The beat goes on, but the music is increasingly out of tune – that's the major takeaway from this month's release of the C6 Real Misery Index (C6 RMI). Chartered Financial Analyst Tom Cammack, who created the index to provide ground-level truth on economic health, warns that a recession could set in before the end of the year.
Key findings from the April report include:
- Current reading of +12.2 is 8.1 points higher than the March reading
- Index is 16.6 points higher than April 2015
- Fed interest rate hikes unlikely through remainder of 2016
"I estimate a 60% probability of entering a recession this year," says Cammack. "Most of the leading indicators paint a similar picture. Americans should make smart decisions today to protect their assets tomorrow – there's no time to waste."
In practical terms, Cammack advises investors to be conservative with their investments and to raise cash levels in order to hedge against market volatility and weather the coming turbulence. This advice is especially important for investors over the age of 50, many of whom have decades' worth of savings hanging in the balance. Cammack has already implemented his own recommendations, raising his cash level to 50%. He states that "while it is true you are not earning much with cash, you are much better off than losing 10-20% of your stock portfolio value in a market correction."
Despite its name, the C6 RMI is designed to capture changes in economic health, good or bad. The index is designed to more accurately reflect economic conditions on Main Street than Wall Street. When the index is positive and rising, the economy is getting weaker and the Fed is under more pressure to adopt policies such as Quantitative Easing (QE) in the hopes of re-firing growth and encouraging lending. Politicians are also more likely to incur voter wrath when the index is rising. A falling index, on the other hand, means the environment is better for investors, especially those comfortable with more risk.
The formula behind the C6 RMI is comprised of six factors: the broadest measure of unemployment; the Consumer Price Index (CPI); salary and wage changes; stock market changes; inflation-adjusted interest rates; and the S&P/Case-Shiller U.S. National Home Price Index©. A more thorough explanation of how the C6 RMI operates is available as a free white paper from www.3bucketplan.com.
Looking ahead, Cammack has plans to publish an e-book that will detail an all-weather investment strategy that incorporates knowledge gleaned from the C6 RMI, along with a regular newsletter providing updates and insights.