Recession Probability: 100% Guaranteed

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Includes: AYI, BABA, HDGE, WPG
by: Jeff Opdyke
Summary

Every two-term president in history - EVERY! - has left his predecessor dealing with a recession or depression early in the predecessor's first term.

History doesn't play favorites, so it will be no different this time for Donald Trump.

The consumer is weak, while bank loans and manufacturing hint at unseen weakness.

Prepare your portfolio now for what's on the way - guaranteed.

In a Trumpian world of fake news and alternative facts, here one truth you can bank on: There will be - guaranteed - an economic crisis. Probably soon.

Throughout U.S. economic/political history, every two-term president has left behind an economic crisis for his predecessor to deal with.

Every.

Single.

One.

Without exception.

Take a look:

So, the question we must answer isn't, Will Donald Trump lead us into a recession or depression. It's: When will Donald Trump lead us into a recession or depression?

History says it's likely to be soon. Probably within the year.

I mean, why would Trump be capable of bucking history?

Chances are basically 100% that he won't.

Though past performance does not reflect the future, it does hint at what's likely. And today there are simply too many headwinds buffeting the U.S. economy, despite the media glad-handing that, oddly, insists all is so very copasetic in the economy these days.

All is not.

There are clear and present dangers flashing their warnings all over the U.S. economy.

Trouble With Bank Loans and Manufacturing

I have touched on the consumer quite often (here and here) so I will skip over that argument and sum it up by saying the U.S. consumer is a 98-pound weakling strutting around Muscle Beach like she owns the sand and waves. A comeuppance is coming - and it promises to bring pain to the U.S. economy.

Instead, let's consider two charts that I find potentially troubling.

First, bank lend is nose-diving … as it has typically done before every other recession since the 1970s. The data come from the St. Louis Fed's massive database of economic ephemera.

Just before every recession since the 1970s (pale yellow bars), bank lending began to turn down. And look what's going on over there on the right-hand side of that chart. Looks like a Mexican cliff diver in Acapulco…

That chart is not a sign of health. It's an early warning indicator of a problem brewing. (It's also one of the reasons I still believe the Fed will hold off on raising rates in June.)

Second, manufacturing is barely progressing, despite a lot of contrary commentary insisting manufacturing is doing well.

Consider this chart, also from the St. Louis Fed:

While manufacturing has certainly improved since the end of the Great Recession, its year-over-year growth is largely stagnant now. At 1.9% average monthly gains, this is the weakest post-recession manufacturing growth since the 1980s. (And if we discount the quick rebound months just after the Great Recession ended, we get average monthly manufacturing growth that barely tops 1%.)

Now's the Time to Protect Yourself

Call me a curmudgeon and a pessimist, but I'm simply not convinced the U.S. economy is all that robust.

Which means I feel very confident that Trump and his economic team will have to manage (at the very least) a recession or (god forbid) worse in the very near future. Problem is, I'm not confident this particular economic team is up to that task.

It has an unorthodox belief system on trade, tariffs, interest rates and such. Its tax plan relies of sleight of hand and mathematical nonsense, and Trump's own party is raining on his questionable tax-reform plan.

To that end, I recommend you own some sort of market insurance. Either buy puts on the S&P somewhere in the neighborhood of 10% to 20% away from the market, stretching out a year … or, more prudently, own share of the AdvisorShares Ranger Equity Bear ETF (NYSEARCA: HDGE).

This is an actively managed short fund, rather than a passive fund that simply shorts the S&P through derivative products. Ranger's portfolio managers use a bottom-up, fundamental approach to shorting, looking for those companies with low earnings-quality or aggressive accounting gimmickry that will fare especially poorly in a sour market.

Currently, the fund holds roughly 50 positions in names such as electronics manufacturer Acuity Brands (NYSE: AYI), real-estate investment trust Washington Prime Group (NYSE: WPG) and Chinese e-commerce giant Alibaba Group (NYSE: BABA).

I'm not saying you should load up on Ranger Equity. I'm just saying you should own some of it as an insurance policy against what is guaranteed: a recession or depression that affects the Trump White House, sooner rather than later.

Though history is only a guide, it's a guide that, in this instance, tells us that Trump and his team absolutely will not escape unscathed. And depending on the measures he implements before the recession (i.e. tariffs) or the measures his economics team implements after the recession (who knows what those might be?) the economy coming at us could be worse than just a run-of-the-mill recession.

Prepare while you can.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.