ECRI: The US is still headed for recession
The economic data in the US have been somewhat better of late but the ECRI’s Lakshman Achuthan argues that this is meaningless; you can’t repeal the business cycle. His view is that the indicators pointing to an end of cycle slowing into double dip are too well advanced for any policy response to have an appreciable impact.
Remember, ECRI said the 2010 double dip scare would blow over and it did. (For the record, I never got a clear sign of double dip either.) Other commentators like Hussman and Comstock were positioned the other way. ECRI are not saying the same thing here about this scare as they said last year.
My view: the market is rallying as we speak, despite a potential double dip in the US and despite the fact that Europe is already in a double dip recession and Italy has been sucked into the periphery yield death spiral. Do you think markets have priced the downside in here? I don’t.
Video below
Note Achuthan’s derision for the precision of economic modelling. He thinks the consensus has it wrong because of this focus. When Achuthan talks about forward-looking indicator ‘contagion’ it sounds to me like he is speaking to a fat tail amplifier type of effect, meaning that a confluence of multiple downward-pointing indicators amplifies the trajectory in that direction. Models do not capture this.
I watched Lakshman on CNBC this morning and was struck by his adamant refusal to reveal anything whatsoever regarding his algorithm.
He knows that it has value and the value is all his so sell.
Analysis like this is very relevant. Though I look more at the macro and do not worry so much about the daily or weekly ups and downs. I think that we are in a very long secular decline and have been since 2007 and the recent recovery has just been aberration in that long term trend. The debt unwinding still has some way to go especially in the private sector. Personal incomes are not sufficient to enable rapid enough repayments of that old debt. The problems extend to small businesses. They are finding debt is a burden still, this will mean a long term problem going forward.
Agreed. I especially liked his comments about the confluence of downside forward indicators and modeling. What he was saying to my ears is that you get multiple poor forward data streams coming together and amplifying the effect of the individual streams. A sum is greater than the parts in effect both on the upside and on the downside. Powerful stuff.
Yes and why most of the financial media are clueless. They are all of a similar mindset. They are looking for daily deals and short term sure bets.
Ed,
You are right. I think his emphasis on the ‘contagion effect’ did not register with the CNBC spokesmen, who are looking at market ticks for validating their opinions. For the CNBC guys, a stock market crash like 2008 indicates a recession, LOL. They completely miss the set of events that lead a stock market crash.
Market reacts to all kinds of news (Euro crisis, employment numbers whatever) and focusing fully on a reactive machine will not help in making a proactive decision.
Saw this a few weeks ago, it is worth a look : https://macrofugue.com/retail-sales-vs-revolving-credit-growth
While I think Achuthan could have made a better case, as far as rhetoric is concerned, the CNBC fellows were very rude. They could’ve rephrased their questions, in his terms, and get a more detailed answer. Also, they interrupted every other minute. I don’t turn on CNBC to hear Liesman go on a monologue. I care about (some) of the guests.
I sensed Achuthan got a bit irritated, and ‘fought back’ in his own way. He rejected and indirectly deconstructed Liesman and Co’s premises as faulty. I get that. I just wish he did provide more detail, and flesh out with more concrete examples of the current and future state of the economy.
It was very interesting to hear him speak and have Edward interpret it for me/us. I wish he had been on some other television program. How is CNBC still on the air?
“Europe is already in a double dip recession”
Any numbers for that at the European level?
I’m asking because Germany just posted numbers for September showing German overall exports growing 0,9% month on month; following a huge incresae in August of 3,2%; and all that despite orders from the Eurozone declining strongly. BTW, “experts” had predicted minus 1% for September …
For Jan-Sep, German exports are now up 13,5% on 2010. German exports for the whole of 2011 are expected to reach 1 trillion EUR. Doesn’t exactly look like a recession to me (assuming whats true for Germany is true for the remainder of central / northern Euroland (Austria, Czech Rep, Netherlands etc) – at least for now …
https://www.manager-magazin.de/politik/weltwirtschaft/0,2828,796459,00.html
“and Italy has been sucked into the periphery yield death spiral”
ImO, as soon as Berlusconi is gone and a reasonable person sits on his chair promising serious reform, the EZP will buy Italian bonds again at 5% and the death spiral is broken.
Finally: When the shit really hits the fan, the ECB won’t allow Italy or Spain to fail. They will swallow inflation for a while (say the duration of the present Presidents first (and only) term) before they let Euro fail – if the Italians (and Greek) show that they are serious about getting their stuff in order …
P.S. With Poland and the remaining batlic countries willing to join the Eurozone pretty soon (according to the news I read this week), I think the rumours about the death of the Euro are greatly exagerated, even if Greece were to leave the Eurozone…
https://www.guardian.co.uk/business/2011/oct/24/debt-crisis-eurozone-recession