EDMOND — For those of you old enough to remember, or maybe you saw some re-runs of the Ed Sullivan Show in the 1950s and ’60s, there were occasionally juggling and balancing acts on the show. Every so often there was an act where a guy would spin plates on the top of some long, spindly sticks. He would start with one and place a plate on top and start it spinning. Then he’d move onto the next and the next, to eventually have as many as a dozen or so spinning at once. Of course, the challenge was that as he got more and more going, he had to constantly run back and forth to keep all the previous plates spinning before they crashed on the ground. The suspense was tremendous and you would be on the edge of your seat wondering if he would get them all spinning before some fell.

With this mental image, I want you to imagine that the plate spinner is Fed Chairman Ben Bernanke, Treasury Secretary Tim Geithner, or any number of others in Congress who are tinkering with the economy. They’re all running back and forth desperately trying to keep all the plates spinning. Oops, look out! There goes a plate.

This would all be pretty funny if it wasn’t so serious. Based on all the evidence I see, the U.S. economy appears headed into a second leg of an unusually challenging downturn. If that’s true, look out below because the stock market is pricing in a recovery, not a recession. You can call it a double dip recession, or a long slowdown or an L-shaped recovery. Whatever the name, it won’t be pretty. The markets and economies are about confidence. I don’t know about you, but I’m not feeling very confident right now and there is a clear lack of confidence around the world.

In my opinion, now is the time to get out of the stock market or start hedging your equity positions. If you don’t know how to do that, call me and I’ll help you. That’s as clear as I can make it. I am absolutely convinced that the market goes down hard in the second half of the year. Could this be a little early? Maybe, maybe not. But I think it’s better a little early than a little late.  You won’t miss much if it goes up for another month or so before turning down. This is no time to be trying to pick up pennies in the middle of the freeway.

Much of the spending growth we have seen in the past year was a result of government stimulus. But what really fueled the consumer recovery we had was due largely to an increase in spending by those in the upper income brackets. The paper wealth recovery in the stock market was the primary cause of this as they started to feel better. Now the market is threatening to take it away. Confidence among the wealthy is beginning to fade again and they’re cutting spending.

The decline in overall consumer confidence is taking a toll also. The July University of Michigan consumer confidence index dove to 66.5, which takes it back to August 2009 levels. Even in November 2002, which was 12 months after the 2001 recession ended, the consumer sentiment index was at 84.

Most disturbing of all, the ECRI Weekly Leading Index continues to fall and is now a negative 9.8 percent. The index has been negative for six weeks in a row now. The ECRI index has been one of the most accurate leading indicators, tending to project economic trends six to nine months in the future. It rolled over in late 2009 and has been sliding since. We have never failed to have a recession with the ECRI at current levels. While many economists and Wall Streets pundits are in complete denial and trying to talk their way into a recovery, the market soon will figure out that it’s all an illusion. You can whistle past the graveyard for a while, but sooner or later the ghosts become real.

So, let’s look at the economy from a top-down view. According to the economist Dave Rosenberg, we have seen real U.S. GDP growth average 3.2 percent at an annual rate during this statistical recovery from the 2009 bottom. Of that, 2.1 percent came from the inventory rebuilding, or about two-thirds of the growth. The remaining 1.2 percent average annual growth rate of GDP excluding inventories — otherwise known as “real final sales” — is the weakest post-recession recovery ever. Ever!

The weakest ever, despite a 10 percent deficit-to-GDP ratio, a debt-to-GDP ratio rapidly heading to 100 percent, a near zero Fed funds rate, record low mortgage rates, an unprecedented tripling in the size of the Fed balance sheet, shifting accounting rules to help rejuvenate profit growth in the financial sector, cheap and easy FHA financing to virtually anyone who wants to buy a home, relentless government pressure on banks to modify defaulted loans, and bailout stimulus galore. And with all that, all we get for our money is a paltry 1.2 percent growth rate in final sales. If this were anywhere near a normal recovery, growth should be through the roof. It’s not.

Have you ever seen those T-shirts that say something like, “My parents went to Europe and all I got was this lousy T-shirt”? I think I need to go into the T-shirt business. How about one that says, “My government spent a trillion dollars and all I got was a lousy 3 percent GDP growth.” We could sell a lot of them to angry citizens. Who knows, maybe we’d even help stimulate consumer spending. Thanks for reading.



NICK MASSEY is a financial adviser and owner of Householder Group Financial Advisors in Edmond. Massey can be reached at www.nickmassey.com.  Securities offered through Securities Service Network Inc., member FINRA/SIPC.