Man, Markets & Manias, Part I

Brian Maher: Morning, Chuck. And welcome back to The Daily Reckoning.

It’s an honor to finally speak with you live. I read the Daily Pfennig every morning — I consider it essential reading for any investor and I heartily recommend it to all DR readers. In the interest of full disclosure, I should mention that we have a paid marketing relationship with EverBank. And happy to have it, too. We believe in their products. With that caveat out of the way, let’s get started. Welcome again, Chuck.

Chuck Butler: Thank you, Brian, I also read your stuff all the time.

Brian Maher: We’ve had a lot of new readers join The Daily Reckoning in the past year. So, let’s start with some background for anyone who may not know you. In addition to penning the Daily Pfennig, you’re the managing director of EverBank’s Global Markets.

You’ve also been one of our longer-running “characters” in these reckonings. You go a long way back with Daily Reckoning founders, Addison Wiggin and Bill Bonner. How did you begin your relationship with the DR?

Chuck Butler: Well, actually, it’s kind of funny. EverBank’s former marketing person was David Galland. And David and Bill Bonner were very good friends from way back.

And, Frank Trotter, my boss, knew Bill, too. But I had never met Bill or Addison. We were at the New Orleans Investment Conference. This is around 2003.

I had walked away from our booth for a minute. When I came back, my colleague said, “Hey, there was a guy here by the name of Addison Wiggin who wants to talk to you. He’s right over there.”

So I walked over there and introduced myself to him, and it turned out he’d been reading the Pfennig all the time.

I’d been reading The Daily Reckoning too [laughs] you know and we just started kind of hitting it off and talking about our newsletters. Incidentally, Addison told me that whenever he hired new writers, he’d put them in a room and give them a week’s worth of Daily Pfennig to read and tell them that’s how he wanted them to write. I was flattered by that.

I also met Bill Bonner at the conference. That’s basically how I met them at the New Orleans Investment Conference. We had been reading each other’s stuff but we had never met each other.

Brian Maher: Well, you’re definitely one of the livelier reads out there. The Daily Pfennig is not only informative, it’s massively entertaining. OK, your time is valuable, Chuck, so let’s get down to it.

Your analysis is always fascinating. Can you tell our readers what you think will be the biggest market story over the next, say, six months? Not right now, or next week, but six months.

Chuck Butler: Well, you know, I think, last year I did an interview with Peter (Coyne) and I said that I thought the U.S. economy was heading towards a recession. But obviously, that didn’t happen. Although, I’d say, we’re teetering, aren’t we?

I still think we’re going into a recession. It’s just been too many years since we’ve had one, and nothing that I see shows we have any type of sustainable economic growth. And that’s the kind of growth that strong economies are built on.

So therefore, I think we will head back into a recession. Then the Fed will stop with their talk of interest rate hikes and begin to cut again. And that’s going to change a lot of things in the market.

Brian Maher: You say we’re heading into recession. A lot of people would say we’re already in recession, even though it’s not official.

Chuck Butler: Yes, I think we are. I was talking about an actual, official recession, usually defined as two consecutive quarters of negative GDP growth. But I think when you only have .07% growth, that’s pretty much a recession to me.

Brian Maher: And didn’t the IMF just downgrade U.S. growth estimates from 2.6% to 2.4% for the year? It seems like they’re always revising their forecast downward. Who knows what it’ll be next?

Chuck Butler: Yeah, it’s funny how they do that, isn’t it? Every year they come out and they have these rosy predictions about how the years going to go, and they project all this growth.

And then as the year goes by, they always seem to cut them under the cover of darkness, so that people don’t see it. That seems to be the call to order almost every year now since 2009, that this is going to be the year that we come out of it. And then by June everybody’s realized that it’s not going to be the year that we come out of it. Rinse, repeat.

Brian Maher: Since the end of WWII, there’s been a recession I think every six or seven years, on average. So we’re more or less due for a real one if history is a guide, no?

Chuck Butler: Yes, we’re due.

Brian Maher: So the latest unemployment report doesn’t exactly inspire you with confidence, does it? Unemployment held at 5% last month, officially, but overall hiring slowed.

Chuck Butler: No, and the thing about the unemployment report it’s just too ambiguous. They take a survey, then the number crunchers make these adjustments to the data. So you don’t really ever really know what the labor picture is if you use the BLS report. But if you look at the labor conditions market index, which doesn’t have any “hedonic” adjustments to it, the actual unemployment number has been down for four consecutive months.

I just don’t get the BLS reasoning. And so the whole BLS report is just something I just wish I didn’t even have to deal with.