Since so many economists are signing up to the second-half recovery meme (Berner, Gordon, Krugman, Bernanke), I am going to ask you whether you believe them or not.
What say ye?
(If you can’t read the above it is a poll asking you when we are likely to see recession end in the U.S.)
Edward Harrison is a senior Editor at Bloomberg. He is also the founder of Credit Writedowns newsletter, a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.
Actually there was no category for my response, which would be “Recovery is a long way off, perhaps fiver years or longer.”
If the downturn was contained to North America then I’d jump on the “green shoots” bandwagon since past recessions have had a duration of 24 months or less. But nothing about this “recession” is contained or a repeat of a normal cyclical recession.
I’ll throw out a sound-bite from my software development days. A guy named Metcalfe (who also invented Ethernet and started 3Com btw) coined a law that states, “the complexity of a network is a square of all of its connected points.” In other words the complexity follows a power law. Mandelbrot found that power laws also rule economics and contradict the rational market hypothesis (creating those unexplainable fat-tails that black swan seekers know so well).
So when folks try to paint this “recession” with the brush from their standard kit they are ignoring the power law that I believe is in play here. The current economic situation is following a power law of all the regions and countries involved. The situation is enormously more complex than previous regional or single country cyclical recessions. The number of variables involved is a at least square, if not a cube, of previous downturns. And I am not forgetting the “Great Depression” in this calculation.
And I think even folks like the twin Dr. Dooms, Faber and Roubini, do not (yet) appreciate the scale of this.
I wonder what Mandelbrot’s take on the current situation would be. I suspect it would be something like “bend over, grab your ankles, and kiss your a** good-bye.”
PS. Love the fact your blog comments have both a spell-checker AND an edit button. Puts yours head-and-shoulders above your contemporaries!
aitrader, thanks for the kind words. It’s disqus, my comment system. I really like these guys.
You mention Mandelbrot. I have been meaning for almost a year to post something on him and the power law. Maybe I will get around to it one day. Apropos, power law, you should see a bad outcome at GM or in Eastern Europe as potential catalysts for a downside scenario that would stop any recovery dead in its tracks.
In the end, it is way to early to make a definitive call. If we do get a recovery by Q4, it is at least 6 months later before a definitive call can be made. That means you are talking mid to late 2010. For investors and businesses that need to invest money or capital, that’s way to late. You need to get a read on things today.
EDC says
Ed
An statistical “recovery” for an economist’s academic calculations is not a recovery. If GDP prints a positive number later this year, that will not mean recovery. Tell recovery to those who can’t find work due to excess capacity and globalization.
The answer of course is yes because you need to see at least 5 or 6 months of growth i.e. two quarters for the recovery call to be made by the NBER.
And again, this is going to be a ‘fake recovery’ for the reasons you indicate.
EDC says
Ed
Thank, I’ll read your writings tonight.
It is frusterating to constantly see “green shoots”. Things are
better yes because they aren’t getting bad as fast. We can appreciate
how you bring us a diachotomy of info.
You do a great job at what you do, thank you for sharing your knowledge.
Sent from my Mobile
.
hbl says
I don’t know how to answer this poll when you use the word “recover”. My dictionary says this means “to get back” or “to restore to a normal state”. I don’t think either of these will be true in a broad sense in the forseeable future. If you are asking, when will the US stabilize (e.g., GDP stops dropping, at least for a while), then of course it will stabilize… I don’t know when but perhaps your EOY estimate will prove correct, even if I fear it may be longer.
hbl, it is pretty much axiomatic that a ‘recovery’ does not get us back to a normal state. If a recession means a period when GDP is generally falling, then when it ends and recovery begins we are by definition in a worse economic state than when it began.
The question is how long will it be before we get back to the pre-recession level of output. I expect that is a long way off – and if we double dip or miss recovery altogether, even longer.
Mr. Krugman – like the rest of these so-called “experts” don’t know s___ from shinola.
Just 4 days ago to quote Mr. Krugman : “…the world economy is not showing a hint of recovery….Things are getting worse more slowly….”.
( Reported in Bloomberg on 6-06-09).
Gee I guess all the hints came in 3 days.
The problem really is that people don’t think for themsleves – and are afraid to. So they look to these “Ph.d” highly educated “experts” to think for them.
Those Ph’ds and Prize winners are to coin the phrase from John Nance Gardner ( former US Vice-President ) ” not worth a bucket of warm spit”….
Use your own mind – and give what they say no value – you’ll come out alot better. I didn’t finish high school, yet I understand what is occuring better than they ever could think about knowing.
I was Long the Dollar and Short everything else – resulting in a 900% portfolio advance for me in 2008.
The perfect Position in Markets – not Opinion, but Fact.
Where were all the “experts” giving the right advice at the RIGHT TIME – so indeed, what is their “Ph’d’s” and prizes really worth ? Zero.
Ed, your blog is one of the few that I will invest my time in……..Read “King Dollar” and the “Housing” Articles – those two articles are worth more than everything else you can read on the Net.
As the Great Jesse Livermore said “….they say there are two sides to everything….but in Markets, there is only one side: The Right Side…”.
My Articles will place anyone who adheres to them on the “Right” side – the only thing that matters. Everything else is irrelevant.
Time and Events have proven that my Position placed me in a small handful of individuals in the entire World who were positioned exactly right and at the right time in the Summer of 2008 when in it really mattered.
The Market is all about Delusion, Deception and Distraction. Mr. Krugman and those like him are at best ignorant and at worst collusive in perpertuating that reality.
The Market will take out the March lows and once it does will set the stage for true fear and true capitulation.
The “Right” side is Net Short or Neutral. However, for those ( virtually all ) unversed in being Short – it is an Art – and one which requires three critical items: Balls, Brains and a Strong Stomach for Drawdowns.
If you don’t have that, you are best to be Neutral.
In closing, you hear all the dialogue about the “problems” and “broken” system. Everything being discussed revolves around that. Deception, Delusion and Distraction.
But the truth is the system is not broken at all – in fact, the system is working Perfectly.
The “System” is the Transfer of Wealth to the Hands of the Many to the Hands of the Few.
“Inflation” is where you spend what it is already yours and think it is Capital Gains – “Deflation” is where your Capital actually pays the bill.
That “system” – the REAL System – is working perfectly and will continue.
Truly thinking for yourself and alot of Common Sense is the very best asset and advantage you and your readers could have.
Best Regards,
Charlie Tarango.
Stevie b. says
Well I’m well and truly confused (again). I sort-of wanted to agree with Aitrader (again), but basically the “no recovery to speak of” answer covered it for me even though it wasn’t quite what I felt. However, as a contrarian, the fact that only 1% vote for green shoots is deeply disturbing! I am also impressed by Leo’s argument on NC that the institutions are petrified of being left behind and may prolong a rally that seems to be based on hot air & false hope. So although I bought a wee bit end March/early April and sold mid-May, as usual I may well have sold too early (again). Given that some countries like Germany & the UK are having elections within a year, along with the vested interests of the global PTB (powers-that-be) in trying to keep the rally going, the upshot may be that the market will keep climbing a wall of worry into the summer doldrums. After that, surely reality will hit one way or the other. The outcome seems obvious to me, but based on your poll result, I sort-of wish I could steel myself to to ignore myself and buy a wee bit more again – even though I wont.
Chairborne Ranger says
This mutha is burning to the ground and I don’t see a phoenix rising from these ashes.
Sobers says
If we really have got through the largest credit boom and bust for 80+ years (possibly ever?) with (comparatively) little damage, then I for one will be a) pleased, and b) amazed.
I personally feel there is another downward leg to come – the debts have been socialised by the government, we still have to pay for the party we all had for 10 years. I don’t think the reality of that has sunk in yet, that a once in a lifetime economic shift has occured. That we in the West will no longer be able to live beyond our means via debt issuance, paid for by the poor workers of the Far East. Increasingly they will want the fruits of their own labours, and we must live by ours, which definitely means a slow relative decline in living standards, possibly an rapid absolute one. To a population used to rising incomes/living standards, this will not be well received.
Stevie b. says
Sobers – very well said!
guest says
I think the ASCII encoding got off somewhere.. Can someone tell me what green sh%%ts are?
My answer would have been there is this faux bounce of the market caused by the central banks injecting trillions. There is more to happen in Europe. What has already happened in the real economy is only starting (commercial loans, corporate defaults, etc) the reflection back onto the financial sector. so there might be a kind of bottom and bounce. It will only take one event the size of GM’s bankruptcy but coming as a surprise to send everything tumbling again.
Gegner says
While optimists see ‘recovery’ as soon as September I am doubtful that ‘recovery’ is the proper word for what will emerge.
A slow growth (if at all) economy will lead to a irreversible breakdown in our supply lines, which will result in a social collapse.
In other words, the total breakdown of social order.
Actually there was no category for my response, which would be “Recovery is a long way off, perhaps fiver years or longer.”
If the downturn was contained to North America then I’d jump on the “green shoots” bandwagon since past recessions have had a duration of 24 months or less. But nothing about this “recession” is contained or a repeat of a normal cyclical recession.
I’ll throw out a sound-bite from my software development days. A guy named Metcalfe (who also invented Ethernet and started 3Com btw) coined a law that states, “the complexity of a network is a square of all of its connected points.” In other words the complexity follows a power law. Mandelbrot found that power laws also rule economics and contradict the rational market hypothesis (creating those unexplainable fat-tails that black swan seekers know so well).
So when folks try to paint this “recession” with the brush from their standard kit they are ignoring the power law that I believe is in play here. The current economic situation is following a power law of all the regions and countries involved. The situation is enormously more complex than previous regional or single country cyclical recessions. The number of variables involved is a at least square, if not a cube, of previous downturns. And I am not forgetting the “Great Depression” in this calculation.
And I think even folks like the twin Dr. Dooms, Faber and Roubini, do not (yet) appreciate the scale of this.
I wonder what Mandelbrot’s take on the current situation would be. I suspect it would be something like “bend over, grab your ankles, and kiss your a** good-bye.”
PS. Love the fact your blog comments have both a spell-checker AND an edit button. Puts yours head-and-shoulders above your contemporaries!
aitrader, thanks for the kind words. It’s disqus, my comment system. I really like these guys.
You mention Mandelbrot. I have been meaning for almost a year to post something on him and the power law. Maybe I will get around to it one day. Apropos, power law, you should see a bad outcome at GM or in Eastern Europe as potential catalysts for a downside scenario that would stop any recovery dead in its tracks.
In the end, it is way to early to make a definitive call. If we do get a recovery by Q4, it is at least 6 months later before a definitive call can be made. That means you are talking mid to late 2010. For investors and businesses that need to invest money or capital, that’s way to late. You need to get a read on things today.
Ed
An statistical “recovery” for an economist’s academic calculations is not a recovery. If GDP prints a positive number later this year, that will not mean recovery. Tell recovery to those who can’t find work due to excess capacity and globalization.
QoQ counting of GDP is misleading.
EDC, last year I posted an article asking whether you can have a recession even while GDP was growing:
https://pro.creditwritedowns.com/2008/07/recession-while-gdp-is-growing.html
The answer of course is yes because you need to see at least 5 or 6 months of growth i.e. two quarters for the recovery call to be made by the NBER.
And again, this is going to be a ‘fake recovery’ for the reasons you indicate.
Ed
Thank, I’ll read your writings tonight.
It is frusterating to constantly see “green shoots”. Things are
better yes because they aren’t getting bad as fast. We can appreciate
how you bring us a diachotomy of info.
You do a great job at what you do, thank you for sharing your knowledge.
Sent from my Mobile
.
I don’t know how to answer this poll when you use the word “recover”. My dictionary says this means “to get back” or “to restore to a normal state”. I don’t think either of these will be true in a broad sense in the forseeable future. If you are asking, when will the US stabilize (e.g., GDP stops dropping, at least for a while), then of course it will stabilize… I don’t know when but perhaps your EOY estimate will prove correct, even if I fear it may be longer.
hbl, it is pretty much axiomatic that a ‘recovery’ does not get us back to a normal state. If a recession means a period when GDP is generally falling, then when it ends and recovery begins we are by definition in a worse economic state than when it began.
The question is how long will it be before we get back to the pre-recession level of output. I expect that is a long way off – and if we double dip or miss recovery altogether, even longer.
Mr. Krugman – like the rest of these so-called “experts” don’t know s___ from shinola.
Just 4 days ago to quote Mr. Krugman : “…the world economy is not showing a hint of recovery….Things are getting worse more slowly….”.
( Reported in Bloomberg on 6-06-09).
Gee I guess all the hints came in 3 days.
The problem really is that people don’t think for themsleves – and are afraid to. So they look to these “Ph.d” highly educated “experts” to think for them.
Those Ph’ds and Prize winners are to coin the phrase from John Nance Gardner ( former US Vice-President ) ” not worth a bucket of warm spit”….
Use your own mind – and give what they say no value – you’ll come out alot better. I didn’t finish high school, yet I understand what is occuring better than they ever could think about knowing.
Arrogant ? Pretentitious ?
Read my Articles published in July and August 2008 on “Housing Deflation” and “King Dollar” at http://www.talentseekscapital.com.
I was Long the Dollar and Short everything else – resulting in a 900% portfolio advance for me in 2008.
The perfect Position in Markets – not Opinion, but Fact.
Where were all the “experts” giving the right advice at the RIGHT TIME – so indeed, what is their “Ph’d’s” and prizes really worth ? Zero.
Ed, your blog is one of the few that I will invest my time in……..Read “King Dollar” and the “Housing” Articles – those two articles are worth more than everything else you can read on the Net.
As the Great Jesse Livermore said “….they say there are two sides to everything….but in Markets, there is only one side: The Right Side…”.
My Articles will place anyone who adheres to them on the “Right” side – the only thing that matters. Everything else is irrelevant.
Time and Events have proven that my Position placed me in a small handful of individuals in the entire World who were positioned exactly right and at the right time in the Summer of 2008 when in it really mattered.
The Market is all about Delusion, Deception and Distraction. Mr. Krugman and those like him are at best ignorant and at worst collusive in perpertuating that reality.
The Market will take out the March lows and once it does will set the stage for true fear and true capitulation.
The “Right” side is Net Short or Neutral. However, for those ( virtually all ) unversed in being Short – it is an Art – and one which requires three critical items: Balls, Brains and a Strong Stomach for Drawdowns.
If you don’t have that, you are best to be Neutral.
In closing, you hear all the dialogue about the “problems” and “broken” system. Everything being discussed revolves around that. Deception, Delusion and Distraction.
But the truth is the system is not broken at all – in fact, the system is working Perfectly.
The “System” is the Transfer of Wealth to the Hands of the Many to the Hands of the Few.
“Inflation” is where you spend what it is already yours and think it is Capital Gains – “Deflation” is where your Capital actually pays the bill.
That “system” – the REAL System – is working perfectly and will continue.
Truly thinking for yourself and alot of Common Sense is the very best asset and advantage you and your readers could have.
Best Regards,
Charlie Tarango.
Well I’m well and truly confused (again). I sort-of wanted to agree with Aitrader (again), but basically the “no recovery to speak of” answer covered it for me even though it wasn’t quite what I felt. However, as a contrarian, the fact that only 1% vote for green shoots is deeply disturbing! I am also impressed by Leo’s argument on NC that the institutions are petrified of being left behind and may prolong a rally that seems to be based on hot air & false hope. So although I bought a wee bit end March/early April and sold mid-May, as usual I may well have sold too early (again). Given that some countries like Germany & the UK are having elections within a year, along with the vested interests of the global PTB (powers-that-be) in trying to keep the rally going, the upshot may be that the market will keep climbing a wall of worry into the summer doldrums. After that, surely reality will hit one way or the other. The outcome seems obvious to me, but based on your poll result, I sort-of wish I could steel myself to to ignore myself and buy a wee bit more again – even though I wont.
This mutha is burning to the ground and I don’t see a phoenix rising from these ashes.
If we really have got through the largest credit boom and bust for 80+ years (possibly ever?) with (comparatively) little damage, then I for one will be a) pleased, and b) amazed.
I personally feel there is another downward leg to come – the debts have been socialised by the government, we still have to pay for the party we all had for 10 years. I don’t think the reality of that has sunk in yet, that a once in a lifetime economic shift has occured. That we in the West will no longer be able to live beyond our means via debt issuance, paid for by the poor workers of the Far East. Increasingly they will want the fruits of their own labours, and we must live by ours, which definitely means a slow relative decline in living standards, possibly an rapid absolute one. To a population used to rising incomes/living standards, this will not be well received.
Sobers – very well said!
I think the ASCII encoding got off somewhere.. Can someone tell me what green sh%%ts are?
I have banned the term, here is the post explaining it:
https://pro.creditwritedowns.com/2009/05/i-am-banning-green-shoots.html
However, some wise-guys keep trying to use it!
My answer would have been there is this faux bounce of the market caused by the central banks injecting trillions. There is more to happen in Europe. What has already happened in the real economy is only starting (commercial loans, corporate defaults, etc) the reflection back onto the financial sector. so there might be a kind of bottom and bounce. It will only take one event the size of GM’s bankruptcy but coming as a surprise to send everything tumbling again.
While optimists see ‘recovery’ as soon as September I am doubtful that ‘recovery’ is the proper word for what will emerge.
A slow growth (if at all) economy will lead to a irreversible breakdown in our supply lines, which will result in a social collapse.
In other words, the total breakdown of social order.