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.