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NASDAQ’s Jill Malandrino Interviews Steve Blumenthal

Posted on 06.19.18 |

Last week, NASDAQ’s Global Market Reporter, Jill Malandrino, interviewed Steve Blumenthal at the Philadelphia Stock Exchange.

Steve discussed the Fed’s recent interest rate hike and its plans for additional increases this year. Steve urged caution, noting that 10 of the last 13 interest rate increase cycles have landed the US in recession. Click below for the full interview and potential moves investors can make to protect and preserve.

Source: NASDAQ

Categories: Equities, Fixed Income, Market Snapshot, Monetary Policy, Tactical Investment Strategies Tags: Federal Reserve, Interest Rates, recession, The Fed

Debt and Demographics – Two Powerful Ds

Posted on 10.02.17 |

From On My Radar (September 29, 2017):

The global economy continues to improve.  Recession probability for the U.S. remains minimal in the next six to nine months.  Europe’s economy is on better footing.  Risks persist, including North Korea, a sharp slowdown in China, fiscal dysfunction in the U.S. (e.g., tax cuts, fiscal spend), and growing protectionist risks to global trade.  Debt remains a significant headwind to growth as can be seen in this next chart.

Total Credit Market Debt-to-GDP

Here’s how to read the chart:

  • The chart looks at a number of growth factors.
  • For example, nominal GDP (before inflation is factored in) is lowest when Total Credit Market is above 318% Total Debt-to-GDP.
  • The blue line tracks the Total Debt-to-GDP ratio over time.
  • Note the upper dotted “high debt” line at 318%.
  • The yellow highlights show the growth when in the high debt zone.
  • Note how much better growth is when in the low debt zone. Also note that Total Debt-to-GDP peaked in late 2009 but remains high.

Source: Ned Davis Research

Also note the very last data box “Non-Financial Productivity.”  Overall GDP growth comes from the total number of workers multiplied by their collective productivity.  More workers producing more equals greater growth.  With aging demographics (typically people moving into their lower spending years… they have a lot of stuff and kids out of the house) and fewer workers… you can see the pressure it can put on growth.  And then with debt to be repaid, how much extra money is there to spend on things.  Growth suffers.

Two Ds: Debt and Demographics are headwinds to growth.  It is going to be hard for corporations to grow earnings much faster than GDP.  Some will, of course, but in the aggregate, it’s a headwind and we are seeing it consistently in the low growth GDP stats.  What we really need is Dedication, Determination, and Discipline.  Let’s tell that to our representatives in Washington.

READ MORE

Categories: Global Economy Tags: Debt, On My Radar, recession, Steve Blumenthal, The Fed

Recessions by Decades – Will This be the First Without One?

Posted on 09.11.17 |

Take a look at the recession data in the next chart.  Since 1930, there have been at least one or two recessions every decade.  Three of the post-1930 decades had just one recession and five of the decades had two recessions.  There have been zero recessions so far this current decade.

Will this be the first without recession?  I doubt it very much.  Often I share with you my favorite recession indicator signal charts.  There is no current sign of recession within the next six months.  I’ll keep you posted.  Here are the recessions by decade chart:

Source: Crestmont Research

Let’s continue to keep our eye on leading recession indicators.  The best is an inverted yield curve.  The equity market is also a good leading indicator.  No need to cover this today.

Categories: Global Economy, Tactical Investment Strategies Tags: On My Radar, recession, Stephen Blumenthal, Steve Blumenthal, Tactical Investing, Trade Signals, trend following

Charts of the Week

Posted on 03.21.17 |

I personally believe that recessions can be forecast in advance.  While no indicator is perfect, there are a few processes that have had a high correct signal rate in the past.

The reason that getting in front of recession is important is that it is during recessions that all the bad corrections tend to happen.  Bad as in -40% bad.

The other problem with recessions is that they are only known in hindsight.  It takes two quarters of negative GDP growth for the chief recession czars at the National Bureau of Economic Research to tell us when the recession actually started.

Following are three of my favorite leading “recession watch” indicator charts:

Chart 1: The Economy (no current sign of recession)

Here is how you read this chart:

  • Believe it or not, the stock market is a great leading indicator for the economy. It tends to turn down in advance of recession.
  • This process (bottom section of the chart) plots the S&P 500 Index (red line) and also a five-month smoothed moving average of the S&P 500.
  • The smoothed dotted line (green in lower section) represents the trend of the market’s prices.
  • When the red line (S&P 500 Index) drops below its smoothed moving average trend line (dotted green line) by 4.8% or more, a recession signal is generated.
  • When the red line rises above the dotted green line by 3.6% or more, a bullish signal is triggered for the economy.
  • The down arrows are the recession signals, up arrows are the expansion signals.
  • The gray vertical shaded lines mark the beginning and end of all the recessions since 1948.
  • In total, 79% of the signals have been correct though some have been a little early or just a little late. There were a few false signals but they didn’t keep you offsides for long.  All in all, in my opinion, pretty darn good.

0317.00

Chart 2: The Economy vs. the Employment Trends Index

Here is how you read the chart:

  • 100% correct signals
  • Down arrow – recession signal is generated when the Employment Trends Index drops by 4.8% from the most recent high watermark.
  • Up arrow – expansion signal is generated when the Employment Trends Index rises from its most recent low watermark by just 0.4%.
  • Data 1979 through 2/28/2017

0317.01

Chart 3: Global Recession Probability Model

Here is how you read the chart:

  • High global recession probability when the blue line is above the dotted red line.
  • Low global recession probability when the blue line is below the dotted green line (like today).
  • The box at the bottom right shows what happened. When above the dotted red line (the 70 level on the chart), recession occurred 81.46% of the time.  54% of the time (including the most recent high recession risk reading in 2016), a recession did not occur.  This is a probability game, folks… but pretty good accurate history.

0317.06

Conclusion: Low current risk of a U.S. recession.  Low current risk of a global recession.

Categories: Global Economy, Tactical Investment Strategies Tags: Ned Davis Research, On My Radar, recession, Risk, Steve Blumenthal, Trade Signals

2017 Predictions

Posted on 01.17.17 |

I hate making predictions.

I got the tech wreck and sub-prime right, but was far too early on those predictions.  Importantly, the predictions below could most certainly be wrong.  We live in a highly complex world.  We can measure instability, we can score up risk but we can’t precisely know timing.The clear risk to me today is in the bond market.

  • U.S. stocks will remain in an uptrend fueled by a strong dollar.
  • Tax cuts, infrastructure spending and $2 trillion in tax repatriation will drive capital flows to the U.S.
  • The European sovereign debt crisis will be the first major crack to crack. Unmanageable debt in Portugal, Italy, Greece and Spain.  Include France and Germany in their dysfunctional union.  Confidence in government/political leadership is lost.
  • The European banks sit on the fault line. Watch the banks.  Hope so… Not so sure.
  • The smart money races out of EU banks to U.S. dollars and U.S. assets.
  • In China, debt too is the major concern. Ghost cities lacking rental income will prove unable to support the structured debt that financed the construction.  Defaults mount.
  • Drastic measures are put in place to prevent the flow out capital to the U.S.
  • Gates, tariffs, currency wars escalate – trade wars escalate.
  • Loss of confidence in government here, there and most everywhere.
  • Global and U.S. inflation become a major concern as global growth remains well below the average of the last six post-recession expansions.  Click here for a great chart.
  • Stagflation returns. Low growth/high inflation.  Interest rates move higher with the 10-year touching 3% this year and 6% within a few short years.
  • The great bond bull market is over. Bond investors lose money.
READ MORE

Categories: Global Economy, Tactical Investment Strategies Tags: Bonds, Equities, fixed income, Gold, recession, Risk, Stephen Blumenthal, Steve Blumenthal, Tactical Investing, The Fed

Global Recession Probability High

Posted on 06.03.16 |

CMG Capital Management Group Inc.Two charts that update monthly are the “Global Recession Probability Model” and “The Economy vs. The S&P 500 Index.”

Dating back to 1970, the Global Recession Probability Model has correctly predicted global recession approximately 82% of the time.  It looks at composite leading indicators (such as money supply, yield curve, building permits, consumer and business sentiment, share prices, and manufacturing production) for 35 countries.  It is currently signaling a high probability of global recession.

The current U.S. recession risk is low.  Most economists look at the yield curve and when it is inverted (the 10-year Treasury yield is below the 2-year Treasury yield), recession almost always follows (approximately nine months later).

Read More >

Categories: Tactical Investment Strategies Tags: recession, Steve Blumenthal, Trade Signals

U.S. Recession Watch

Posted on 04.17.16 |

The business cycle is the fluctuation in economic activity that an economy experiences over a period of time.  A business cycle is basically defined in terms of periods of expansion or recession.

expansion

During expansions, the economy is growing in real terms (excluding inflation), as evidenced by increases in indicators such as employment, industrial production, sales and personal incomes.  During recessions, the economy is contracting, as measured by decreases in the above indicators.

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Categories: Tactical Investment Strategies Tags: On My Radar, recession, Steve Blumenthal

Recession Watch Intensifies – Blumenthal in Forbes

Posted on 02.07.16 |

Forbes

Steve Blumenthal’s latest Forbes article Portfolio Moves As U.S. Recession Signals Intensify is apparently hitting a chord with investors with more than 10,000 views in less than 48 hours.  Excerpt below:

Read More >

Categories: Tactical Investment Strategies Tags: Forbes, recession, Steve Blumenthal

End of Growth Cycle Likely, Blumenthal Tells WSJ

Posted on 01.15.16 |

Ask Not (Only) How China Slowdown Affects U.S.; Ask How U.S. Affects China
by Leslie Josephs

The Wall Street JournalConcerns about China’s slowing economy may be top of mind for investors, but issues plaguing US companies have a role. Wal-Mart, which sources some goods from China, is planning to close 2% of its stores while suppliers of smartphone components in Asia have warned about a demand slowdown.

“It’s all interconnected,” says Steve Blumenthal, CEO of CMG Capital. “From Wal-Mart to the supply chain [of] Apple, it’s a signal that we’re likely at the end of this growth cycle and headed into a recession.”

Wal-Mart falls 1.2%, while Apple’s off 3.4%. S&P 500 is down 2.4%.

See Wall Street Journal MoneyBeat story

Categories: CMG News, Tactical Investment Strategies Tags: recession, Steve Blumenthal, The Wall Street Journal

Risk of Recession Rising

Posted on 10.07.15 |

Steve Blumenthal, CEO, CMG Capital Management Group, on theStreetThe economic slowdown is real – risk of recession is rising. A Few Economic Notes:

  • Widespread disappointment in last Friday’s employment report. Non-farm payrolls increased 142,000 in September, below the consensus of 200,000. Also, the prior two months were revised down by a total of 59,000. The unemployment rate held steady at 5.1%.
  • The participation rate fell because of declines in the number of employed (-236,000, the most since October 2013) and the number of unemployed (-114,000). As a result, the employment-population ratio fell back to 59.2%, the lowest reading of the year.

Read More >

Categories: Tactical Investment Strategies Tags: recession, Steve Blumenthal

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This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any CMG client from any specific funds or securities. Please note: In the event that CMG references performance results for an actual CMG portfolio, the results are reported net of advisory fees and inclusive of dividends. The performance referenced is that as determined and/or provided directly by the referenced funds and/or publishers, have not been independently verified, and do not reflect the performance of any specific CMG client. CMG clients may have experienced materially different performance based upon various factors during the corresponding time periods.
Hypothetical Presentations: To the extent that any portion of the content reflects hypothetical results that were achieved by means of the retroactive application of a back-tested model, such results have inherent limitations, including: (1) the model results do not reflect the results of actual trading using client assets, but were achieved by means of the retroactive application of the referenced models, certain aspects of which may have been designed with the benefit of hindsight; (2) back-tested performance may not reflect the impact that any material market or economic factors might have had on the adviser’s use of the model if the model had been used during the period to actually mange client assets; and, (3) CMG’s clients may have experienced investment results during the corresponding time periods that were materially different from those portrayed in the model. Please Also Note: Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance will be profitable, or equal to any corresponding historical index. (i.e. S&P 500 Total Return or Dow Jones Wilshire U.S. 5000 Total Market Index) is also disclosed. For example, the S&P 500 Composite Total Return Index (the “S&P”) is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor’s chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The historical performance results of the S&P (and those of or all indices) and the model results do not reflect the deduction of transaction and custodial charges, nor the deduction of an investment management fee, the incurrence of which would have the effect of decreasing indicated historical performance results. For example, the deduction combined annual advisory and transaction fees of 1.00% over a 10 year period would decrease a 10% gross return to an 8.9% net return. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual in determining whether the performance of a specific portfolio or model meets, or continues to meet, his/her investment objective(s). A corresponding description of the other comparative indices, are available from CMG upon request. It should not be assumed that any CMG holdings will correspond directly to any such comparative index. The model and indices performance results do not reflect the impact of taxes. CMG portfolios may be more or less volatile than the reflective indices and/or models.
In the event that there has been a change in an individual's investment objective or financial situation, he/she is encouraged to consult with his/her investment professionals.
Written Disclosure Statement. CMG is an SEC registered investment adviser principally located in King of Prussia, PA. Stephen B. Blumenthal is CMG's founder and CEO. Please note: The above views are those of CMG and its CEO, Stephen Blumenthal, and do not reflect those of any sub-advisor that CMG may engage to manage any CMG strategy. A copy of CMG's current written disclosure statement discussing advisory services and fees is available upon request or via CMG's internet web site at (http://www.cmgwealth.com/disclosures/advs).