Seeking Alpha
What is your profession? ×
Profile| Send Message|
( followers)

Regular readers know that I am a fanboy of Lakshman Achuthan and the work done at the Economic Cycle Research Institute (ECRI). I’ve possibly posted every TV appearance Achuthan has done since the beginning of the year when he was talking about a slowdown coming. Why should we listen to Achuthan? Probably because ECRI has such an excellent track record of predicting recessions, they have not sounded a false alarm in over 20 years. Today Achuthan said publicly for the first time that a Recession in the US is a done deal. Remember that Achuthan said at the beginning of the year that a global slow down was coming toward the end of the year whilst economists were quite upbeat predicting GDP growth of 3 – 4%. Achuthan said the consensus would swing back to toward the ECRI’s view as the evidence grew over the course of the year and that is exactly what has happened as economic growth forecasts have been ratcheted back.

In August I penned an article called “No Recession Coming ... It’s Already Here” at Seeking Alpha claiming that discussion about the likelihood of recession was moot, it had already arrived. I was probably a little early but better to be early than late. Also John Hussman, whose views I respect immensely has been saying for at least a month or more that there now exists a “syndrome of conditions” that have ONLY and ALWAYS been observed either immediately prior to or during recessions. That is not an opinion, it’s a fact of the data, to believe otherwise is to believe that this time is different.

Turning to the ECRI’s publicy available data of their Weekly Leading index (WLI), the latest reading shows growth in the WLI at -7.2. You might notice that this growth rate reached even worse levels last summer hitting -10.9 at the end of July. However, at the time the ECRI could already forsee an upturn in their long leading indicators and said that the much talked about double dip would not happen. They turned out to be right. No such qualification of the data has been given today, the ECRI does not yet see any upturn in their longer leading indicators to warrant optimism of avoiding a recession, rather the current downturn is both persistent and pervasive.

Note in the clip above, the appeals of the CNBC hosts to the likes of Jack Welch who says that all is fine and dandy out there in the business world. Achuthan rightly points out that CEO’s and CFO’s whilst knowing their own business well, have no special insights into the broader macro picture. I hope CNBC invites Welch back on early next year to ask him why he and the business community failed to see the downturn coming.

As I said in August, you don’t want to wait for an official announcement of recession from the NBER to make changes to your portfolio, by then it will be too late. If you cannot tolerate a 25% – 30% drop or more in major indices from current levels then you should be making adjustments now. Of course there will be rallies to sell into as there always are in a typical bear market but you should be getting proactive sooner rather than later.