Hussman discussed about leading and lagging indicators. The ECRI and Hussman assembled a series of indicators that could warn them ahead of time.
In Hussman weekly update, he said that their Ensemble index, ECRI's weekly leading indicator(WLI) and the FED LEI have strong correlations with time, to warn a recession. Their studies found that Ensemble index and WLI give pretty good correlation -- 3 months into a recession. The stock market S&P is also able to give an advance warning(3 months ahead), albeit a much weaker one(0.4++). See the gray bar that I marked on the chart.
Hussman and ECRI's CEO Laksman Achuthan are calling for a recession since Q4 '11. Both of them still stick to their recession views. In the latest update in December 8, Achuthan still sticks with his call. He said if the US economy does not fall into a recession by June, then they are wrong!.
Both of them have pretty strong track records and wise -- they don't react on day to day as and when the data is being released. They connect the dots and I have great respect for them.
If they are right again this time, we should be able to see observable deteriorations within the first half of 2012, perhaps that will cross path with favorite Sell in May, Go Away period again.
I want to make clear that just because I am holding high cash does not mean I wish bad things to happen. My motivation of posting these views is simple. Respect risks. The thing get me more cautious when I see this headline in the local on-line newspaper.
Retail investors keeping the good run going
http://www.btimes.com.my/Current_News/BTIMES/articles/20120111010325/Article/index_html
3 comments:
I've been following Hussman and Achuthan closely too. I'm 90% cash position, not solely because I'm expecting a recession, but KLCI is no where near under-valued. Finding under-valued bluechip is superbly tough. With nothing to buy, just stay at the sideline. Interest rates on cash held with brokerage is very good too, compared to savings account.
Bursa Malaysia is slowly turning into a two-tier market where on one hand the trades by institutional investors especially the huge local funds such as PNB Funds, EPF, LTH etc dominates most of the trades in the Top 50 biggest companies by market cap. On the other side are the daily speculative trades mostly by local retailers which focused on penny and situational stocks.
In my view, the Malaysian market is overvalued compared to other regional markets to the situation above where high quality stocks are already bought to very high valuations. Just compared our plantation and banks with those listed on SGX
I am seriously considering investing in NYSE & SGX since there really is nothing much I wanna buy at KLSE. But I have the fear of being at disadvantage as an outsider and also the currency dilemma. Do you invest outside of Malaysia?
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