I hate it when two people I know and like do battle. This week, it is Mike Shedlock of MISH’s global economic analysis squaring up against my friend and work neighbor, Lakshman Achuthan of the Economic Cycle Research Institute (ECRI).

Mish ripped ECRI in an unsparing critique this morning: ECRI Weekly Leading Indicators at Negative 9.8; Has the ECRI Blown Yet Another Recession Call?.

I tagged Laksman about it — he is traveling out West on personal business. But he suggested that a fair and balanced approach would point out the CNBC clip on ECRI’s homepage (left column) as it “refutes Mish’s suggestion that we’re blind.”

Here is Lakshman:

“Despite Mish’s narrative, the main issue for investors is when the slowdown in growth was likely to start. Back in Feb 2010 we showed our Long Leading Index (not the Weekly Leading Index) and warned that the slowdown would begin by midyear. BTW, CNBC wouldn’t run our chart of the Long Leading Index vs. S&P but Carl went against the script and held up a printout for the camera.”

When he returns from his trip next week to NY, I will see if I can impose on Lakshman to write up something new for our consideration.

Category: Analysts, Cycles, Economy

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.

51 Responses to “MISH vs ECRI”

  1. Thor says:

    There’s also an article over at Prag Cap that touches on this a bit

    http://pragcap.com/ecri-no-recession-yet-2

  2. Super-Anon says:

    All I know is that back in 2007 on of those ECRI guys that was making the rounds was one of the biggest recession denying Wall Street shills making the rounds on CNBC.

  3. tradeking13 says:

    The video may refute Mish’s suggestion, but does it refudiate it?

  4. Transor Z says:

    Barry, your endorsement of ECRI and LA carries weight but it’s impossible to discuss this thing because it’s all based on a black box. All we know is we’ve got Rosie saying -10 = recession and ECRI staff saying no, we’re at 9.8 but all that means is slowdown. And I guess (per Thor’s link) you’ve got folks trying unsuccessfully to reverse-engineer ECRI’s tools to see why they read their own tea leaves the way they do.

    Seriously, I don’t want to disrespect your endorsement but for those of us who aren’t “work neighbors” this plays like the the guy who invented religion saying god talks to him but in a language that only he can understand.

  5. flipspiceland says:

    @transor Z

    That guy would be Lord Blankfein, no?

  6. GreatWarrior says:

    Barry my buddy, I got to warn you for defending ECRI clowns like Lakshman, as I recalled those clowns of ECRI did a lot of DOUBLE Talk, All the times.

    They may say economy is still good since the ECRI Long Index is still pointing up, all while the weekly index is going down.

    Fast forward 6 months later when we are back in recession, you can bet your farm clown like Lakshman would appear on CNBC declaring the ECRI Weekly Index had “once again” perfectly timed the Recession. and he would conveniently ignore the Long Index.

    Barry buddy, you are not so Naive right?

  7. inessence says:

    Not to worry, all is well, Fed to “act” if soft recovery falters.

  8. Mike in Nola says:

    Tranzor: I think it’s really an argument over probabilities.

    Rosie says -10% makes a recession a practical certainty; if it’s that close, a recession is pretty likely.

    Hussman used the current ECRI level on his recession call, but was careful to point out it was just one factor. He basically said there’s never been a time when we had these several factors all at such and such levels and not had a recession.

    I think Mish is doing what Hussman did, but not consciously; there are enough other indicators of a coming recession that this is the confirmation.

    LA is apparently more conservative.

  9. NoKidding says:

    “Feb 2010 ”

    That was not the issue. Mish said Lakshman missed the recession call of 2007. He posted a Lakshman quote that unequivocally stated a recession was not expected just before the biggest recession of the generation.

    “Back in Feb 2010 we showed our Long Leading Index (not the Weekly Leading Index) and warned that the slowdown would begin by midyear. ”

    But neither he nor “they” have used the word recession for this current moment. I can only assume that “they” are waiting for someone else to take that risk. “slowdown” is timid wording.

  10. Mike in Nola says:

    Boy, the Republicans on the committee are such shills,

    “The Volker rule will send business overseas.”

    “Uncertainty about whether the rich will keep their tax breaks is keeping businesses from ramping up.” No matter that they have no customers.

    The securitization boys are griping today about the fact that the ratings agencies won’t let their ratings be used on public offerings because of the new liabilities imposed by FINREG, i.e. they won’t be able to get away with giving AAA’s for big fees. Of course, they can’t say this, so they say it will increase interest rates for consumers.
    http://ftalphaville.ft.com/blog/2010/07/21/293456/rating-agencies-dodd-frank-and-the-abs-market/

    Apparently anything that prevents fraud or helps stability will stifle business here and send business abroad.

  11. NoKidding says:

    BTW, I acknowledge Mish’s advice cost his followers a lot of the runup.

    If you follow Mish, you have been consistently over- conservative.
    If you follow Lakshman, you have been consistently over- aggressive.

    Since 2007, one outlook is clearly ahead of the other, and is also braver with vocabulary.

  12. Mannwich says:

    @Mike: Because for these people, fraud is all they (we?) have left to make the real easy money.

  13. dead hobo says:

    Lakshman offered:

    BTW, CNBC wouldn’t run our chart of the Long Leading Index vs. S&P but Carl went against the script and held up a printout for the camera.”

    reply:
    ————
    Here’s what I would like for my birthday or for an early XMAS present.

    This is but another remark from visitors to the CNBC set who state they were edited or asked to stay on a Pollyanna script. While I understand that on air time on CNBC is important for good business for all who are interviewed, whether I agree with them or not, I still am outraged that CNBC would require a degree of censorship for guests.

    Perhaps you, BR, or a guest author, might print a piece that exposes the CNBC censorship requests and puts these requests in the proper perspective. Were they to innocently manage air time for good control or were they to promote a point of view? Do other stations promote points of view? Given that many guests probably depend on CNBC for free advertising, I would accept anonymous attribution for those those need it.

    Sunlight is a great disinfectant.

  14. call me ahab says:

    Super-Anon says it right- the ECRI put on a woeful display of “denial” when everyone and their mother knew the “real” situation-

    and my question is why? Sometimes you have to believe your own lying eyes.

    also- TZ- I like this-

    this plays like the the guy who invented religion saying god talks to him but in a language that only he can understand.

    no doubt

  15. if one was wondering how to choose, between the two of them..

    Get out your “Two-Headed”-Coin, call “Heads”= ‘Mish’, and Flip..

    or, differently, the ECRI–We should wonder..

  16. DL says:

    I don’t know who’s right on the economics, but when it comes to diplomacy, my money’s on Lakshman Achuthan over Mish.

  17. O, to Sum:

    You ‘get Paid’ for Positions, not Hedges.

  18. Bokolis says:

    Why do all the fights have to be between palookas, tomato cans and cabbies…or, one of your faces crushing said jobbers?

    There’s no need to choose sides. Neither of these cats have all the answers, but the head-ramming might produce one, or at least enlighten us. True fight fans, as we (hope to) fit the metaphor, will be better off for it.

  19. ottnott says:

    I’m surprised that BR continues to hold such regard for Mish, given Mish’s rather wide ideologue streak.

    I can see the positives about Mish, but he’s like a stroke victim with half his brain and body immobilized by ideology.

  20. JustinTheSkeptic says:

    As Johnny Cash you to say: ” How highs the water mama!”

  21. Mish says:

    The Issue here is not the validity or use of WLI.
    Indeed I pointed out some uses.

    It is Lakshman who is not being fair, pointing out a self-serving comment on its site.

    What I care about is what Lakshman and the ECRI said and did.

    The ECRI put together blatantly inaccurate statements about a recession warning call it supposedly made in 2007. Some might think the word “lie” fits what the ECRI did.

    No doubt Lakshman would rather focus on other things.

    Transor Z also misses the point:
    “Barry, your endorsement of ECRI and LA carries weight but it’s impossible to discuss this thing because it’s all based on a black box. ”

    I do not like the black box either, and that is one of the things that may be causing confusion. However, black box or not, history suggests that once we get to the -10 level there was a recession 100% of the time.

    The question is this instance is … did the last recession even end?

    But all of that is moot. Black box or not, Lakshman is talking out of both sides of his mouth at the same time, confirming yet denying the WLI can be used as people interpret.

    As far “diplomacy” goes, Lakshman got far more than he deserved. I went way out of my way to point out both sides of the coin. I could just as easily have blasted him without taking a look at both sides.

    IMO there is no possible excuse for the ECRI to take statements out of context like it did. None.

    Those statements call into question the integrity of the ECRI itself.

    The main point of the article is NOT on the use of WLI or the interpenetration of it, but rather blatant deception by the ECRI in regards to claims it made about the WLI. There is no possible excuse. Moreover there is no excuse for repeated lies that the WLI has predicted every recession in advance.

    Clearly the facts, not just opinions, show otherwise. Excuses are irrelevant. The ECRI should issue an apology. If they do, we can move on.

    Mish

  22. super_trooper says:

    Cat fight?

  23. insaneclownposse says:

    Mish:

    I’m a big fan of yours. The debate you are having over the ECRI and WLI is too esoteric for me to follow, but I’m glad to see that macro economic events are finally unfolding the way you predicted they would. Keep up the good work. Your blog is extremely informative.

  24. And in breaking news, though the housing market is poised to recrash, the FDIC is insolvent, along w/ its GSE counterparts, unemployment is well over 10% by any reasonable measure, the only business worth being in involves gadgetry to make consumer’s lives ever hipper and more connected, and Obama’s beginning to look more and more like a Depression era President, but not Roosevelt, we have a raging debate underway about whether or not a model accurately predicted a recession.

    It’s my understanding it was a “Supermodel”, so investment decisions based on her predictions were tantamount to investing in the AAA tranche of a subprime mortgage CDO underwritten by Citi. Let’s hope you didn’t get burned by the lipstick.

  25. Graphite says:

    I don’t know who’s right on the economics, but when it comes to diplomacy, my money’s on Lakshman Achuthan over Mish.

    Indeed, I think that is precisely the issue. Achuthan wants to participate in the bullish recovery consensus and not ruffle Wall Street’s feathers, which is why he never listens to his own signals and waits until the plain truth of the recession has hit everyone like a sledgehammer to the face.

    Diplomacy has its place in certain pursuits but economic forecasting is not one of them.

  26. Graphite says:

    I’m surprised that BR continues to hold such regard for Mish, given Mish’s rather wide ideologue streak.

    I can see the positives about Mish, but he’s like a stroke victim with half his brain and body immobilized by ideology.

    I think we need to change the dictionary definition of “ideology” to “a belief system with which I strongly disagree.” That’s certainly the sense in which BR and most of his commenters are using it these days.

  27. impermanence says:

    Re: Mish v ECRI
    It’s interesting that people spend such an inordinate amount of time on something so inconsequential. It’s like having a debate over the exact second that day turns into night. Who cares?

  28. alfred e says:

    @curm: Good comment.

    “Let’s hope you didn’t get burned by the lipstick.”

    Classic

  29. Thor says:

    Graphite – How would you characterize Mish then? Fair and Balanced?

  30. Transor Z says:

    Mish,

    I do not like the black box either, and that is one of the things that may be causing confusion. However, black box or not, history suggests that once we get to the -10 level there was a recession 100% of the time.

    CPI, DJI… the composition of indices change over time. At least with CPI and DJI you know what’s in there. ECRI is secret sauce. Has it been tweaked since the previous recessions? Modified weighting of constituent elements? No one knows…

  31. call me ahab says:

    I think we need to change the dictionary definition of “ideology” to “a belief system with which I strongly disagree.” That’s certainly the sense in which BR and most of his commenters are using it these days.

    no doubt-

    as if one’s own ideology is the “truth” and everyone elses thoughts are wrong and therefore ideology-

    someone just the other day was deriding ideologues on this very site- and alas- the (de)dude always says the same stupid shit over and over and over and over again-

    who’s the ideologue? Besides that- you’re a bore if you are always singing and dancing the same tune-

    put a nail gun to my head already

  32. RW says:

    Mish is very astute and was way ahead of the pack in assessing the growing risk of deflation. Further ECRI’s PR can be slippery sometimes, appearing to claim greater accuracy and/or less equivocal turning point detection than justified so Mish’s criticism is valid IMHO.

    That said Mish does seem to have a certain fondness for apocalyptic imagery and also a fondness for certain bugbears or bogey men of which unions are one but, in that regard, what SecondLook said. Wage levels are not the US’s biggest problem and the lack of economic models giving greater weight to non-wage influences on price level has frankly created a dangerous blind spot in the macroanalytic regime.

    Stated another way, wage stagnation has been augmented by increasing financial risks transferred onto families which in consequence receive less benefit than nominal pay packages would indicate; e.g, The Great Risk Shift by Jacob S. Hacker. That is, wages in the US generally and non-union wages in particular, represent no premium on a risk-adjusted basis; they represent ‘discounts’ as the hollowing out of the middle class over the past several decades attests.

    NB: Elizabeth Warren has done extensive research in this area and both her expertise and advocacy of the middle class probably means the powers-that-be will not permit her to be the head of the consumer protection agency mandated by the financial reform act. JMO

  33. owen b says:

    I rather doubt anyone here has actually read what ECRI said publicly about their recession “call” back in 2008. If you can stop and take a breath, these are two interesting articles.

    March ’08 recession call:
    http://kirklindstrom.blogspot.com/2008/03/ecri-calls-it-recession-of-choice.html

    Jan ’08 recession warning (including this nugget which has been left out of the current discussion):

    “WLI growth then turned down sharply, and, by year-end, had plunged to its worst reading since the 2001 recession. This indicated an economy seriously vulnerable to recessionary shocks. As a result, a self-reinforcing downturn has already begun. If allowed to continue, it will amount to the vicious cycle known as a business cycle recession.”

    http://kirklindstrom.blogspot.com/2008/01/ecri-says-there-is-window-of.html

    If anything ECRI is guilty of thinking policy makers are awake.

  34. cannuck says:

    Mish didn’t miss the rally at all, he called it early and said for bears to stay out of its way or they risked getting slaughtered. he called the dollar and bond rallies very accurately as well as the housing crash and market dump. All this said he doesn’t offer trading advice. Secondly those who lambaste his ideology without reason saying he’s akin to a stroke victim with half a brain is convenient, its always okay to use ideology when it matches your own but when it doesn’t its time to bring out the insults. If you follow mish you know he’s on top and has been on top of the biggest global problems: corporate welfare, massive debt funding unsustainable public pensions and wages, use of debt to hide the public from the true cost of their largess, etc. Barry is to the left (even though he calls him self a realist/pragmatist – his biases shine through) and mish is to the right (unabashedly so but also operates as a realist/pragmatist in terms of market position). Mish is rough around the edges and not politically groomed while Barry can talk a sweet song in front of the camera. Both offer great voices that you should listen to. The fact that Barry respects mish is a vote for his desire for multiple signals in his decision making – I agree – the more signals the closer the odds of finding the truth

  35. Winston Munn says:

    The black and white of it is that it’s all gray.

  36. Graphite says:

    If anything ECRI is guilty of thinking policy makers are awake.

    Or pretending and hoping that they’re a lot more powerful in directing the economy than they really are.

  37. call me ahab says:

    How would you characterize Mish then? Fair and Balanced?

    fair and balanced?

    is it a newspaper of public record? It’s his site w/ his thoughts- you can read them or not- agree with them or not-

    I don’t think he’s trying to win the pulitzer prize

  38. Thor says:

    Ahab –

    It was a play on words – sorry you missed it.

    “It’s his site w/ his thoughts- you can read them or not”

    Right back at you buddy ;-)

  39. cannuck says:

    If you want to learn a lesson on fair and balanced than you should go work for the search team at Google try being fair and balanced on a billion websites algorithmically – i bet its a bitch and impossible to do perfectly, no source can ever be fair and balanced, the number of signals and variables is so huge the best you can hope for is an approximation of fair and balanced and then always within a context and sometimes its the context that kills you. Mish is mish – he serves up a very strong libertarian, pro sound money supply, anti big government signal – take it for what its worth, he’s a quality signal – his track record is sound and his reasoning is based on both socioeconomics, politics, market signals and idiology – they have made sens and have produced better than par results in terms of predictions – not many people can claim that. He puts his shizz on the table just like barry does, we’re just back seat drivers. If you read lots you’ll quickly learn everything is grey and very little applies universally so you need to get good at balancing the inputs yourself.

  40. Thor says:

    Cannuck – did I say I was looking for fair and balanced, or expecting Mish to be fair and balanced? Was just asking Graphite how he saw Mish. Bad choice of words obviously ;-)

  41. call me ahab says:

    but thor-

    but I never gave you the impression that you needed to be fair and balanced- right? anyway- I guess you were just messing around w/ the FOX line-

    by the way- just checked CV’s site- I know you are a lurker- but I wasn’t on their today-

    what happened?

    I may have to break out my “General Disarray” nom de guerre

  42. Thor says:

    Ahab – I dunno, honestly I haven’t been over there in a few days. If I’ve got a lot going on at work or at home after work I don’t often check it – hard to keep up with 400 comments. Do I even want to look? :-)

  43. philipat says:

    David Rosenberg’s use of this data is more intelligent and pragmatic. He simply mines the historical data and puts the LI data into bands of probability of a recession after bands of ECRI readings. Enough said?

  44. habika says:

    All this said he doesn’t offer trading advice. Secondly those who lambaste his ideology without reason saying he’s akin to a stroke victim with half a brain is convenient, its always okay to use ideology when it matches your own but when it doesn’t its time to bring out the insults. If you follow mish you know he’s on top and has been on top of the biggest global problems: corporate welfare, massive debt funding unsustainable public pensions and wages, use of debt to hide the public from the true cost of their largess, etc. Barry is to the left (even though he calls him self a realist/pragmatist – his biases shine through) and mish is to the right (unabashedly so but also operates as a realist/pragmatist in terms of market position). Mish is rough around the edges and not politically groomed while Barry can talk a sweet song in front of the camera. Both offer great voices that you should listen to.

  45. comet52 says:

    I’ve gotten more useful info out of ECRI’s forecasts over the last 2-3 years than I have gotten from Shedlock’s old testament style perma-bear bit. YMMV.

  46. rktbrkr says:

    To add another perspective Bernanke’s downbeat comments about long term unemployment staying very high for a long time reinforces the impression that consumers will be sitiing on their wallets for a long time too – and without the US of A consumer what scenario do we have for pulling out of this recovery- we are in a recovery right?

  47. owen b says:

    To keep this all straight one should read TBP Oct. ’09 post, “Mish vs ECRI vs Krugman”: http://www.ritholtz.com/blog/2009/10/mish-vs-ecri-vs-krugman/

    Lakshman’s reply addresses many of the things being rehashed today (comments from Anirvan on technical aspects of ECRI are there too:
    http://www.ritholtz.com/blog/2009/10/mish-vs-ecri-vs-krugman/#comment-226154

    What gets glossed over is that ECRI was right about the cyclical recovery call, a view that had to be behind a “take down” of ECRI by the otherwise unlikely couple of “Mish & Krugman.”

    There was ECRI’s reply to Krugman’s comments in support of Mish:
    http://krugman.blogs.nytimes.com/2009/10/13/leading-indicators-and-the-shape-of-the-recovery/#comment-243819

    Which ended with an ECRI request of Krugman, one that as far as I can tell remains unanswered:

    “While we don’t necessarily expect our clarifications to change your views about the near-term course of the business cycle, we would hope that if, a year from now, ECRI’s leading indexes are proven to have been correct, you would publicly acknowledge the same. After all, the proof is in the pudding. “

  48. [...] until we get the jobs data at 8:30 and then we have our Leading Economic Indicators at 10 (and Barry Ritholtz has a good take on this here) and those are expected to be a depressing -0.4% so a lot to slog through before we can, once [...]

  49. Ted Kavadas says:

    I would look forward to reading Lakshman Achuthan’s comments / refutations of Mish’s article.

    I believe that much of ECRI’s work and past performance is misunderstood. Perhaps at the core of the confusion is the fact that there are two facets of ECRI’s figures: what they actually are, and how ECRI officially interprets them.

    The current readings of the ECRI WLI Growth are interesting for a variety of reasons. I’ve commented upon it at this link, for those interested:

    http://www.economicgreenfield.com/2010/07/18/ecri-wli-growth-wild-times/

  50. Lugnut says:

    For my money, Mish has been more razor focused and vocal on the evolving deflation cycle that that has come into play more than any other analyst (I have read). Like the slow boiling frog analogy, its a slow progression, and I think Mish felt the water go up the first couple of degrees a while back and called the signs quite early on.

    To me ECRI reports are like AAA credit ratings and the rating agencies. Nothing should be taken at face value alone anymore.