Tactical investing news, views and resources for financial advisors
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
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:
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 MORETake 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.
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:
Here is how you read this chart:
Here is how you read the chart:
Here is how you read the chart:
Conclusion: Low current risk of a U.S. recession. Low current risk of a global recession.
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.
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).
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.
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.
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:
Ask Not (Only) How China Slowdown Affects U.S.; Ask How U.S. Affects China
by Leslie Josephs
Concerns 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%.
The economic slowdown is real – risk of recession is rising. A Few Economic Notes: