While the economy has expanded for the last three quarters, that recovery won’t last long, says star money manager John Hussman.
“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,” he wrote in his monthly market comment.
The recent drop in the ECRI Weekly Leading Index’ annualized growth rate to minus 6.9 percent is the straw that broke the camel’s back, Hussman says.
The recent book “This Time is Different” by economists Ken Rogoff and Carmen Reinhart provides a solid framework for predicting the direction of the economy and financial markets, he says.
The economists found that after systemic banking crises, housing price dropped for six years on average, stocks fell for 3.4 years and unemployment rose for almost five years.
Given these findings, “It seems rather hopeful to view the March 2009 market low as a durable ‘V’ bottom for the stock market and to expect a sustained economic expansion to happily pick up where last year's massive dose of ‘stimulus’ spending now trails off,” Hussman wrote.
Others are worried about the economy too.
Atlanta Federal Reserve Bank President Dennis Lockhart recently made the most bearish comments by a Fed official in months.
“Financial markets and many businesses are more nervous today than a few weeks and months ago,” he said in a speech.
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