Gadfly money manager John Hussman says leading indicators imply "the probability of oncoming recession near 100%" and warns investors against holding risky assets in what he foresees will be a "significant downturn."
Hussman (left), a former international finance professor turned portfolio manager, writes in his latest newsletter to clients released Monday that "nearly every traditional asset class is priced to achieve miserably low long-term returns" right now. He adds the risk-reward dynamic could change quickly, presumably after a sharp drop in asset prices.
Looking at 20 recession flags–such as credit spreads lower than six months ago, the S&P 500 lower than six months ago, consumer confidence more than 20 points below its 12-month average–the Hussman Funds manager writes "the simple fact is that we've never seen a plurality (>50%) of these measures unfavorable except during or immediately prior to U.S. recessions."
Hussman points to other economic indicators, such as German factory orders falling 4.3% while demand in other euro-area countries plunging 12.1% in the latest report. Eurozone manufacturing further weakened in October to a contractionary 47.1 PMI readings of less than 50 indicate negative growth. China PMI is still, barely, in positive territory at 50.4, but the latest reading was the lowest in three years.
Meanwhile, the menu of traditional asset classes is not particularly appealing now, according to Hussman's model:
