Last we met, ECRI was explaining how their weekly leading indicator was being used to justify positions and forecasts that were neither useful nor appropriate for the indicator. At least, according to ECRI, the creators of the WLI. Subsequently, Mike Shedlock, along with several others, challenged their data series and WLI.

This morning, Lakshman Achuthan and Anirvan Banerji, co-founders of ECRI, respond to the criticism, misuse and misinterpretation of ECRI’s Weekly Leading Indicators:

~~~

In recent months, ECRI’s Weekly Leading Index (WLI) has enjoyed a good deal of newfound publicity. We appreciate the attention, since the WLI is meant to help decision makers navigate the business cycle, and has done so quite effectively over the course of the last few recessions and recoveries. We’re therefore pleased that many more people are now aware of this decision-making tool.

However, the attention to the WLI has been accompanied by a deluge of misinformation which we tried to address in an article titled, Weekly Leading Indicators Widely Misunderstood. We’re concerned that, since then, further unenlightened commentary is still creating such confusion about this very useful tool that it will undermine confidence in its efficacy. We therefore address the main lines of criticism.

Criticism from the Bulls

One major line of attack comes from bulls and/or sell-side analysts and Wall Street economists whose sanguine forecasts may have been challenged by the WLI. Some of them have sought to discredit the WLI by finding various ways to explain why it should be disregarded. A number of analysts with such axes to grind have decided to find fault with its composition.

For example, a few have claimed that the WLI is driven mostly by stock prices, or, more generally, that it is overweighted by market data. Emblematic of this line of criticism is a recent Wall Street Journal article claiming that 5 of 7 WLI components are financial market indicators. Conversely, an analyst quoted in Barron’s claims to have “reverse engineered” the WLI, leading him to conclude that the WLI puts “a large weight” on housing:

These could all be cogent critiques – had they been valid. We therefore wish to set the record straight – hopefully, once and for all.

As for the supposedly heavy influence of stock prices on the WLI, please note that, during the first two weeks of July, the WLI was flat (and its smoothed growth rate kept falling) while stock prices rose. As for the assertion that 5 of 7 WLI components are financial market indicators, let us make an unambiguous declaration: this is flat-out false. Interestingly, although we informed the Wall Street Journal reporter concerned that his information was wrong, he didn’t see fit to run a correction on the story, which most readers therefore believe to be factually correct.

As for the “reverse engineering” of the WLI, the conclusion that it puts a “large weight” on housing is plain wrong. We can only infer that the model used to “reverse engineer” the WLI was grossly misspecified.

Criticism from the Bears

Opposing criticism comes from the super-bears, who were cheered no end by this year’s fall in the WLI, having been badly blindsided by the earlier 80% rally in stock prices since the March 2009 low. To them, the WLI’s downturn this year may have represented the promise of ultimate vindication.

Some prominent voices representing this group of analysts, who had hurled scorn on the WLI on its way up last year, seem to have decided that the WLI is their new best friend. One widely-quoted commentator famously declared that the WLI has always been correct in calling a recession whenever its growth rate fell below a specific threshold. Many who read this concluded, in essence, that the WLI was infallible as a recession predictor. All we can say is that we’re flattered, but if there’s anyone who thinks that an infallible economic indicator actually exists, he should get in touch with us right away, as there’s a wonderful bridge we’d like to sell him.

It’s true enough, based on the four decades of publicly available data, that WLI growth has never dropped this far without a recession. What most don’t know – apart from the fact that the WLI growth rate shouldn’t be used to predict recessions in the first place – is that, based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below current readings, but no recessions resulted.

Some bearish analysts, frustrated by our refusal to make a recession call thus far, have been hurling aspersions on ECRI’s agenda and motives, insinuating, among other things, that we’re ignoring our own indexes because we’re beholden to the Wall Street establishment, or to the political establishment, or to the academic establishment – or that we’re simply too timid to make a bold call. Anyone who’s familiar with our record is aware that, not only have we made many out-of-consensus predictions, but that, over the years, our views have irked each of the above interest groups, and a number of others for good measure. In fact, while a bit louder, the pattern of accolade and abuse we’ve received over the past year is entirely typical: it’s quite normal for ECRI to be alternately glorified and vilified by bulls and bears, liberals and conservatives, as the objective data swings up and down over the course of the economic cycle.

A prominent bearish analyst, who’s spent some time highlighting the WLI in recent months, penned gracious words for those who heeded the rising WLI last year, writing: “for those folks that paid attention, like Jim Grant, kudos to them.” What he likely does not understand is that Mr. Grant’s transformation from bear to bull last year wasn’t based on just the WLI.

Unlike analysts writing uninformed critiques of the WLI, Jim Grant has followed the work of our research group for decades. In his own publication, highlighting his shift to a bullish stance last year, he tagged our views as “the exception to the predictive consensus,” and quoted extensively from ECRI’s reports and his discussions with us to justify his change of mind, citing what he described as ECRI’s “table-pounding” missive sent to clients in March 2009, the week after the market hit bottom. In Grant’s words, “The implication could not have been clearer that a market rally, when it started, would be no sucker’s affair but the real McCoy.” Yet, his representation of ECRI’s views was nuanced, unlike the recent commentary on the WLI: Despite their cyclical upturns, he noted at the time, ECRI’s leading indexes “make no representation … that a strong recovery will deliver a strong and sustained expansion.”

What’s amazing to us is that none of the analysts who’ve written reams about the WLI this year have read ECRI’s reports or spoken with us. In every single instance, they’ve misinterpreted the WLI to suit their own agendas, with scant regard for objective analysis. Many of them mistakenly assume that the WLI was constructed based on the back-fitting of data, thus justifying their own efforts at fitting the WLI data to past history.

In the face of such widespread disinformation, we must assert that the WLI isn’t being distorted in any manner by its components that would make its movements less meaningful than usual. Nor will we abandon our rigorous and objective approach to recession forecasting that is based on much more than the WLI, which is one small piece of a large array of leading indexes. This includes the U.S. Long Leading Index (USLLI), which is quite distinct from the WLI, and is very different in composition – which is what makes ECRI’s leading indexes so powerful collectively.

ECRI’s Agenda: Getting the Call Right

Like everyone, ECRI certainly has an agenda and motivations, but they aren’t what critics ascribe to us. In fact, we’ve always been quite open about our agenda and the source of our funding, which inevitably helps shape our motivations. In fact, as an independent research institute with a broad client base, we’re beholden to no interest group, including academia. However, in order to assure ECRI’s continued viability, we do need to make forecasts that are both accurate and timely enough to be useful to decision-makers. Along with the preservation and advancement of the tradition of classical business cycle analysis handed down to us over three generations, that’s the entirety of our agenda, period.

In our book, we’ve described in detail how we look for pronounced, pervasive and persistent cyclical swings in multiple leading indexes in order to make a recession or recovery call. This is a disciplined, objective process we’ve always followed, allowing the chips to fall where they may. Our forecasting approach hasn’t changed, regardless of the torrent of criticism directed at ECRI or the WLI by interested parties.

The U.S. economy is now firmly in the grip of the economic slowdown that we’ve been predicting at least since January. The reality is that, historically, a little more than half of such slowdowns have culminated in recession. Thus, we already knew back in January that, once this slowdown began, there would be a significant risk of recession.

However, a recession is hardly baked in the cake, which is why we aren’t making a recession call at this time. Simply put, we don’t predict the predictors. If we see our collection of leading indexes (including the USLLI, which turns ahead of stock prices) swing decisively toward the recession track, we’ll make a clear recession call. Until then, we’ll keep monitoring our leading indexes, as we’ve done for decades.

Lakshman Achuthan and Anirvan Banerji, co-founders of ECRI

Category: Data Analysis, 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.

41 Responses to “Weekly Leading Index (Still) Widely Misunderstood”

  1. Petey Wheatstraw says:

    BR:

    The drop-down, auto-play ads are still overwhelming your content.

  2. mad97123 says:

    The ECRI claim that the Bears were ‘badly blindsided by the earlier 80% rally in stock prices since’, is nonsense as has widely been shown on this blog. Pretcher and the like called for covering ther short and predicted a bear market rally.

    “It’s true enough, based on the four decades of publicly available data, that WLI growth has never dropped this far without a recession.” Gee the bears really took this out of context then didn’t they.

    “What’s amazing to us is that none of the analysts who’ve written reams about the WLI this year have read ECRI’s reports or spoken with us. ” Mish quotes widely from their publications, and their commentary above doesn’t address Mish’s main point – they have mistrepresented (lied) about their record of calling recenssion in real-time, in their own publications.

  3. owen b says:

    I was waiting for this post for a couple of weeks. ECRI continues to defend itself well. Notable info for me was:

    1. no new recession call, yet
    2. the Wall Street Journal did not issue a correction after contacted by ECRI
    3. that ECRI has 20 years more of WLI history showing two times where WLI growth was weaker than today without recession (I’d like to get a hold of that data)

  4. HEHEHE says:

    Mish’s point was simply the WLI is at a level that has in the past always correctly predicted a recession but that ECRI never will say there’s a recession until its obvious to anyone with a pulse. Essentially, he’s saying stand behind your product.

  5. NoKidding says:

    Saturday, January 05, 2008
    ECRI Says Fed Has Room To Cut Rates Despite Fears of Inflation

    “WLI growth is now at its worst reading since the 2001 recession. However, the WLI’s recent decline is not based on pervasive weakness among its components, suggesting that a recession could still be averted,” Achuthan said.

  6. 4horsemen says:

    Like most purveyors to the financial industry, ECRI appears to do all this it can to make its track record appear better than it actually is. Aside from the nuances of the WLI or the LLI that many are arguing about, my concern is that, as was highlighted by Mish previously, their calls appear to blurry with some vagaries that allow them to appear correct in a number of outcomes.

    Not surprising really, given that my experience has shown the sell side to engage in that practice regularly with next to no repercussions.

  7. Robespierre says:

    owen b Says:

    ” Notable info for me was:

    1. no new recession call, yet”

    I don’t recall them saying that the Great recession was over either. It could be that I missed their call on that, however.

  8. VennData says:

    “…What’s amazing to us is that none of the analysts who’ve written reams about the WLI this year have read ECRI’s reports or spoken with us. In every single instance, they’ve misinterpreted the WLI to suit their own agendas…”

    Agendas? People have their own agendas?

    Wonderful how a well-argued, supported piece by LA and AB can still be rejected (rhetorically) by the bears whose loud-mouthed braggadocio regarding their investing acumen and predictive skills (aka egos) have been smashed by the ’09 bull. …the mother of all bull markets.

    Q: What did you do in the war er… a… Bush near depression daddy?

    A: Ohh, I listened to a bunch of partisan chicanery, from a bunch of people with agendas, son.

  9. owen b says:

    Robespierre Says:
    August 4th, 2010 at 11:14 am

    owen b Says:

    ” Notable info for me was:

    1. no new recession call, yet”

    I don’t recall them saying that the Great recession was over either. It could be that I missed their call on that, however.

    I FOUND THIS LINK TO A SPRING OF 2009 ‘END OF RECESSION’ FORECAST:
    http://www.businesscycle.com/news/press/1405/

  10. plantseeds says:

    4horsemen nailed it. the fine art of leaving wiggle room. the old “things have changed, that’s not what we said”. when i was a youngster back in the very early 80′s i used to love those “choose your own adventure books”. those were cool.
    http://en.wikipedia.org/wiki/List_of_Choose_Your_Own_Adventure_books#Choose_Your_Own_Adventure

  11. Ilya says:

    Lakshman simply points out that he didn’t mean what he never said. I rather like their data series. In conjunction with many others, it has saved/made me good wampam over the years.

  12. NoKidding says:

    Venn, can we go a thread without dragging live presidents into it?

  13. junkndump says:

    I’ve lurked on TBP for some time and have followed this ECRI debate with interest. Now I’m going to say what has been building up for some time.

    Many of the comments here seem to be based on exactly the kind of misinformation that ECRI highlights in their piece – which makes one wonder if you guys actually read this article? Basically, comments seem to be (still) parroting the Mish line, and attacking ECRI for not abandoning its own methodology. That is to say, backing the ideologues who want a double-dip so bad they can taste it.

    For my part, I’m not interested in scoring ideological points. I just want to save my money from bear markets, and make money in bull markets.

    If you actually look at ECRI’s long record, it’s better than anybody’s in making correct recession calls without calling wolf. Mish conveniently overlooks the context of ECRI’s statements – chery-picking quotes, because the broader truth that they call cycles better than him doesn’t suit his agenda. This includes ECRI’s end-of-recession call in the spring of 2009 (I think this is what sent Mish off the deep-end), which Mish (joined by Paul Krugman) was still bashing last fall, because of which both Krugman and Mish have enormous omelets on their faces, which they should be busy wiping off instead of being in total denial about their huge mistake and attacking a group that got it right.

    If you actually bother to carefully examine the real record (which I have done because I’ve followed ECRI closely for years and have been rewarded for it, the Economist magazine also did this), you’ll see that it’s really Mish who’s been lying through his teeth -knowing that if you repeat lies often enough, most people will take it for the truth.

    Take the Great Recession, for example. NoKidding correctly quotes ECRI as saying at the beginning of January 2008 that “WLI growth is now at its worst reading since the 2001 recession. However, the WLI’s recent decline is not based on pervasive weakness among its components, suggesting that a recession could still be averted.” That suggests that ECRI was INAPPROPRIATLEY late in making a recession forecast ONLY IF you believe, as Mish asserts, that the recession couldn’t have been postponed AT ALL BY ANYTHING ANYONE COULD HAVE DONE. But I was actually following ECRI at the time, in early January, and they said (as far as I can recall) that if policymakers didn’t act IMMEDIATELY (in a matter of weeks, not months), we’d look back later and say that we were already in recession in January. And that’s exactly what happened, but I wasn’t about to wait around for policymakers and had bailed out of stocks already.

    Mish has been trying to do to ECRI what Breitbart recently did to Shirley Sherrod – put together a mishmash of quotes taken out of context in a way that makes most people who look at it think that ECRI’s the one who’s lying. At least Breitbart had the class to own up and apologize for what he had done to Sherrod.

    My suggestion to those paying attention to this debate, stop basing your conclusions on second-hand sources and swallowing Mish’s disinformation! If you want to actually benefit from ECRI’s calls, take a look FIRSTHAND at the reports ECRI has on their website and judge for yourself. You’ll find the truth is very different from what Mish’s lies make it out to be.

    I don’t know Mish personally, but he seems to be exactly the kind of ideologue (with a troupe of followers) that’s trying to use the WLI to suit his own agenda. Contrary to the impression that he tries to create, he obviously doesn’t have access to ECRI’s reports, since he cherry-picks his quotes from what ECRI decides to put on their website. It looks like Jim Grant actually had full access to ECRI’s reports. Obviously, he didn’t make the same mistake as Mish and Krugman.

  14. mad97123 says:

    VennData Says:

    Wonderful how a well-argued, supported piece by LA and AB can still be rejected (rhetorically) by the bears whose loud-mouthed braggadocio regarding their investing acumen and predictive skills (aka egos) have been smashed by the ‘09 bull. …the mother of all bull markets.

    Smashed by the ‘mother of all bulls??? WTF? As Barry noted yesterday, the rally has only retraced 50% of the loss. The Market is still down 1/3 from it’s 2000 high, in dollars that are worth 40% less.

    I’m going with the Bears ‘braggadocio investing acumen’, they are way ahead of the Bulls. This secular bear market, not the mother of all bull markets .

  15. Thor says:

    junkndump – Brilliant!

  16. Transor Z says:

    With apologies to the Bee Gees:

    Nobody believes what you say
    It’s just your book talkin
    That gets in your way

    —————-

    Boy, sounds like I better run out and get me an ECRI subscription so I can be just like Jim Grant and get the INSIDE SCOOP on this whole stimulating debate!

    Or maybe not.

    Shit, all this thread needs to be a real infomercial is Ron Popeil, a studio audience, and a barbie doll sidekick.

    Sidekick: “Will WLI make an ordinary oven roast?”
    Ron: “No! WLI will make THE BEST oven roast you’ve ever tasted!”
    Audience: [Applause]
    Ron: “And I’ll even throw in LLI. You really need the complete set to have a complete kitchen. Todd English says it’s unlike any other product on the market today — Todd English!”
    Audience: [Applause]

  17. Robespierre says:

    owen b Says:

    “I FOUND THIS LINK TO A SPRING OF 2009 ‘END OF RECESSION’ FORECAST:
    http://www.businesscycle.com/news/press/1405

    They don’t actually said that the recession ended. They guy actually says this: “the end is in sight. The end of the recession is this year very probably by the summer… etc etc” Talking about hedging a response. Did they announced unequivocally that the recession was over that summer?

  18. NoKidding says:

    junkndump,

    You believe that the federal government could have taken actions in late 2007 that would have prevented this recession ?

    Hope you’re not investing with your own money.

  19. Thor says:

    Robespeirre –

    “It’s a done deal” and “Very probably this summer” sounds hedged to you?

  20. HEHEHE says:

    “Take the Great Recession, for example. NoKidding correctly quotes ECRI as saying at the beginning of January 2008 that “WLI growth is now at its worst reading since the 2001 recession. However, the WLI’s recent decline is not based on pervasive weakness among its components, suggesting that a recession could still be averted.” That suggests that ECRI was INAPPROPRIATLEY late in making a recession forecast ONLY IF you believe, as Mish asserts, that the recession couldn’t have been postponed AT ALL BY ANYTHING ANYONE COULD HAVE DONE.”

    Am I missing something or is this one of the most logically inept statements I ever read. If you publish data claiming it has predictive value what’s the point in making CYA statements like “a recession can be averted”. At that point you aren’t talking about your data and what it is displaying. You are talking about the hope for government intervention which has nothing to do with what your data displays. Either your data has predictive value or it doesn’t. Otherwise it’s of no use. ECRI wants to have it both ways.

  21. Robespierre says:

    Thor Says:

    “Robespeirre –

    “It’s a done deal” and “Very probably this summer” sounds hedged to you?”

    Yes because in English all you have to say when you have conviction is:
    “My indicator says recession is over.”

  22. owen b says:

    Robespierre Says:
    August 4th, 2010 at 2:07 pm

    owen b Says:

    “I FOUND THIS LINK TO A SPRING OF 2009 ‘END OF RECESSION’ FORECAST:
    http://www.businesscycle.com/news/press/1405”

    They don’t actually said that the recession ended. They guy actually says this: “the end is in sight. The end of the recession is this year very probably by the summer… etc etc” Talking about hedging a response. Did they announced unequivocally that the recession was over that summer?

    Robespierre,

    I’ll take your question as a serious one, even though it seems unlikely that that you missed ECRI’s call for recovery to begin by the summer of 2009.

    It was in fact part of a Newsweek cover story that summer which President Obama was forced to reply to: http://www.newsweek.com/2009/07/13/the-recession-is-over.html

  23. Thor says:

    Robespierre – I see. In my version of English “It’s a done deal” would qualify as conviction.

    We see what we want to see I suppose.

  24. Robespierre says:

    Thor Says:

    “Robespierre – I see. In my version of English “It’s a done deal” would qualify as conviction.

    We see what we want to see I suppose.”

    Dude, not taking sides on this debate but when you say “it is a done deal” and immediately qualify with a “probably this summer” well I call that hedging your answers… Now maybe people that pay for their advice got a letter saying “go all in recession is over” then sure that is what I call non-hedged response. Otherwise they can always go back and said well you know we said “probably” but you know there was this “black swan” impossible to predict etc etc

  25. Thor says:

    Rob – As I said, we see what we want to see. Let’s just agree to disagree shall we?

  26. dwkunkel says:

    The WLI sounds like another of those proprietary black box indicators. If the methodology behind it was documented, the controversy would disappear along with their ability to charge for deciphering it.

  27. Proof, once again, that 2 + 2 may always = 4, but that interpretations of what 4 and 2 and plus signs actually mean are what really matters. But, oh well. If it straightforward, there wouldn’t be any economics blog. Thanks, Barry, for providing a space for this entire piece, giving us a chance to make up our own minds.

  28. Mish says:

    Mish has been trying to do to ECRI what Breitbart recently did to Shirley Sherrod – put together a mishmash of quotes taken out of context in a way that makes most people who look at it think that ECRI’s the one who’s lying.

    That is point blank asinine
    I proved 100% without a doubt that the ECRI – back revised history – taking quotes out of context.
    Worse yet it was clearly for promotional purposes.

    They also clearly stated AND Repeated for emphasis

    “This is an index that’s been around for over a quarter of a century, and over that time (shown here) it has correctly predicted every recession and recovery in real-time.”

    I need to repeat that, over this entire time period, I was present to see each of the correct recession and recoveries calls in real-time, without false signals in between.”

    But it gets worse – The ECRI took their own out of context statements to purport that absurd claim

    One has to have holes in their head to defend that.

    This is NOT about how good the indicator is for other purposes, This is about direct blatant misrepresentation of the facts, and about the ECRI speaking out of both sides of their mouth regarding the ability of the WLI to predict recessions.

    There is NO excuse for that.

    Mish

  29. Graphite says:

    Looks like ECRI reserves its most heated criticism for the bears and is repeating the errant Wall Street permabull nonsense that bears are “hoping for a recession.” Like most of those residing in the Washington/NYC axis they apparently have some difficulty distinguishing between a.) hoping for a recession, and b.) refusing to buy into the Tinkerbell economy, where things will always get better as long as everyone keeps believing and hoping that everything’s fine. Even as a huge long-term bear I would love to see the Dow at 20,000, but I want it to get there on the back of sound economic and financial fundamentals, rather than yet another hit off the cheap credit crack pipe.

    Of course, they don’t name the names of any super-bears who were “caught off guard” by the rally because most of them weren’t, as others here have noted. Prechter, Faber, and Mish were all bullish for most of the rally from March 2009 to November 2009, and here we are trading about at the November ’09 levels almost one year (not to mention a flash crash and several liquidity scares) later.

  30. Graphite says:

    But I was actually following ECRI at the time, in early January, and they said (as far as I can recall) that if policymakers didn’t act IMMEDIATELY (in a matter of weeks, not months), we’d look back later and say that we were already in recession in January.

    Act immediately and do what, exactly? What’s the magic way out of the deflationary crash caused by the biggest credit & risk bubble ever inflated in the history of man? Ben Bernanke had his hand mashed down on the “MORE CREDIT” button through the entire 2008 meltdown and it did no good. Did ECRI publish any specific recommended courses of action which could have averted the recession their own indicator was suggesting was on the way?

    Anyone can publish a forecast that says, “the economy will do fine as long as policymakers get everything right, otherwise it’s headed in the crapper.” You’ll be right 100% of the time because you can always in retrospect point to any outcome as evidence that policymakers either screwed up or got it right. Hell, that’s been Krugman’s shtick for over a year now.

  31. Andy T says:

    I’ve seen you on TV and read your stuff. You seem like a really smart and nice fellow. But this sort of commentary is pretty much useless information:

    “The U.S. economy is now firmly in the grip of the economic slowdown that we’ve been predicting at least since January. The reality is that, historically, a little more than half of such slowdowns have culminated in recession. Thus, we already knew back in January that, once this slowdown began, there would be a significant risk of recession.

    However, a recession is hardly baked in the cake, which is why we aren’t making a recession call at this time. ”

    That’s the culminating statement….and it basically says nothing about your assessment of the future.

    Which is OK.

    Sometimes the data just says “nada, don’t know.” Which is what those comments above translate to me. But, given that, I wonder why ECRI is even being discussed right now? What’s the “tension?”

    It sounds like you’re just like many others on Wall St. who give “nuanced” answers so as to never be 100% wrong. Which is OK. Because in this business you can NEVER be wrong….

    Never ever be wrong.

  32. Mish says:

    It just now occurred to me that some might not have seen my formal response

    ECRI’s Lakshman Achuthan Still Blowing Smoke
    http://globaleconomicanalysis.blogspot.com/2010/08/ecris-lakshman-achuthan-still-blowing.html

    Janet Tavakoli chimed in as well

    Mish

  33. susanj says:

    Mish,

    You’re promiscuous, like Nelly: http://www.youtube.com/watch?v=0J3vgcE5i2o

    Your ideology has you in bed with Ron Paul, but then your hatred of ECRI’s ’09 recovery call finds you in a one night stand with Paul Krugman.

    This does nothing to suggest your hands are clean, but rather that your principals aren’t… steady.

    When you scream “liar” at ECRI I’m reminded of the section in psych 101 about projecting.

  34. Ilya says:

    I fail to understand the hubub about ECRI. Nuanced opinions are a wise man’s way of saying that there are no absolutes. Even card counters lose big from time to time. Controlled loss mitigation keeps you in the game long enough so that Pascal’s ‘odds’ can work their Magic!

    ECRI’s data is a valuable tool in my shed but not the only one. Dismiss it if you wish but don’t play the bully on the playground lest you not be passed up to the 5th grade.

  35. ed l says:

    Why is anyone wasting time trying to find validation for a biased econometric data series where the authors deny claims about the makeup of their constituency yet don’t clarify the claimed falsehoods with concrete facts?

  36. David Merkel says:

    If you were ECRI, with your years of working on your models, don’t you think you would want to be the leading interpreter of your work?

    Cut them some slack, I say; if they are wrong, they will hang themselves, bit by bit. But compared to most economic forecasters, they have more to commend them than most.

    If you disagree with their way of doing things, then start your own newsletter. It’s a free country; outcompete them.

  37. David Merkel says:

    That said, I agree with Tavakoli, and have said as much to Banerji — giving some transparency to their models would aid their credibility considerably. But I understand their conundrum — it would destroy their business, so I get why they don’t do it.

  38. IvoZ says:

    BR: “Mike Shedlock, along with several others, challenged their data series and WLI.”

    BR, I would say that is not a fair statement regarding Mish’s most recent issue with ECRI. He has not challenged their data or methodology, but their interpretation of the data and revisionist history of how they interpreted the data. Mish has challenged the predictive value of their indices earlier, for example here

    http://globaleconomicanalysis.blogspot.com/2009/10/look-at-ecris-recession-predicting.html

    Facts are so far:

    1. ECRI did not call the 12/2007 recession on time, by hedging that policy makers can still avert it
    2. Later they took out of context their statement of “no recession” to falsely claim they called the recession on time. They even bragged that their call is better than an inverted yield curve.
    3. They said the WLI can predict recessions without false signals, then said current signal is false.

    To me it sounds that what Rosenberg & Co are doing is the correct way to use the ECRI data – use the data objectively and avoid the interpretation spin.

    Ad hominem attacks towards Mish, who pointed the inconsistence of the ECRI statements, are not suitable IMO, independently of Mish’s prediction accuracy or idealogy.

  39. Kirk says:

    Mish, with a due respect, I can’t disagree more strongly with this comment.

    “This is NOT about how good the indicator is for other purposes, This is about direct blatant misrepresentation of the facts, and about the ECRI speaking out of both sides of their mouth regarding the ability of the WLI to predict recessions.”

    I’ve been following and writing about ECRI for about a decade. They have taken the time to answer my questions via phone, email or on some of the message boards I’ve moderated where they participated.

    How long have you been following ECRI?

    I’ve found you can make anyone that says “white” look to say “black” if you take what they write out of context of their bigger picture.

    I’ll try to put together something better on my blog in the next few days but here is a brief summary of how I see it.

    ECRI warned in late 2007 that it was too early to CALL for a recession… but their indicators were WARNING of a recession just as WLI is now WARNING but not CALLING for a recession.
    http://www.investorhives.com/uploaded_files2/Kirk361.pdf

    In early 2008 ECRI said the economy was like Roman columns about to tip over unless someone (Congress and the president) acted QUICKLY to pass a stimulus package to prevent the columns from tipping over like dominoes. I posted their article on my blog and it is still there

    January 25, 2008: “ECRI Says There Is A Window of Opportunity for the US Economy”
    “The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession.”

    March 28, 2008: ECRI Calls it “A Recession of Choice”
    “The U.S. economy is now on a recession track. Yet this is a recession that could have been averted.”

    I took profits and reduced my allocation to equities. Too bad I didn’t go to 100% cash or short the market, but I’ve sure benefited from raising some cash to have to buy when the market was bottoming. We were called “Recession Casandras” by Bob Brinker on national radio shortly after posting that article when the S&P500 was at 1400.

    April 3, 2009: “Upturn in ECRI’s WLI Growth Rate Says US Business Cycle Recovery Ahead”
    The bears sure thought I was nuts to be buying stocks like FNSR, GE and even Citi to increase my allocation to equities then.

    Bottom line, I don’t believe ECRI is lying, have benefited from their work with documented portfolio results and I believe you rushed to judgment.

  40. Kirk says:

    Mish, with a due respect, I can’t disagree more strongly with this comment.

    “This is NOT about how good the indicator is for other purposes, This is about direct blatant misrepresentation of the facts, and about the ECRI speaking out of both sides of their mouth regarding the ability of the WLI to predict recessions.”

    I’ve been following and writing about ECRI for about a decade. They have taken the time to answer my questions via phone, email or on some of the message boards I’ve moderated where they participated.

    How long have you been following ECRI?

    I’ve found you can make anyone that says “white” look to say “black” if you take what they write out of context of their bigger picture.

    I’ll try to put together something better on my blog in the next few days but here is a brief summary of how I see it.

    ECRI warned in late 2007 that it was too early to CALL for a recession… but their indicators were WARNING of a recession just as WLI is now WARNING but not CALLING for a recession. Lakshman answered questions on my facebook group “Investing for the Long Term” on the topic “ECRI – Economic Cycle Research Institute”. It is a large, but closed group to keep out the troublemakers, but I’ll be happy to let you in to review what he posted.

    In early 2008 ECRI said the economy was like Roman columns about to tip over unless someone (Congress and the president) acted QUICKLY to pass a stimulus package to prevent the columns from tipping over like dominoes. I posted their article on my blog and it is still there

    January 25, 2008: “ECRI Says There Is A Window of Opportunity for the US Economy”
    “The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession.”

    March 28, 2008: ECRI Calls it “A Recession of Choice”
    “The U.S. economy is now on a recession track. Yet this is a recession that could have been averted.”

    I took profits and reduced my allocation to equities. Too bad I didn’t go to 100% cash or short the market, but I’ve sure benefited from raising some cash to have to buy when the market was bottoming. We were called “Recession Casandras” by Bob Brinker on national radio shortly after posting that article when the S&P500 was at 1400.

    April 3, 2009: “Upturn in ECRI’s WLI Growth Rate Says US Business Cycle Recovery Ahead”
    The bears sure thought I was nuts to be buying stocks like FNSR, GE and even Citi to increase my allocation to equities then.

    Bottom line, I don’t believe ECRI is lying, have benefited from their work with documented portfolio resutand blog and I believe you rushed to judgment.

  41. tfneuhaus says:

    Eh. Could care less what Achutan says, the ECRI is just a glorified coincident indicator of stock prices

    http://chart.ly/6q5cnt