An Extreme Drop in Consumer Sentiment

The most recent report from the Conference Board (a global, independent research association) has highlighted a very disturbing drop in consumer sentiment that could serve as a reliable leading indicator for another significant recession, and sooner than previously thought.

The data has shown that consumers’ expectations about the future have dropped hard in the past 3 months, and they are now much less optimistic about the future than about the present. This is almost a record, with the spread reaching levels that we have not seen since the only time it was lower, a few months at the beginning of 2001. When the spread between consumer expectations and present conditions bottoms and starts to head higher, we have consistently seen recessions very shortly after. We think you will find the following chart compiled from the historical data by SentimenTrader to be very compelling.

We have highlighted in yellow every time the indicator has bottomed and started moving higher shortly before a recession (the shaded areas) over the past 40 years. As a leading indicator, this seems to paint a pretty clear picture.

Although the exact timing of an upcoming recession is not known, a strong leading indicator such as this should at least get us thinking about what needs to be done to prepare for it. When a recession occurs the stock market generally falls and people sell to cash. Most investors run to cash during recessions to prevent even greater losses. However, cash does not necessarily protect you if the purchasing power of that cash is also dropping due to steps put in place by the government or central bank to try and reduce the impact of the recession.

One solution to prevent this loss of purchasing-power is to buy Gold or Silver. Precious metals take on the properties of cash, but with the additional benefit of shielding against loss in purchasing power as a result of unintended consequences from the government and central bank response to a recession. They often gain even more than simply maintaining purchasing power (sometimes by a large multiple) during the volatility and uncertainty, putting you even further ahead.