Forget what the government is telling you. Corporate America says we’re in a recession.
As of today, the fourth-quarter earnings season is in the books. Earnings season is when companies report financial results. It’s when they tell investors if profits are growing or shrinking.
A good earnings season can send stocks higher. A bad one can cause stocks to fall.
This was a bad earnings season.
Earnings for companies in the S&P 500 fell 3.4% from last year, according to research firm FactSet. It was the third straight quarter of declining earnings for the S&P 500. The last time earnings fell three straight quarters was during the financial crisis.
It was also the fourth consecutive quarter of declining sales. That also hasn’t happened since the financial crisis.
• U.S. stocks are still doing OK…
The Dow Jones Industrial Average has fallen 2% this year. The S&P 500 has fallen 3%. The NASDAQ has fallen 7%.
Those aren’t good numbers. But considering how bad corporate earnings are, they could be much worse.
• E.B. Tucker, editor of The Casey Report, thinks we’re in a recession…
Last September, E.B. called the end of the bull market in U.S. stocks. It was a lonely call at the time. The S&P 500 had rallied 215% over the past six years. The Dow Jones Industrial Average and NASDAQ hit record highs just two months earlier.
But E.B.’s call has been spot on. U.S. stocks have gone nowhere since he called the end of the bull market.
In the new issue of The Casey Report just published today, E.B. made another big call:[T]he U.S. is in a recession right now. The government is always slow to recognize a recession. Sometime this year, the government will announce we entered one last year.
According to the government, the U.S. economy grew 1.9% last quarter. That’s well below the U.S. economy’s historic growth rate of 3.2%.
• Longtime Casey readers know we’re skeptical of government statistics…
It’s in the government’s best interest to make the economy look as healthy as possible. So, we prefer to look at real-world evidence. And there’s been plenty of evidence of a slowing economy…
Dispatch readers know that many major retailers reported huge losses in 2015. Many expect even bigger losses this year. Sears (SHLD), The Gap (GPS) and Macy’s (M) are just a few major retailers closing stores to cope with slowing sales.
Consumer spending makes up 67% of the U.S. economy. So when retailers struggle, the broad economy is likely struggling, too.
• Industrial companies are also signaling danger…
Industrial giant General Electric (GE) lost $6.1 billion last year. Machinery maker John Deere Co. (DE), tractor supplier Caterpillar (CAT), and industrial conglomerate 3M (MMM) all expect sales to decline this year.
CEOs are worried too. According to Reuters, mentions of the word “recession” on corporate earnings calls has jumped 33% from last year.
• Like us, Jim Rogers is worried about the U.S. economy…
Rogers is an investing legend. He started the famed Quantum Fund with George Soros in 1973. The fund made an incredible 4,200% in 10 years.
According to Rogers, the U.S. can’t avoid a recession. Bloomberg Business reported on Friday:[T]he famous investor said that there was a 100 percent probability that the U.S. economy would be in a downturn within one year.
• Historically, the U.S. has had a recession every four to seven years..
It’s been almost seven years since our last recession. The U.S. is due for one.
But as we explained yesterday, the U.S. government has tried to stamp recessions out of existence. Instead of allowing a recession to run its course, the government uses extreme measures to “stimulate” the economy at the first sign of a slowdown.
During the 2008 financial crisis, the U.S. government borrowed trillions of dollars. It printed trillions more. It cut interest rates to effectively zero.
These radical policies have sent stock and bond prices to record highs. But they’ve failed to help the real economy. The U.S. is stuck in its slowest economic “recovery” in seven decades.
Rogers thinks the government will panic when the next crisis hits…
As we start having more turmoil and more problems in the market, people will call the Fed and say, “You must save us. You must save Western civilization.”
Now, the people at the Fed are bureaucrats and academics. They don’t know anything. They’re going to panic. That’s why they work for the government. So, they’re going to panic, and they’ll do something to loosen up again.
• Casey Research founder Doug Casey agrees that the government has set us up for a major financial disaster…
These reckless policies have produced not just billions but trillions in malinvestment that will inevitably be liquidated. This will lead us to an economic disaster that will, in many ways, dwarf the Great Depression of 1929–1946. Paper currencies will fall apart, as they have many times throughout history.
We suggest investing with caution right now. Yesterday, we explained that the S&P 500 is likely on the cusp of a major decline.
Instead of holding a large allocation of stocks, we recommend holding a significant amount of cash and physical gold. A cash reserve will give you “ammo” to buy stocks when they get cheaper. And gold is money. As a safe haven asset, it will hold its value in any financial crisis.
We also encourage you to read our new book: Casey Research’s Handbook for Surviving the Coming Financial Crisis. It explains simple techniques to protect your money from stock market crashes, economic recessions, and even desperate governments. Click here to claim your copy.
• Speaking of Jim Rogers, he recently sat down with Nick Giambruno, editor of Crisis Investing…
Like Nick, Jim Rogers invests in bombed-out markets other investors won’t go near. As Casey readers know, you can find incredible bargains in crisis markets. A crisis is one of the only situations when you can pick up a dollar worth of assets for a dime or less.
In this free short video, Jim explains how he made his fortune…
Nearly always, when markets collapse, they go through a period of total panic…You should buy it. It’s not easy. It’s very difficult…I now know that you should be looking for crises because that usually presents lots of opportunities.
Chart of the Day
Get ready for another ugly earnings season.
Today’s chart shows the quarterly earnings growth for companies in the S&P 500. As we mentioned, earnings for these companies have declined for three straight quarters.
According to FactSet, Wall Street expects the S&P 500 to show an 8% decline in earnings for next quarter, which ends on March 31. That would be the biggest drop in earnings since at least 2009.
Just two months ago, analysts expected first-quarter 2016 earnings to grow 0.3%. According to our friend Bill Bonner, profit expectations for the first quarter “are dropping faster than ever in history.”
This article by Justin Spittler first appeared on CaseyResearch.com on 10 March 2016.