caught up with him recently, the topic of their conversation was what’s on everyone’s mind these days: the possibility of a double-dip recession. Colas’ view: Things aren’t looking good for the economy at the moment, and the central bank’s policy challenges are substantial considering there’s no precedent for what Fed Chairman Ben Bernanke faces, expect perhaps Japan’s two-decade struggle with deflation.

Ludwig: Are you in the double-dip recession camp, or are you on the fence?

Colas: If I have to answer straight up, yes or no, I’d have to bias toward yes. Now, I don’t think it’s preordained as of yet, because we still do have a number of factors that are helping the economy, but there’s no doubt that the economic data has slowed. If you just look at the pace and cadence of economic data that are coming out, it certainly is looking a little bit worse and will probably be reconfirmed by the jobs data on Friday [Sept. 3]. So if we’re not through the worst of the negative incremental points on the economy, then that will make people more and more concerned about a double dip.

Ludwig: And when you talk about a double dip, I presume it would be something much less dramatic than what we lived through in 2008 and 2009?

Colas: I would certainly hope so, because that was driven by a very strong and very powerful financial crisis, and we don’t really have a follow-on crisis to worry about. So, no: It’s more a matter of showing negative GDP readings of -0.5 percent or -1 percent, and the current cadence would make you think it would happen in Q4 [2010] and Q1 [2011]. In other words, just enough to call it a recession, which is two sequential quarters of negative GDP growth, but nothing like the -5 or -6 percent we saw in the depths of the crisis.

Ludwig: When you do a pullback and look at the economic data, what is it that’s going on, or perhaps more fittingly, what’s not going on?

Colas: In the broadest macro sense, what’s not happening is incremental hiring. That’s what usually happens that begins to lift us out of recession. That’s the key problem. We’re not getting the sort of job growth we historically get. And that’s because employers are not yet confident enough to put incremental capital to work either in terms of buying new machinery or in terms of committing to hiring new employees or bringing back people who are working part time to a more full-time situation.

Ludwig: It seems like the animal spirits of the economy are really compromised no matter who you talk to, or am I overstating the headwinds the economy is now facing?

Colas: I think that’s fairly accurate. Confidence is missing both from the boardroom and the household, and you see it in all the data points you mentioned. People don’t want to spend and corporations look at their balance sheets and think: “Well I need to have a lot more cash than I used to because who knows when the next financial crisis will freeze my bank up.” And consumers are worried because obviously they’re either unemployed, underemployed or, in most cases, worried about their job. And, as a result, they want to maintain higher cash balances at the bank; they want to pay down debt; they want to feel more secure; and so you get this dull cadence of a modest economic recovery, but nothing like you usually get.

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