Friday, February 1, 2013

Stall Speed GDP and Risk of a Recession

Via Art Cashin,
For why that annual reading may be important, let me quote my Bloomberg pal, Rich Yamarone:
The year-over-year change in real GDP was 1.5 percent. There has never been a time since measurement commenced in 1948 when the annual pace of real GDP has fallen that low without the economy ultimately slipping into recession. Sub-2.0 percent readings are historically the warning signal.
Patterns can always change of course let but that one's got a rather compelling history

(Source-Zero Hedge)

The conventional wisdom may be on to something here. Just look at the chart below. It appears that a year-over-year increase of  GDP of just 1.5% or less is a decent precursor to a recession. Additionally, the data bears this out, as the median year-over-year GDP gain is just over 3% while the combination of decelerating, sub-par growth results in a median three quarter change in GDP of just 0.3%. This leads credence to the theory that recession risks are increasing.

FRED Graph

All That Glitters- Timing Models Take a Step Down But....

The models took a step down this week with the money supply falling nearly 1% on the week, inline with the historical seasonal experience but greater than my expectations. I had thought that QE-to Infinity would have been a mitigating factor partially offsetting seasonal influences, but this assumption is shown to be wrong.

With that said, the models remain in a mid-buy range. Additionally, the seasonal influences in money supply tend to reverse, and then some, in the last weeks of February and the beginning week of March. This is likely to lead to, all else equal and if the seasonal patterns continue to hold, an improvement in the timing models in just a few weeks.

Again, I am waiting for a sign of strength in either gold/gold stocks or a strong buy indication in the timing models before committing funds to precious metal shares. I continue to expect that the recent weakness in the gold and precious metal stocks (see the Market Vectors Gold Miner Index or the Phily Gold/Silver Index as examples) to be reflected in the price of gold at some point in the next few months. The following are the updated timing models adjusted for the latest money supply figures, the price of gold, and the gold price indexes.

3-Month Model, -0.75

1-Year Model, -1.1

 6-Month Model, -1.15