The memo warns that a U.S. recession is likely as concerns about the stock market and economy have risen dramatically. It recommends shifting to a market neutral strategy as equity values will remain depressed for an extended period. Several indicators point to worsening economic conditions, such as banks entering risk aversion mode, high yield bonds becoming illiquid, weaker auto and revenue growth sales, impacts from low oil prices yet to be fully realized, and declining freight volumes. Caution is advised given these rising concerns about a potential recession.

1. RECESSION ALERT MEMO
From Bearish View to Recession Watch
In July, we put out an advisory letter with a negative view of the stock market. Since then, our
level of concern has risen dramatically. We now believe that a much more significant, prolonged
bear-market and even a U.S. economic recession are likely.
Current Views & Recommendations
 The sell-off will accelerate
 Daily bounce backs will occur offering investors the hope that the bottom has
come
 Interim short-term (dead cat) bounces are typical in a systemic long-term sell-off
 Equity values will remain depressed for an extended period of time
 Investors should shift to a market neutral (zero beta) strategy, which we believe
will generate mid to high single digit returns during the sell-off
 Investors should re-enter the markets after an extreme sell-off when stocks are
trading at levels that will offer a once-in-a-decade opportunity
The Signs
In 2015, we became concerned with the disparity in values among sectors and industries. Energy
stocks for example, were in a full-fledged correction while the glamour and momentum stocks
such as Netflix and Amazon were soaring, seemingly unaffected.
We observed a similar phenomenon in 2008 when the financial stocks began to sell off and
commodity producers and industrials continued to rise. We were in a commodity super cycle that
showed little signs of abating, or so we thought. What followed was a widespread crisis, which
destroyed demand in all sectors.
People Who Know
As a firm, our financial advisory group has worked for over 1,000 privately held companies
including some of the country’s largest high-end auto dealers, real estate developers, trucking
companies, fast food franchisee’s, IT firms, banks, agricultural producers, commercial airlines,
ocean cargo companies, etc.

2. Over the years, we have found that our clients are among our best sources for gaining insights
into the real economy. That is, we go directly to the people selling the products, building the
parts, moving the freight, serving the meals and flying the planes.
Conversely, we find that the information from economists, major brokerage houses or financial
news talking heads is always too late to be actionable.
Indicators
Banks Not Lending - Our clients that own banks indicate that they are entering a risk
aversion mode similar to 2008-09.
High Yield Bonds – These have sold off and in some cases have become illiquid as was
the case with the Third Ave. Mutual Funds ceasing redemptions a few weeks ago. No bid
can be found in many cases for High Yield Bonds at this time, rendering them illiquid.
Autos - We work for 5 of the top Luxury Auto Dealers in the country and despite the
headline news about the health of auto sales; they are seeing sales off rather dramatically,
despite some deep discounting.
S&P Revenue Growth - Reported revenues have weakened and in some cases declined
due to a strong dollar, stagnant wage growth and a cautious consumer.
Oil - The impact of the collapse of oil prices has yet to make its way through the system.
Feeder industries, such as: (1) industrials that make pipes, valves, fittings, etc., (2)
homebuilders, (3) consumer product and service companies, and (4) other serving sectors,
will see significant declines and even defaults and bankruptcies.
Freight - We work with several large private trucking companies. All are complaining
about much less product and cargo is moving through their facilities.
Minimum Wage – A client of ours who owns a substantial fast-food franchise is
experiencing meaningful wage pressure, and believes that a bump in the minimum wage
would cause them to consider exiting the business.
Airlines - Our client who owns a prominent airline is closing out a record year with the
benefit of lower fuel costs.
Caution and a watchful eye are critical at this time.
The preceding represents the opinions of The Stanley-Laman Group, Ltd., a Registered
Investment Advisor, and are not intended to be investment recommendations. All strategies
outlined and the views expressed offer risk of loss of principal and are not suitable for all
investors. Investors are advised to consult with qualified investment professionals relative to
their individual circumstance and objectives.