Posted on 02/28/2015 9:43:53 AM PST by Kaslin
In 2006-2007 I called for a recession. We got a big one. I called for another one in 2011, as did the ECRI. That recession never happened.
50% is not a very good recession predicting track record except in comparison to consensus economic opinions that have never once in history predicted a recession. Consensus opinion is batting a perfect 0.00%
Investigating the Record
By the way, the ECRI was late in calling the recession of 2007. They still deny it. And questions regarding the 2001 recession and ECRI have still not been answered.
I have talked about all of this before, and it's worth a recap, if for no other reason than to note the difficulty of calling recessions in real time.
February 24, 2012: ECRI Sticks with Recession Call on CNBC; More than a Bit of an Exaggeration by Achuthan to Make His Call?
November 29, 2012: ECRI Sticks With Recession Call
October 13, 2009: A Look at ECRI's Recession Predicting Track Record
That third link above seriously calls into question the ECRI's recession calling capabilities.
I am not calling out just the ECRI. Open up the middle link and you will find this statement by me:
"The ECRI is sticking with its 'US is already in recession' call based on four coincident indicators. Very few agree, but for what it's worth (perhaps nothing) I am one of those in agreement."
I have already admitted my error. It's been silence from the ECRI, which has been my biggest objection to them over the years.
The moral of this story is: "If you cannot admit your mistakes, someone else is sure to admit them for you."
Word About Predictions
Yogi Berra said it best: "It's tough to make predictions, especially about the future."
Nonetheless, and throwing caution to the wind, on January 31, I stated Canada in Recession, US Will Follow in 2015.
Also on January 31, I went Diving Into the GDP Report and noticed "Some Ominous Trends" on imports and exports.
This was my call...
US RecessionContemplating My Own Insanity - Again
The US won't decouple, just as China did not decouple from the global economy in 2008-2009 (a widely-held thesis I also knocked at the time).
Indeed, now that virtually no economist expects a US recession, I believe we are finally on the cusp of one, just as the Fed seems committed to hike.
With equity markets galore hitting record high s clearly I must be missing something big! We are at that stage in the cycle where I begin to doubt my own sanity. I’ve been here before though and know full well how this story ends and it doesn’t involve me being detained in a mental health establishment (usually). The downturn in US profits is accelerating and it is not just an energy or US dollar phenomenon – a broad swathe of US economic data has disappointed in February. One of the positive surprises, payrolls, is a lagging indicator. The $64,000 question is not if, but rather when will investors realize what is going on?Current Rate of Profit Deterioration
My colleague Kit Juke summed it up nicely in his morning note "Whatever the Fed does, they will not risk the economic recovery. That bias is why rates won't get anywhere near ‘neutral' before they peak. The economic cycle will be brought down by asset bubbles bursting long before ‘tight' policy has any effect. Lessons were learned from the Global Financial Crisis, but not that one.”
Investors are transfixed instead by the Fed and when it will tighten rates and can't see the wood for the trees. The Fed's focus on payrolls, a lagging indicator, is most perplexing but not unusual at this stage in the cycle. The reality is that the vast bulk of economic, as well as earnings, data (even outside the energy sector), has been simply dreadful.
image: http://2.bp.blogspot.com/-6pRvCvuX-W0/VO-8tp2VUoI/AAAAAAAAcm4/bLiWaUKFmeM/s400/Profit%2BDeterioration.png
image: http://4.bp.blogspot.com/--ImZCbHD1uA/VO-9iI35DgI/AAAAAAAAcnA/dUvg_E3iPX0/s400/expectations.png
US Q4 GDP revisions are out tomorrow and will most likely show a slow-down from 2.6% to 2.0%: (Source: Bloomberg – WECO US)CAPE Notes
This makes Q3(2014) the peak in this cycle and I expect QoQ growth in the US will hit ZERO by Q3 or Q4 – there are several factors for this including rising real rates, malinvestment into energy but most importantly is the falling earnings in the US.
[Also referring to the society general chart] ... The point however is US data been worsening for a long time – I personally think we are in period where we yet again hand-over the growth engine from the US to emerging market but via a significant new low in growth which will make Europe looks good.
The expected path for me is: Slow down confirmation in the US over the next two months – that will kill the improvement in Europe by end of Q2 and leave it stable - not growing for the year.
Meanwhile emerging market will come back as market realize the FOMC is years away from ‘talking up’ rates. The June or September initial hike (if it comes) still leaves the FOMC 100 bps above Wall Street on its projected long-term path for growth – a Wall Street who on their own is also too optimistic about future growth. The Fed sees 3.0-3.5% growth while Wall Street sees 2.5-3.0% on average. In other words there is room for a +100 bps correction to the sustainable long-term growth which will render 10-year rates a 1.0-1.5% before we over with this part of the cycle. I label this: Restarting the business cycle.
QE and targeted “help” for banks is running out of time, if not already out of time. The inequality and low salary to GDP base simply can’t produce enough domestic consumption anywhere for the middle class to be able to afford the products the stock market listed companies produce.
Macro Conclusion
We are in an “in between period” where the US will slow down and ultimately hand over the growth engine to emerging market by the earliest Q4-2015 but firmly in 2016.
The problem is emerging market are not ready due to high US dollar debt, waning commodity prices, and Europe is still too weak to contribute net to world growth leaving a growth vacuum for new growth.
Europe will show one more month of improving data, then global slowdown of EM and US will drag down the data to flat performance.
Fixed Income
I still only have one very strong view and that’s 10 YR fixed income will trade at 1.5%, possibly even potentially 1.0% this year. Everything else will lag this move by 9 month or so. In other words, if the low in yields comes in Q3 (as I expect) then the summer of 2016 will be the lift-off we all have talked about.
The US Dollar will peak this quarter and probably has peaked for this cycle. The weaker US Dollar will stabilize commodities and emerging markets, creating the conditions for a hand-over at the end of this year. The US dollar should be very sensitive to this relative slow-down in the US, especially as Europe is anachronistically improving.
Gold remains top of my list for new investment. I’m long and adding. I have also re-sold Brent/Crude as the marginal cost of producing oil is still rising, meaning global impact still is negative net-net.
Jeremy Grantham excellently argues that for world to benefit from falling energy prices, it has to come with falling marginal cost. The opposite is the case now: lower prices and higher production/extraction costs.
Stock Market
It's not time yet to call the top, but preparing special report on valuations and models, or the lack of it. Conclusion will be: There is potential for a 5-10% gain this year but also for a 25% correction.
The problem of course being that the market is very expensive by traditional standards, but these are hardly normal times.
image: http://4.bp.blogspot.com/-C91r7fa7cOw/VO_Fg9h5cwI/AAAAAAAAcnQ/1wKpnyux_sE/s400/Cape.png
The expected return for reference over 1, 3 and 10 years can be seen above – the upside is the first year still can carry market higher. The downside is a possible drop for the next 9-10 years!
image: http://4.bp.blogspot.com/-ogKnsWTAVb8/VPAM8TZ37nI/AAAAAAAAcn8/MGFLCi3kO-U/s400/four%2Bevaluations.png
Well, let me be the first to say it...
IT'S BUSH'S FAULT
All I can be certain of, is that however it plays out I will be screwed.
I didn’t realize we had ever come OUT of the recession.
WTF, we are still in a depression, how can you have a recession?
There were recoveries followed by more recession throughout. The recovery that brought the economy back to real pre depression levels didn't really happen until the Eisenhower boom that was facilitated by Ike finally getting rid of most of the Depression and wartime regulations and restrictions. People think the War ended the Depression but the Depression only changed its nature with the War. Everyone was back working but incomes did not improve. It was a full employment Depression then. All the slogans- "Use it up, Wear it out," etc., were the same in the 30s as during the War.
I don't think the majority of the middle class ever did. Household income stats back that up.
Great post. Few people understand this.
Sunday, Sept. 13, 2015.
The Mysteries of the Shemitah.
Jonathan Cahn.
The last trading day of the current Shemitah year is 9/11/15.
We now have a Muslim president, abortion on demand, and soon gay marriage in all 50 states. Do you see 2 Chron 7:14 happening before Sept 13, 2005? I don't think so. If America is destroyed, it will be because God is a homophobe, at war with women, and a racist.
With the way the “numbers” are being played with, a recession would be an upgrade from the depression we are going through.
What people seem to not comprehend is how much interest we will pay if rates got to say 5%. It will be multiple trillions a year just in interest. Interest rates must stay below 2-3% forever just to survive. Try explaining $1 trillion to someone then say we have 18 of those we owe, soon to be $20 trillion +. We are done. It just depends on when the music stops because there are no more chairs.
When one is trying to measure the economy based on false data, one can hardly determine with any accuracy at all what is happening. The government is not going to tell the truth. Businesses are not going to tell the truth. The general public will tell you what they are going through, but no one listens to them.
I am not sure if you are saying this in jest or not, or if a word is missing from your post.
If America is destroyed, it will be because God judges sin, of which this country has an overabundance, for some of the reasons you mentioned.
God is a God of mercy and forgiveness, but He is also holy and will judge any person or nation rightly.
My original post deals with the predictions of a financial calamity occurring this year at the end of the Shemitah year. There has been a clear pattern of these things happening on the 7 year cycle.
Other than Israel, America is the only nation founded on the Word of God.
In the last 25 years, there has been a wholesale and undeniable turning away from God and Biblical precepts in this country.
God cannot be expected to continue blessing a people who despise Him. The Jews found that out the hard way with Assyria and Babylon.
Didn't know the current version had ended?
I think the CORRECT terminology would be "the $hit gets worse."
On the contrary - the people the debt is owed to (namely, us) will be forced to forbear, because they will not be able to collect without destroying civilization and rendering the collected money worthless. In a way, it's the perfect scam - and it can go on indefinitely until stopped by military force from without.
We'll be playing these games for the rest of our lifetimes, as the paper debt spirals into the quadrillions.
Amen.
Very well said. So many people have been trapped in low-end, useless, oppressive work situations for YEARS, it's not even funny. Or, they can't find work at all. Tell them we're only in a recession. ROFL.
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