Strategist that Warned of Market Peak in 2007 Says to Get Defensive

Chris Puplava, Chief Investment Officer at PFS Group, says the best of US economic growth for the current cycle is behind us and, if trends continue, there is a decent chance the US could enter a recession as early as next year.

Puplava regularly warned Financial Sense readers that the market was peaking in 2007, comparing the situation to the tech bubble of 2000 and telling readers to Watch Out Below!

Here's what he had to say about the current environment on Thursday’s podcast:

“Economically, I think the best days for the US economy are behind us. I think we are still growing, but we are growing at a slower rate and that tells me that we are moving into the latter stages of this economic expansion and if that's the case you want to focus on capital preservation and protecting your assets rather than trying to hit a homerun.”

What are some of the most important things you think investors should be watching moving forward?

“Well, number one, I would be looking at the credit markets. The credit markets are...typically dominated by people who are managing money for institutions or large firms and so they are going to have less emotion—they are going to be more analytical about their decisions...so that's why I really like looking at what the credit markets are saying because they tend to get it right more often than not. And the credit markets peaked in 2014, meaning that junk bonds and investment grade bonds reached their peak valuations when you look at their yields relative to Treasuries.

The other thing I'm really going to be paying attention to is the message coming from corporate CEOs and CFOs. There's a saying that the CFO always knows. They are the ones that see the costs, see the revenues, and have a pretty good idea of the riskiness of projects in terms of whether a company should be expanding or not. When a corporate exec begins to be nervous about the future based on what they see, hearing things from their customers and their endpoint sales targets, what they first start to do is hold off on expanding other projects."

Scroll down to read more of his comments, or click to hear a preview of his interview below.

"Then as corporate executives become more concerned, they stop hiring. They don't fire right away but they stop hiring. The next progression is to lay off your easiest workers which are temporary workers. You don't really have to worry about lawsuits in laying a temporary worker off as you would a full-time employee with all the severances that would go with that…

One of the things I'm looking at and is somewhat of a concern right now is the growth in temporary service employment. That is a good lead on general employment. I know we had a decent February employment and a lot of the bulls were quick to point to that but there was some really concerning points about the data that we got in February and one of them was continued weakness in temporary employment…

The other thing employers start to do is if they begin to see weakness in their businesses, they start to have their workers work less overtime hours. So looking at the average employment work week is also a good read on the general strength of employment. And we've begun to see that fall. The average weekly hours for total private, if you look at the year-over-year change, it's only been growing at 1.5%, which is almost the weakest level since 2013.

So when I'm looking at large businesses, looking at the small business survey, corporations are cautious and you can see that based on their earnings and even in conference calls. And the concern is if a business remains cautious for long, eventually they are going to start laying off workers if the environment doesn't improve.”

Listen to this full interview with Chris Puplava, Chief Investment Officer at PFS Group, by logging in and clicking here. Not a subscriber? Click here.

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