If you’re bullish…

According to Mark Hulbert at Marketwatch.com, Trimtabs says we have been in a recession for six months and could be turning up out of it…

TrimTabs, the investment research firm in which Goldman Sachs Group Inc. in February became a minority shareholder, has both good and bad news about the U.S. economy.

Let’s start with the bad news: Not only is the economy in a recession, according to TrimTabs, it has been in one for six months now. The only reason that this isn’t more widely recognized is that it takes months, if not years, for the government to officially confirm that a recession has started.

Now the good economic news from TrimTabs: There is a distinct possibility that the economy has already emerged from the recession, or is about to.

TrimTabs bases this relatively cheerful assessment on an analysis of daily income tax withholdings from the U.S. Treasury. According to Madeline Schnapp, director of macroeconomic research at TrimTabs, withholdings during March were 4.1% higher than one year ago.

According to an econometric model that TrimTabs has devised based on the Treasury’s withholding data, Schnapp is estimating that the U.S. economy added 48,000 jobs in March. That’s not spectacular job growth, to be sure, but better than the diminution in total employment that TrimTabs believes occurred in previous months.

Schnapp hastened to add that we should not expect this job growth to show up in the employment numbers that will be released this Friday by the government’s Bureau of Labor Statistics. That’s because, she said, the bureau uses a "backward-looking methodology (that) usually misses economic turning points."

In fact, Schnapp is predicting that the bureau on Friday will report that the economy lost between 75,000 and 100,000 jobs in March. In effect, TrimTabs is warning investors not to be overly concerned about such numbers, should the bureau report them to be this bad.

The daily tax withholding data from the Treasury Department is not the only reason that Schnapp believes we should ignore the bureau’s numbers.

Another is the TrimTabs Online Job Postings Index, which the firm describes as a "proprietary measure of online job availability." According to Schnapp, this index bottomed in early January and rose 1.2% in the past four weeks. She argued that "if the economy were collapsing, this indicator would be dropping like a rock, just like it did in 2000 and 2001."

Though the Hulbert Financial Digest does not track TrimTabs, it would appear to have navigated the market’s gyrations in recent years quite well. When I last wrote about its jobs growth projections, in May 2005, the firm was aggressively bullish, recommending that clients be 200% long – fully margined, in other words. That was a good time to be bullish, as we may recall. See May 2005 column

The firm turned bearish Oct. 15, within shouting distance of the market’s top. They remained bearish until March 23, when the firm turned neutral, and on March 31 it became moderately bullish, recommending an equity exposure level of 50%.

What would it take for the firm to recommend a higher exposure level?

Schnapp, in an interview, indicated that one factor that would likely lead her firm to become more bullish would be a marked increase in share buyback activity among U.S. corporations.

Even absent such a turn of events, however, Schnapp is willing to say that "once panicked investors realize that their fears of a deep and prolonged recession are not materializing, U.S. stock prices could shoot up very quickly."