How Strong is the US 'Recovery'?

At Investor Insight, John Mauldin has two free newsletters that I love to read; I know that while I may not agree with him, his newsletters are always a good read.

In his latest issue of Outside the Box, John provides us with The Liscoe’s Report latest newsletter. At US$7,500 pa, the Report is not inexpensive. But if the current edition is a sample of the quality, I can see why it has a market.

Whether the US is ‘real’ or whether it is more illusory than real, is the subject of much discussion. In the Liscoe Report, we see two interesting sets of charts. In it the authors, P & D Henwood,  instead did two averages–one representing the weak recoveries of 1991–1992 and 2001–2002, and the other, the strong recoveries of 1975–1976 and 1982–1983.  In other word, we see charts showing strong and weak recoveries.

The first study showed the payroll employment and unemployment rate. For copyright reasons, I am unable to reproduce the charts but you can view them on the link Outside the Box. What this set shows is the current ‘recovery’ is much closer to ‘weak’ recoveries than strong.

The second study shows two business cycles indexes:

1. The Conference Board’s Coincident Index and
2. Chicago Fed National Activity Index

The current recovery is almost identical to the Coincident Index’s weak line.

The NAI is charted as an oscillator where above ‘0′ is positive and below ‘0′ is negative. In addition +1 and -1 equal plus or minus one standard deviation. ‘Seven months into a strong recovery, the CNFAI has averaged -1.0 — meaning that we’re more than a standard deviation below a strong recovery’s reading’.

With both these readings, we see that the US recovery leaves much to be desired.

More and more I see the 1966 to 1982 context being played out in this era - probably 2000 to 2015. This means that we should see the S&P at the ‘1500′ highs before 2015 but when it gets there, it will be a great shorting opportunity. It also means that if we do see a 13-week swing correction now, it will be a buying opportunity.

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