Music in the background: The Black Keys “Have Love Will Travel”. I’ll pull no punches I love listening to the Black Keys especially at the gym. But, for all their appeal has there been a band that has borrowed from more artists? Bo Diddley should be collecting some of their royalties.
Frequently, we have to tell clients to ignore the noise of the media which will bombard the investor with combinations of fear or euphoria bordering on the manic. Frequently those opinions are jaded with political or investment biases which make their statements virtually worthless. Even more frustrating are the multi-handed economists who never appear to make a decisive stance “On one hand, then on the other hand etc.)
Its essential to tune out the noise and find sources of information that are purely data driven without biases and one very good source is Recessionalert.com (RA)
This morning RA released their Long Leading Index (USLLGI) and I’ll use their own words to describe the USLLGI:
“The USLLGI takes a far-reaching forward view of U.S economic growth by tracking 8 reliable indicators which have consistently peaked 12-18 months before the onset of NBER defined recessions since the early 1950?s. The growths of these indicators, together with their diffusion index, are combined into a 9-factor composite to give a generalized view of future overall U.S economic growth. When the USLLGI falls below 0 for 2 consecutive months you have a signal that recession will occur in 12-18 months.”
This is an economic timing method not a stock market timing system. The lead times are long, for example in the 2007-2008 “Great Recession” the LLI tipped its hand in early 2006 by crossing over the 0 level. In 2011 it made a near miss by approaching 0 but it never broke through. At present its at a healthy reading of .1 which largely eliminates the chances of recession in 2014. Its too early to say for 2015 but we’ll have an idea by the end of this year.
In the meantime, ignore the fear and noise. The potential for a new secular bull market has some real potential.
Be careful out there
Brad Pappas