The new year is upon us, and predictions for the next year and beyond are being generated by others, even as I write about mine. You will not read anything emanating from my crystal ball having to do with breakthroughs in science, or awards in sports or the arts; nothing about best movies, or actors, or even about stocks that are on the verge of soaring. I cannot discern even the barest glimpse of what will likely happen in fashions, or autos, or computers and all the associated gizmos and gadgets, or hardware and software. Medicine is out and so is the law. The reason is because I don’t know beans about any of those subjects; therefore, I will not predict anything about them.

But I do have a track record in macro economics and finance, and a keen mind and eye on how the pieces in those domains fit together. That’s my niche, and it is my focus in this short narrative.

The Economy and the Financial Markets. In general the markets (stocks, bonds, and real estate) are driven by money and by expectations about the economic future. Money inflows act positively on values and so do expectations about economic growth.

LEI Index. The best single predictor of economic growth is the index of leading economic indicators. It contains 10 factors that look 6 to 9 months ahead. For example, new housing building permits issued today foretell the level of activity in r/e sales, furniture, insurance, and related goods. So do the number of help wanted ads across the country. The trend in LEI index has been positive for the past year, but the last several months it has become weaker. The latest level was flat. This indicator now predicts zero growth in 6 months, and the trend is pointing toward a recession by the 4th quarter.

Large Truck Sales. An interesting economic indicator is the number of large trucks that are on order. Trucks haul 70 percent of all our physical GDP production. This index has fallen to about 30,000 new trucks being sold, a level that tends to predict the start of a recession. That level alone is not conclusive, but the trend is highly correlated with GDP. At a minimum It is pointing toward a slow down soon.

Capacity Use. Another good indicator of the economy is the age of the current expansion, and how much of our industrial capacity is being used to meet demand for all goods and services. On those two scores, we are entering our 7th year of expansion, and that indicates we are in the advanced stage of an expansion. Capacity utilization peaked at 78 percent in January, and today it is down to 75 percent pointing toward slower growth.

Consumer Sentiment. Spending drives the economy, not saving. Consumer and government spending account for 90 percent of GDP. Consumer sentiment is a measure of our personal finances and our expectations about the future. This index has fallen before the last 5 recessions hit us, but in particular, in the last two recessions, this index predicted a recession several months in advance. Today it is still in cautiously optimistic territory, but it is trending down.

Artificial Intelligence (AI) Models. I neither build nor monitor my own AI models mainly because the software is too expensive. But I do pay to view the predictions from a service that has a good record of reliability. This service currently shows rising interest rates and rising prices for energy in 2017. In addition, it shows falling stock values across 10 major indexes in the U.S., Europe, and the Far East for both 2017 and 2018. Stock prices are also a predictor of economic activity.

Momentum. Momentum is the term used to indicate the sustained direction of specific markets (up, down, or sideways). It is the indicator that I act on. Markets react to “exogenous” events (those from outside the markets), and they are often sudden—the actions of significant players, or politics, or economics, or startling news. Some are short-lived; others last for a very long time. My models are calibrated to react only to the major changes. These models predicted both the major market slumps of 2001-2003 and 2008-2010. They turned down in 2015, and then turned back up in 2016. At present they appear to have stalled along with the markets.

Conclusions. I expect sharp market downturns around the world soon, and a moderate to severe recession later in 2017 and into 2018. I also have serious doubts that anyone in the Trump administration will act prudently and effectively in bringing it to an end before serious damage is done to the economy, to jobs, to interest rates, and to taxes. I would like to be wrong on that call. But two of Trump’s advisors are dyed-in-the-wool conservatives who have never made a correct call about either the economy or the securities markets in their entire lives to my knowledge, and they are nearly certain to make matters worse rather than better with their recommendations. So sad, but elections do have consequences.

You are free to accept or reject anything in this narrative. I do not give personal advice about what you should do with your money. That is up to you and to those who offer advice for money, and who are under the scrutiny of the SEC. So please do not contact me about what actions you should take now or at any time with respect to your personal holdings. I don’t want and I don’t need the SEC in my life.