We watch out for tools that are 80% plus accurate either in economics or technical analysis. After all, are we not playing the odds? When we learn of an economic indicator that is 100% we pay attention.
Indicator: When USA GDP YOY% is under 2% a recession has always followed within three quarters of its printing (since 1948). Current print is 1.6%.
Ref: Todd Schoenberger, Managing principal at The Blackbay Group.
Source: TechTicker 20111030
- US GDP posted 2.5% but...
- YOY% GDP is 1.6%.
- US macro data is not good.
- Consumer is NOT spending (70% of GDP).
- Spending in GDP was not discretionary spending only essentials (utilities etc).
- Only reason US will avoid a recession is Fed QEs.
- Fed will only do a QE when congress screams for it.
- Market call : 1st Qtr 2012 recession kicks off.
Also consider defensive stocks versus SP500 (or SP ETF). Long only fund managers buy defensive stocks when they fear the worst. When this occurs the relative strength (alpha) of the defensive stocks strengthens over non defensive stocks. The chart below plots the relative strength of readtheticker.com defensive stock index (@RTDEF) versus the SP500 ETF (SPY). When it moves up this is risk on, when it moves down this is risk off. We have found a very predictable cycle within this price series and it actually market times very well with Todd Schoenberger (see above) economic fundamental call of a recession kicking off in the 1st qtr of 2012.
Question: When will risk off assets start to price a 2012 recession?
Answer: Tomorrow, or next week or next month, but before Christmas 2011, we feel. The cycles will lead the way.
Defensive Stocks relative strength versus SP500 chart...