Art by Yousef Amairi

Art by Yousef Amairi
the struggle continues

August 08, 2010

U.S. double-dip recession is officially coming, analyst warns, Financial Post Trading Desk, Jameson Berkow June 29, 2010

The ink is barely dry on the G20 Toronto communiqué, drafted with the specific goal of lowering deficits in hopes of staving off another worldwide recession.

It was widely heralded as a success for Canadian fiscal leadership. Though at least one market watcher believes the recovery efforts will not thwart a new recession from descending upon the United States.

“Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn,” wrote John P. Hussman, President of Hussman Investment Trust on Monday. The fund manager, whom Business Insider notes has been bearish for awhile, made the prediction in a post Monday on his firm’s website bluntly entitled “Recession Warning.”

Mr. Hussman points to a -6.9% decline in the growth rate of the ECRI Weekly Leading Index (see chart below) as the primary cause of his concern.

Source: Hussman Funds

According to Mr. Hussman, an official recession warning still requires the ISM Purchasing Managers Index to decline to 54 or lower. Though he notes that 1988 was the only time such a low growth rate of the ECRI Weekly Leading Index was not associated with an actual recession.

“In short, my concerns about the economy and financial markets are escalating quickly. Given the already vulnerable condition of the U.S. economy, a second phase of weakness would most likely contribute to already troubling levels of mortgage delinquency and foreclosure, and could be expected to push the unemployment rate toward 12%,” wrote Mr. Hussman.

“At present, the best argument against this outcome is that it is unthinkable.”

So was the last recession.

Posted in: Market Call, Trading Desk Tags: ECRI Weekly Leading Index, Hussman Investment Trust, ISM Purchasing Managers Index, John P. Hussman, market call

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