as part of our
Fear is a nasty emotion to overcome for investors.
It often forces us to stay out of the market too long - or bail
too early. Either way, we end up missing out on profits.
However, the rewards for mastering our fears are significant.
Hence Warren Buffett's famous adage to "be fearful when others are
greedy, and greedy when others are fearful."
Why bring this up now?
Well, fears that the U.S. economy is destined to enter another
recession in 2013 have recently re-emerged.
In fact, the latest IBD/TIPP Economic Optimism Index reveals
that "Americans across the board think that the economic outlook is
grim," according to Raghavan Mayur, President of TIPP.
More specifically, "nearly 60% believe that the economy is in a
recession," says Mayur.
What a crock!
And in honor of
, I'm going to prove it with four simple charts. Because the last
thing you should do is buy into this recession mentality, as
It'll cost you.
The Problem With Perception…
I'll concede that it's tempting and perfectly logical to be
afraid that another recession is right around the corner. After
all, the economic recovery since 2009 has been anything but
Case in point: In 10 out of the 14 quarters since the recession
ended, the annual equivalent growth rate failed to top 2.5%.
So, at best, the recovery can be characterized as fragile.
However, that doesn't mean we're teetering on the cusp of another
recession like many investors fear.
As I mentioned on Friday, though, "perception seldom matches
That's why we need to be ever vigilant to make investment
decisions based on hard data (reality), instead of perception
In this case, the data speaks loud and clear…
~Exhibit A: Bespoke's Economic Indicator Diffusion
Each week, Bespoke Investment Group measures the pace at which
economic indicators are coming in ahead of (or below) expectations
to create its Diffusion Index.
A positive reading suggests that economic conditions are
strengthening. If the reading is negative, it suggests that
economic conditions are deteriorating.
And guess what? The latest reading was clearly in positive
According to Bespoke, "The improvement that we have seen in the
Diffusion Index over the last two weeks is the strongest upward
move over a two-week period since August."
In other words, economists' expectations have been way too
pessimistic. And in the here and now, the U.S. economy is actually
picking up momentum.
Sorry, those are
the conditions that trigger a recession.
~Exhibit B: David Rosenberg's Recession
Gluskin Sheff economist, David Rosenberg, puts tremendous stock
in an indicator that measures the rate of business spending.
Specifically, it tracks the year-over-year change in the
three-month moving average for non-defense capital goods orders,
excluding aircraft and parts (also known as "core capex"
I know… what the heck does that mean?
Don't get bogged down in the description. Here's all you need to
When this indicator is negative, it means businesses aren't
spending their cash, which places a huge drag on the economy.
That's exactly what happened in October leading up to the Fiscal
However, when the indicator is positive, it shows that
businesses are spending. And that's a boon for the economy.
In other words, a recession isn't imminent when Rosenberg's
indicator is in positive territory.
And guess what? It recently flipped back into positive
So again, in the here and now, any recession fears are
Now, I'll concede that these indicators are subject to
short-term volatility, as they rely on data points that are updated
Consequently, they might not be convincing enough for you to
ignore those pesky fears about another recession. Fair enough.
If you're in that boat, hang tight until tomorrow.
I'll share two more indicators that
subject to significant short-term swings. They also have a
virtually unblemished track record of predicting recessions.
I promise they'll put any fears you have about an imminent
recession to rest - once and for all. So stay calm and be sure to
tune into tomorrow's column…