This is the fourth edition of our new feature: Blogger’s Take.

We have seen an unusually active flow of economic data, and it has been pretty rough. While much of Wall Street has built-in expectations of a "Soft Landing," the
recent economic data flow has been rather negative; Earnings have been
excellent, but GDP, NAPM, Housing data are all ugly.

Today’s Question: Is Goldilocks still alive? Are we heading for a soft
landing, a hard thump, or something even worse? 

Here’s the Blogger’s Take:

"Financial entities now seem hard at work inflating earnings via some largely undisclosed version of (problem?) securities sales, and ratcheting up “fees” to customers. Of course my suspicion is that these transactions are conducted with Enron style off-balance sheet entities, or quasi-related hedge fund operators. But, we aren’t going to get even close to that aspect from public information. No sir, not even to first base. Here are some excerpts from the Citigroup conference call. If you actually listen to the call, the tone of the questions are NOT hostile, but polite. Given the failure of management to deal with these analysts in a forthright manner, I am amazed at their patience.

First, the analyst asks for the amount of the security gain. Finally, after slithering through the grass like a snake by responding about something else, namely “hedging performance” (another can of worms?), the exec gives a half ass response, as opposed to an answer:, coining the vague term “single biggest part” of the $296 million gain is from sale of securities. Hearing this, I wonder why she just doesn’t give the number? The analyst asks if the “number” is in “one of the pages”. The response is “no”, and then Krawchek ignores the followup question, “where can I get it.” We then get a direct question about consumer fees, and once again we merely get another response, as opposed to an actual answer.  Webster’s defines answer as "a correct response to a question" and defines response as "a reply, a rejoiner".

Russ Winter, Winter (Economic & Market) Watch


To bet on a soft landing is to bet that the market will defy
its own history. Clearly, there has been the occasional soft landing before,
there will be soft landings every so often in the future and this may be one of
them but it is important to know that history is working against you.

We are at a point now where data point after data point is
pointing to a slowing of some magnitude. That the economy will slow does not
seem to be the debate but the magnitude of the slowing is the debate. Usually
the stock market anticipates a recession by six to nine months. So far the
market does not seem to be pricing in a recession which is one solid talking
point for the no-recession-ever again guys. The bears say it is coming, just

My take is that recessions are a normal part of the cycle. I
have no reason to think this cycle will be different or strangely long in
duration. This plus the state of the yield curve which, Chinese buying
notwithstanding, is a warning. A recession in 2007 would set up for a big up
year for stocks in either 2008 or 2009. Many decades have two or three really
big up years, this decade has only had one; 2003. Iʼm not betting against
history on this one.

-Roger Nusbaum, Random Roger


There is little doubt among market participants that the U.S. economy
is slowing
. The only question is how
much and for how long? This most recent
equity market run was driven in large part by lower interest rates predicated on
the assumption of a soft landing. The Fed is not really tipping their hand with
expectations that they will remain on hold through the December
and January meetings
. A question for
equity market participants is what effect an economic slowdown may have on
corporate profits?

Post Internet bubble U.S. corporations have done an
admirable job of raising profit margins. Some may argue that this has come largely at the expense of labor,
broadly defined. Others claim that the
Internet revolution has finally trickled down to the bottom line of corporate
America. For instance, John Hussman at Hussman Funds has
written extensively on the idea that currently high profit margins will mean
revert to historical norms. An economic
downturn, soft landing or not, will put both hypotheses to the test. For those betting on continued earnings
buoyancy they had better hope that it really is different this time and
historically high profit margins continue at, or near, record levels.

-Abnormal Returns


I believe the risk of a hard landing is not insignificant, but recent data does not point in that direction. We are not seeing the hallmarks of a hard landing such as collapsing core durable goods orders, rising jobless claims, or plummeting consumer confidence. Without those signals, the Fed will stick to the soft landing story. Consequently, the Fed is not likely to view 3Q06 report as disastrous; they will view as in line with their expectations. Will those expectations be correct? Time will tell.

-Mark Thoma, Economist’s View

Remember last January? Everyone was talking about the yield curve even though it
was barely inverted at the time. Now, almost no
one is talking about the
yield curve, the one set of numbers that someone can and should
believe. The Yield curve is what it is, and it is quite inverted, signaling a
recession. Forget Goldilocks, the next recession will be an extremely hard
affair, led by a falloff in consumer spending, rising unemployment, and a
continued slowdown in housing.

I guess it’s different this time.
No one believes it because the Fed Fund rate is so much lower. Everyone is
forgetting about the massive leverage in the housing sector and what it will
mean to jobs when it implodes.

-Mish’s Global Economic Trend Analysis


Wall Street does have built-in expectations of a soft landing, but they get paid to be optimists.  Most people on Wall Street aren’t in the business of protecting capital, they are in the business of generating returns.  Those are two very different ways of looking at investment opportunities.  Overall, the data looks bad.  Pockets of earnings look great, but earnings have also become somewhat disconnected from the underlying economic realities they were intended to represent.  I discount their value as an indicator of economic health.  So what does that mean for a soft landing?  Ask me after the election.

-Rob May, Businesspundit


Over the last six to nine months the market’s mood has undergone a clear shift. Earlier in the year, when economic releases were weaker than expected, our screens reacted with lots of green, as it was a sign that the economy wasn’t getting too hot. Today (literally and figuratively), weaker reports are causing the market to sell off, as traders fret that the economy is starting to come in at
a harder angle than previously thought. At this point, it sounds almost too cliché to say (when aren’t we placing extra emphasis on future data), but each data point will be scrutinized
for any clues as to the economy’s direction.

One lesser known indicator which we have found to be quite useful over the last
several months is the commodities survey within the monthly ISM manufacturing
report. In this survey, ISM asks respondents what commodities are rising in price and what commodities are falling. In the past, peaks and troughs in this survey have been pretty reliable
forecasters of the direction of inflation (see the chart below).

In this month’s survey, on a net basis, six commodities saw price declines which
is the first negative reading since 2002.  When we first highlighted this
survey earlier in the year, we argued that the downtrend in the number of
commodities rising in price would likely lead to a decline in inflation.
Now that inflation has in fact declined, future readings in the ISM survey will
be even more important, as market watchers look for clues as to how hard or
soft the economy’s landing will be.

While current levels are certainly tolerable, any further significant weakening is unlikely to go over well in the market.


-Paul Hickey, Tickersense


Very nicely done guys.  I’m all ears for topic suggestions going forward . . .

Category: Blog Spotlight

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Blogger’s Take: Hard or Soft Landing ?”

  1. eightnine2718281828mu5 says:

    I remember over the summer when Barry predicted Q3 earnings hits and my comment was that ‘creative accounting’ would allow them to blow sunshine for an extra quarter or two.

    Right now I’m feeling pretty good about my prediction. :-)

  2. calmo says:

    Ok, eightnine2718181828mu5 (whatizit with this string of numbers again?) Not to mention some funny business in the trading in the last few sessions given GDP scores, Ford woes, escalating violence in both Iraq and Afghanistan,…Very creative stock market disconnect, yes?

  3. muckdog says:

    The stock market rally may be predicting a more robust economy going forward, just as the May-July slide was forecasting this slower period of growth.

    If the polls are right, then gridlock is returning to Washington DC soon so the investigations will begin and no significant legislation will be enacted for the next couple years. That is also bullish for stocks.

  4. ac says:

    I predict a medium rare landing.

  5. donna says:

    I predict we’re about halfway through the Coolidge administration.

  6. Tom says:

    This used to be a fun blog to visit but we are starting to split the umpteenth hair on this topic – is the pillow too soft, firm, medium firm or too hard? Basically, it seems to me the big picture is all about taking any lead topic (gdp growth, housing, inflation, and twisting a conclusion that 95% of the folk don’t get or if you try to explain this stuff to anybody – eyes glaze over. Really, the big picture should try to spot trends instead of reinterpret and rehash old news and anlyze things to death – my two cents. Otherwise – I come back mainly to read the linkfests – best part of the blog.

  7. M.Z. Forrest says:

    My vote is for stagflation!

  8. jj says:

    Nomura ‘s Resler looking for 3% in 4Q based on the ADP # ….. very strange

  9. Rich_Lather says:

    I’ve been thinking about this for some time. There is a disconnect with the news and the market. I see this as bait for the 3rd stage of a dow bull market looking for stooges to carry the weight while smart money leaves town. I thing the stooges here are actually the Chinese government trying to extend their unsustainable growth as long as possible. Eventually, the market will align with reality, and I see dire things on the horizon.

    The Rich prediction:

    * The stock market will tank in spite of heavy props by China to prevent the inevitable
    * The overproduction and recession that began with the auto industry will extend to most markets
    * The layoffs and cutbacks will extend the housing crash with excessive foreclosures
    * Excessive foreclosures will extend into the banking sector with at least one banking scandal, most likely Fannie Mae
    * The lack of confidence in the lending infrastructure in the US will lead to a lack of dollar confidence both in treasuries and dollar denominated commodities
    * The lack of dollar confidence will lead to hyper inflation and subsequent higher interest rate hikes by the Fed

    Am I way off base here? I see the early eighties being played here with a few more variables. Let me know what you think. Give me feedback.

  10. Posit Comitus says:

    1984 All Over Again. Reagan Revolution, only this time on steroids, hemorraging hedge funds, shoved up the ass. San Francisco R/E is over 75% ARM, with sexed-up loans in supra of any real value, so excess equity can be pulled.
    Need a visual? House … of … cards. Same-same stocks, everything a negative value *going in*. Last bit ‘o advice from 1999? “Stay the course, and go long.” Yeah, boyee!

  11. blam says:

    Much of the “unbalanced” world debate has been swept under the carpet. Steven Roach’s analysis has been with us for the past year and is still relevant, even though we have so far avoided a violent rebalancing.

    The structure of the US economy is unsound. The housing bubble and consumers “borrowing to spend” mentality have masked the hollowing out of the US productive base.

    The short term exit strategy appears to be inflation. The summer rally is a chimera to shield the truth before the election.

    Inflation always feels good while running ahead of expectations. But like a quart of vodka, the hangover is miserable.

  12. tj & the bear says:

    Are we heading for a soft landing, a hard thump, or something even worse?

    A new depression certainly qualifies as “something even worse”.

    It’s as if everyone is standing around on the deck of the Titanic arguing over how much water she’ll take on, simply because they can’t fathom her actually sinking.

  13. tj & the bear says:

    Are we heading for a soft landing, a hard thump, or something even worse?

    A new depression certainly qualifies as “something even worse”.

    It’s as if everyone is standing around on the deck of the Titanic arguing over how much water she’ll take on, simply because they can’t fathom her actually sinking.

  14. tj & the bear says:

    Are we heading for a soft landing, a hard thump, or something even worse?

    A new depression certainly qualifies as “something even worse”.

    It’s as if everyone is standing around on the deck of the Titanic arguing over how much water she’ll take on, simply because they can’t fathom her actually sinking.

  15. tj & the bear says:

    Are we heading for a soft landing, a hard thump, or something even worse?

    A new depression certainly qualifies as “something even worse”.

    It’s as if everyone is standing around on the deck of the Titanic arguing over how much water she’ll take on, simply because they can’t fathom her actually sinking.

  16. tj & the bear says:

    Are we heading for a soft landing, a hard thump, or something even worse?

    A new depression certainly qualifies as “something even worse”.

    It’s as if everyone is standing around on the deck of the Titanic arguing over how much water she’ll take on, simply because they can’t fathom her actually sinking.

  17. calmo says:

    ‘medium rare landing’ is my favorite so far…unless ‘burnt to a crisp’ comes up and then I may jump ship.
    Of course I like Tom’s unfun declaration that this (eye glazing) is a long way from the good stuff posted for our weekend reading pleasure.
    But nobody liked the candidates enough to say ‘Mish owns this’ or ‘Mark is out to (a very conservative) lunch’. …Nope, we have our own candidacy to consider and personally, it’s 1984 all over again or …
    I’m kinda stunned that so little was made of that GDP number and I do think we are in some kind of denial when we see that a year ago this was 4.9. Or are we hoping that next quarter will show that this second consecutive drop is not a trend but a ‘soft patch’ –remember those soft patches people? [These falling GDP numbers will go away, I'm sure of it.] No talk even of job dislocations that are coming on the heels of this residential housing market collapse. No, we are looking at the DOW and hoping its for real somehow, somewhere, over the rainbow…

  18. Eclectic says:

    When they handed out ears, you thought they said beers… and asked for a couple of great big ones.

    Topic suggestion (if anyone can remember):

    Terrorism; would it hurt the market or not?

  19. tjofpa says:

    “CDS spreads sink to lowest levels”

    Just reading about the latest wrinkle in this market -straight out of friggin Star Wars – CPDOs.

    In my mind this is the greatest source of “ill”-logic in the marts today. U buy a risky corp bond yielding 15% but pay 3% for insurance – reducing yield to 12%. But because of percieved “safety” (won’t be any counter-party risk when the tsunami comes, wink, wink) and artificial demand; that corp bond that s/b yielding 15% is today only yeilding 12 or 13% => further reducing net to 9 or 10%.

    Since 2002 summer sell-off was lead by quakes in the corp bond market put me down for a hard and fast sell-off went this s**t starts to unravel.

  20. Suspicious says:

    I read virtually every comment on this blog. There are very smart people here. I think everybody realizes that the US, while a great country, has serious financial problems: personal debt, trade deficit, budget deficit, hollowed out industrial infrastructure and all the rest.

    That said, on a risk/reward basis investors must ask themselves what is the most likely scenario to play out, and how to place the bet. Is is staying long and squeezing out a few extra percent on the upside? Or is it best to wait for a buying opportunity that may be quite attractive?

    For the money I manage cash is king at the moment. I buy beaten up stocks, make a few bucks and then sell. Can’t help it. I want to be in the game.

    I’ve got my eye trained on DXD. Who knows when to pull the trigger but my hunch is soon. My best guess is that a dollar crisis will be the trigger.