Be sure to see Lakshman Achuthan commentary Synchronized Surge in the Think Tank this morning on ECRI’s end of recession views . . .
In any great organization it is far, far safer to be wrong with the majority than to be right alone. —John Kenneth Galbraith
Asian currencies continue to sell off vs the $ on the heels of the news yesterday that South Korea said they will look into hot money inflows stemming from the $ carry trade and the Bank of Indonesia said they are looking into the foreign buying of bills. This follows the news a few weeks ago that Taiwan was limiting foreign deposit holdings and Brazil was taxing foreign inflow transactions. As I mentioned yesterday, we may have reached a short term pain threshold in terms of $ weakness and foreign countries are fighting back as they certainly won't wait for...
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July 17th, 2009 at 9:07 am
I think ECRI is going to eat everyone for lunch on this one. All these guys do is recession and recovery forecasting, and they’re looking at stuff that goes back BEFORE the great depression. It’s interesting to watch the celebrity bears like Krugman and Roubini try to cling to their negative tome, while “allowing” that a recovery this summer (ECRI’s forecast since April) is possible.
July 17th, 2009 at 9:36 am
These U.S. leading indicator growth rates can in fact turn positive, but then turn negative again as in the depression. Lakshman Achuthan is conveniently only showing the indicators performance during the past “mild recessions” and not going back to the late 20’s early 30’s where the growth rates went positive for a while and then went back negative. We probably will follow a similar path since we are not experiencing a typical recession, we have entered some type of depression.
The question I have, is what is driving the current ECRI leading indicator growth rates up? If it is stock prices or oil prices from March to now, big deal. If it’s actually being driven by growth in manufacturing orders then that would be impressive. But that isn’t happening, manufacturing is still consolidating and shrinking (excess capacity big time….worldwide).
See the below Real Money link from 2002 with an ECRI chart showing the USLLI and USCI growth rates from 1928 to 1940 (2nd chart).
http://www.thestreet.com/p/comment/spincycle/10040304.html
July 17th, 2009 at 10:08 am
I agree Steve. I think that their model is being head faked. Also, even if we do get this supposed “recovery” or technical end to the recession, will it really matter? Did it matter in ‘01? Unemployment will continue to get worse, the housing market will continue to get worse and languish, the stock market will most likely do what it did in ‘02 (take a dive and find new lows) or at least retrace most if not all of this advance from the lows.
So they could be right but, does it really matter in any material way, this time?
July 17th, 2009 at 10:14 am
Achuthan has been way off the mark and refusing to acknowledge last year’s recession until he was knee deep in it was idiotic. Everyone here knows that recessions initiated by debt deflation/financial crisis can’t be compared with regular business cycle recessions caused by tighter lending conditions, which can be alleviated by easing.
ECRI are intellectual pygmies. Get them out of my face.
July 17th, 2009 at 10:51 am
@LB
as for forecasters…this…
http://www.msnbc.msn.com/id/31910717/ns/business-eye_on_the_economy/
““We are in a balance sheet recession,” said Laura Tyson, a former head of the Council of Economic Advisers during the Clinton Administration who is now one of President Obama’s economic advisors. “We haven’t gone through this kind of recession in most of the lifetimes of the forecasters. By the way, the models that forecasters use are the same models that missed the fact that we were going to have this recession. So let’s admit a lot of uncertainty here.”
July 17th, 2009 at 11:17 am
He’s talking his book – ECRI is a subscription service after all. It is a safe bet to call for short-term growth since we can all read the ISM numbers. When GDP growth turns positive he’ll brag about the call in a sales pitch. Judging by the arrogant tone of his post, he’s good at bragging.
Big deal. The interesting questions lie elsewhere.
July 17th, 2009 at 11:29 am
Wow, some refreshing honesty from Tyson, eh? But the market and the masses are in no mood to deal with reality, it seems. So this will be sloughed off in favor of the facts that support what people wish for. Until the bipolar market shifts again. Yeah, it’s a healthy market. Right.
July 17th, 2009 at 11:43 am
“When GDP growth turns positive he’ll brag about the call in a sales pitch. Judging by the arrogant tone of his post, he’s good at bragging.”
Achuthan would have been thoroughly at home reporting on wheat or iron ore production for the Nazis or Stalin. He has no capacity for independent thought, intellectual substance, conscience or credibility. Banana Republics are overloaded with people like this; it’s the Tyranny of the Incompetent™.
July 17th, 2009 at 11:43 am
OregonGuy
Yep. That’s basically my point. Yes they may have called the cyclical bounce correctly, but does it really matter in the context of what we’re going through here? Other than the fact that it’s good for a massive stock market rally driven by the psychology of a world that’s DESPERATE for good news and is willing to delude itself that all is well, even in the face of the overwhelming evidence to the contrary. Fascinating stuff.
July 17th, 2009 at 11:52 am
The consumer remains tapped out, has more difficulty obtaining credit, and even if they have access to credit, they’re mostly in the process of trying to repair their personal balance sheet…
Those lucky to have jobs are still in fear of losing them or seeing their hours scaled back…Their investments (in stock portfolios) have done NOTHING over the past 10 years…Their home has lost value over the last 2-3 years, and if they recently purchased, they may either be underwater or facing an option ARM reset which will further set them back…
So all I still see are economic “indicators” which temporarily tick positive due to massive government giveaways to stem the problem (through compensation benefits extensions – which will run out soon), and HOPE in the business community that this was, in fact, a garden variety recession…
When people are merrily shopping again, I’ll believe this is an ordinary cycle…Judging by anecdotal evidence that I see in the real world, it won’t happen unless someone happens to manufacture the artificial bubble (in something) of all time…and do it pretty quickly because the clock is ticking…
July 17th, 2009 at 11:58 am
Making the call over the winter that the world was not going to end was not the most difficult prediction of all time.
What happens from here on out will be determined by the savings rate and last time I saw that it was soaring….
July 17th, 2009 at 3:32 pm
Back in March, ECRI saw no recovery in 2009. Now the recession is over. They’re a lagging indicator of what the stock market has been doing.
July 17th, 2009 at 6:59 pm
spistol Says:
July 17th, 2009 at 3:32 pm
Back in March, ECRI saw no recovery in 2009. Now the recession is over. They’re a lagging indicator of what the stock market has been doing.
Hi Spistol,
Here is a link to a public ECRI statement on recovery from early April:
http://www.businesscycle.com/news/press/1374/
Lakshman
July 18th, 2009 at 7:44 am
I wonder who the institutional clients of the research are.
That would tell me more than the graphs and predictive accuracy of them.
Many obviously believe in the predictive powers and bought all the early cycle sectors.
Keep in mind that some are postulating that we had growth in the 2nd qtr.
July 18th, 2009 at 2:39 pm
So, I’m supposed to care about someone’s blackbox model that’s currently telling me everything is going to be fine? You have to be kidding me, Barry.
Here are a bunch of questions I can’t get an answer to: How does this model account for our massive debt levels relative to GDP? How does this model account for the fact that our taxes are about to go up? How does this model account for the aging of the population and the coming medicare crisis? What level of real GDP growth is this model predicting for next year or the next 5 years? If I can’t get an answer to these questions then why should I care?
July 19th, 2009 at 11:32 am
While ECRI appears to have a good, if not very good record at calling economic turning points, the question that I have raised is whether their current prediction will prove accurate.
One of the themes I have talked about repeatedly is my view that we are in a “new (economic) environment.” Assuming this is true, then models that have worked well historically may face rather difficult odds in the future as to their predictive powers.
I have recently commented about ECRI’s current forecast at the following link, as well as other economic forecasts at the same site:
http://www.economicgreenfield.com/2009/07/15/recent-ecri-statements/