Tuesday, January 26, 2016

Message of Market Say Fears of US #Recession Not Overblown

The majority that follows headlines is not worried about a US economic recession in 2016. Those that follow the message of the market, a growing minority, however, is not only worried but also prepared. Are you?

The US and global economies, burdened by economic mismanagement, infinite public sector debt expansion through an aging trend of government largess, are contracting rapidly. The Economic Activity Composite (EAC), a leading proxy for US economic activity, has been negative since early 2015 (see below). The EAC's contraction, a trend that significantly increases the odds of an officially-recognized recession in the United States in 2016, continues to elude the majority that generally believes the US economy remains on solid footing (1, 2) The majority, always a day late and dollar short in terms of timing, will panic only after economic reality completely invalidates this plateau of economic prosperity belief; a quick review of history highlights the dangers of embracing opinions over facts.

Adding insult to injury is the potential for stocks to 'disconnect' from economic reality by rising during the recession. It's happened before.

Headline: Goldman: Recession fear overblown, 11% gain on way

Swelling recession fears are creating both an extended stock market sell-off and an opportunity for investors ready to pounce, according to Goldman Sachs.

The firm's strategists believe investors have become too fearful of the U.S. economy, which ended 2015 with barely any growth in the fourth quarter. A fear-driven sell-off has resulted in the S&P 500 (INDEX: .SPX) slumping 10 percent from its December high, a decline Goldman felt would bring in buyers.



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