Economist turned money manager John Hussman has become the first economist I’m aware of to opine that the United States has entered a fresh recession. This would of course be unwelcome if verified as data comes in. Here are some comments from his article that is fresh off the digital presses:
Very often, the first real-time negative GDP print occurs about two quarters after the recession actually begins. It is only later that the data are revised to show an earlier downturn. For that reason, it’s important to pay attention to the joint action of numerous economic data points, rather than selecting any specific indicator as an “acid test.” The joint evidence suggests that the U.S. economy has entered a recession that will later be marked as having started here and now…
The weak estimated response of GDP to quantitative easing is close to the estimate I offered in November 2010, which suggested a temporary bump to GDP growth of about half of one percent. Contrary to Ben Bernanke’s assertions, the notion that provoking stock market speculation significantly helps the economy via “wealth effects” has no theoretical basis (as Milton Friedman and Franco Modigliani demonstrated decades ago, consumers base decisions on their “permanent income”, not transitory fluctuations, and boosting the asset price does nothing to change the underlying stream of cash flows), nor any empirical basis (economic studies consistently show that a 1% change in market value affects GDP growth in the same year by only 0.03% to 0.05%, and even that effect is transitory).
This is not to say that he is correct. He was more worried about a new recession in the second half of 2010 than proved correct. He does however have a good record in protecting fund capital from the sharp recession-related stock downturns of 2001 and 2007 and subsequently.
Re Dr. Hussman’s opinion, I would only add that as a pollee member of ChangeWave Research who sees a good deal of its data, their recent surveys both of businesses and consumers have shown a negative turn as well.
More broadly, regular readers know that as far back as January 2009, I signed on to the idea that has been proving out that the U.S. was taking a “Japanese” turn from the economic-financial standpoint. This is why I have often been bullish on Treasurys despite large Federal deficits as well as the downgrade by some rating institutions of the credit rating of the U.S. Should another recession actually be beginning now, one of the few salutary consequences would include educating people that zero short term interest rates are fully compatible with a cyclical business downturn. Japan, after all, has suffered two significant recession since instituting ZIRP.
We shall just have to see how matters evolve.