Romney? 100% Chance of Recession!

In the entire history of official recession dating (beginning in the 1850's) there is a startling fact:

Every newly-elected Republican President has brought a first-term recession.  All of them.  "Always and only" as we hear from a popular data-mining pundit.

You can check out the list of GOP Presidents here.  And the official recession dating here.  I use "elected" because there was no recession in the brief term of fellow Michigan man Gerald Ford.

It is not quite "only" since Democratic Presidents avoided recessions on a 10-2 basis.  I am not surprised that there was no first-term recession for Bill Clinton or JFK, but who would have expected a clean record for FDR or Jimmy Carter?

Economic Comparisons by Party

According to this Bloomberg article, Democratic Presidents Are Better for the Economy.  The author, Richard J. Carroll is an economist at the World Bank.  Here is a summary of his findings:

The Truman legacy has truly grown over time!

Here is another study that says Democrats win on a balance of economic indicators, 11-2.  The authors conclude as follows:

"President Barack Obama does not feature in the rankings, as he has not yet completed a four-year term. But if Obama were evaluated now on all 12 of the indicators, he would fall somewhere in the middle of the pack, Deitrick says. The bottom of the pack overall is populated by Republicans: Presidents Richard Nixon, Gerald Ford, George W. Bush and Herbert Hoover."

Lessons in Inference

I trust that readers will understand my tongue-in-cheek approach to this subject.  It is silly to conclude, based on this evidence, that electing Romney will lead to a recession.

Meanwhile, many people use similar evidence to make bold claims about recessions.  Their readers consume the pseudo-scientific claptrap and blindly follow the pundit to a dubious decision.

If you agree with me that the conclusion about Romney is not valid, then maybe you need to reconsider the work of the guy who keeps describing a syndrome involving his Aunt Gertrude.  The methodology -- using many years of backfitted data -- is just the same as you see here.

Causal Modeling

Causal reasoning in economics involves many variables.  Especially when the number of cases is relatively small and the number of variables is large, the causal model can be tricky.

Try this one:  When a Republican is elected, it is often the result of Democratic economic failures.  This means that the GOP winner is saddled with a bad economy.

See how easy it is to create reasons after the fact?  Check out one of my favorite stories from "the old days."  The smarter you are, the easier it is to fool yourself.

Investment Conclusion

If you understand this article, you can win an Olympic all-around medal!

1. Separate politics from your investments;
2. Ignore bogus pseudo-science;
3. Beware of recent trends in both fear and greed;
4. Look for stocks with attractive valuations.

Each week I summarize the very best recession forecasts.  Since those with the best records are not featured in the financial media, this gives thoughtful readers an advantage.  Those scared witless by the recessionistas are selling cyclical names and tech stocks while piling into defensive sectors and dividend stocks.

The comparative valuations are becoming extreme.  I favor early-stage cyclicals like Caterpillar, Cummings, and Illinois Tool Works.  I like tech stocks including Apple, Oracle, Microsoft, and Marvel.

When I look for "dividend stocks" I am not seeking those with super-high yields, but strong balance sheets and PEG ratios, where I can also sell calls to enhance the yield.

The individual investor can find many good opportunities, but you must start with a good grasp of the business cycle.

(HT to Bob Dieli, whose whimsical comment inspired this post.  And no, the election result is not one of the factors in his excellent system, Mr. Model.)

 

 

 

 

 

Comments

[oldprof]

Matt -- You are free to think whatever you want about Hussman, but your comment about me being "blindsided" is completely wrong.

Check out this article that I wrote in April of 2008: http://oldprof.typepad.com/a_dash_of_insight/2008/04/how-to-win-a-re.html

I was quite open to the possibility that a recession might eventually be deemed to have started in 2007.

But I keep trying to do better, which is why I conducted the search starting in May of 2011 and leading to the work I cite every week.

Bob Dieli has done better and done it longer in real time. The RecessionAlert team has methodology that is much stronger than Hussman's.

Matt -- we are both consumers of other people's forecasts, but it is important to stick to the facts. I did the work of researching these sources both to help me in my work, and as a service to individual investors. Feel free to ignore the data and stick to your preconceptions!

Jeff

[Matt]

Hussman predicted the last recession to begin in real-time exactly when it began. You, on the other hand, were completely blindsided and were confident there would be no recession, just like you're doing now. And Hussman is the one who lacks credibility, eh?

[jeffrey bottaro]

PARANOIA has adaptive value when its INWARD ALLOCATION exists in some dynamic and responsive balance with its OUTWARD ALLOCATION. If you never question your own habits of cognition and bias, and fear ONLY external threats, you become prey to the very purveyors of those external threats.
We all want to have money; desire is an emotion. To tell an investor NOT to invest on emotion is like telling a lover NOT to be romantic because romance can result in compromised objectivity. The only helpful resolution of all of this would therefore be to recommend that one's emotions and their triggers BE CONTINUOUSLY EXAMINED WITH HONESTY.

[W at Off-Road Finance]

In general Republicans do tend to have mild first term recessions since they typically withdraw various stimulus measures.

That's not necessarily a bad thing though.