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« Your Biases Cost You -- A Lot! | Main | Market Technicals and Fundamentals Converge »

April 02, 2008

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egghat

Well I did a bet on September, 4th that the US will have 2 quarters of negative growth from Q3/07 to Q2/08. The consensus then was above 2.5% growth, so this bet was kind of a "stunt".

But:
House prices had risen extremly and then topped, the US had an inverse yield curve (the single best indicator) for months and the financial crisis began boiling ... Clear signals for me.

I'm still surprised that the inverted yield curve didn't ring the alarm bell for more economy watchers. An inverted yield curve plus some big problem (think: S&L, LTCM, internet bubble, housing collapse, etc.) will (nearly) always lead to a recession.

But I haven't won this bet (yet).

Mike

"It did not matter whether the respondent had any forecasting credentials."

They have credentials for that?

This gets forgotten over time, but the Inverted Yield Curve Theory was the most accurate predictor of this recession when the yield curve inverted back in July, 2006.

blackvegetable

Jeff,

I would be pleased to offer the evidence which informs my complaints about Malpass, but I can't find an e-mail addie for you....

RB

That recession can be brought upon by our own will has been certified by none other than the venerable Greenspan:
http://www.mises.org/story/620

"Throughout his career as Fed chairman, Greenspan has relentlessly propagated the view that the business cycle is a mysterious phenomenon, the result of imponderable forces operating deep within the market economy and inaccessible to human reason. "

Bill aka NO DooDahs!

The onset is backdated to the last peak of economic activity; therefore, if we are "booming" on October 1 just before I start the ball rolling with "talking us into a recession," and I'm successful, the recession will be said to have started on October 1, even though the process of talking us into one took place after the recession "officially" started.

It's yet another reason why the definition of a recession is worse than useless. I actually posted about useless definitions a month or so ago:
http://www.billakanodoodahs.com/2008/02/working-robust-and-useless-definitions/

Lord

It occurred to me that the lag between recession onset and talk of one is so long, the idea talking about one can lead to one is quite backwards.

oldprof

BlackV - Thanks for your comment. I always look forward to your observations.

The Forbes group represents a viewpoint. You might note that Steve Forbes wants to completely suspend the FAS 157 marking to market -- much more extreme than the SEC position that most free marketeers find abominable. We must beware of pigeonholes.

My approach was simply to name known entrants without any other qualification. Your position (a good choice) is on record.

As to my own politics, I carefully avoid intermingling politics with market interpretation. I also do objective analysis on electionstocks.com, our sister site. I have a viewpoint, but it is not part of my work. Meanwhile, you might do a little research on the general view of grad students in the early 70's and also poli sci professors of that era.

I do believe that the Bush Administration has suffered from a facile analysis that compares the recovery from 2000 with others, as if the starting point were the same. Another future topic, although I think I have mentioned it a few times.

Finally, I strongly disagree about Malpass. Since I have carefully read his weekly commentary for years, I have an advantage. I also have the background to analyze and poke holes. I know that he has been the subject of a recent vendetta.

I suggest the following. Go back and read the article that gave you this impression. Follow the links to see what was really said, and whether the conclusion was supported. If you are still in doubt, call or email and I'll be happy to discuss it with a valued reader. I don't feel like writing on this topic right now, although a search on the blog will show various parts of the debate.

Malpass held a conference call yesterday, with the usual collection of insightful data not seen from other sources. In particular, he responded to various challenges, including car loans. I do not feel free to post the graphs of his research, but some of it will come out in public.

Thanks again for a stimulating comment. We shall all see how the recession story plays out. The stock market has already voted.

Jeff

blackvegetable

I find reference to Karlgaard and Malpass ironic in this context. The former is resident at FORBES, the girth of whose issues tend to be more accurate barometers of prevailing economic conditions than any of the editorial comment found therein....The magazine has been quite skinny for some time now. Malpass was, until its recent unfortunate disintegration, the economic guru of Bear Stearns, and he has a consistently awful record with respect to analysis of existing economic conditions going back at least 2 years.

Old Prof is a very thoughtful and polite correspondent, and nominally, a dispassionate analyst - but I have long sensed a bit of a bias towards "explaining away" the shortcomings of the Bush era economy. If one accepts the arguments of the critics, specifically with respect to nominal job generation, real wage growth and declining savings, then what appears to many observers as the "current crisis" makes considerable sense. The foreclosure epidemic is too widespread to be dismissed as a shake-out of speculators, it is more reasonably explained by a broad contraction of spending capacity on the part of a vast swath of the population. The effect of rapidly escalating energy costs, as well as the rising prices of food staples, can't be ignored any longer. When people start defaulting on car loans, credit cards and even utility bills, not even Malpass will be able to deny that we are in a severe recession, verging on a depression.

Btw, put me down for an Oct. 07 start date....

RB

There is also the mechanical expert, i.e. Wright Model B -- if this is not a recession, and this model does not predict one convincingly this time, it could be a case of the worst soft landing(scroll down to bottom)
http://www.incrediblecharts.com/free/trading_diary_archives/2008-04-03_yields.htm

Bill aka NO DooDahs!

There's a simple way to win MULTIPLE "recession-predicting contests" over a period of many years: always predict "no recession."

Guarantee that over the long term, that play will win.

It's just the way the math works ...

Roger

I believe it is Bartiromo and not as you wrote it. I could be wrong.

[Thanks! and also to Bill for catching another typo-JM]

Lord

What do you see leading us out of this slowdown?

David Merkel

When I was interviewed on Bloomberg Radio, I was asked whether we were in a recession, and I said the question is a backward looking one, and not relevant to making economic decisions. I then explained what was happening to the various sectors of our economy, and said that understanding that was a lot richer way to approach the economy than a single word, "recession."

I haven't been invited back. The media often likes simple answers, and the reality is far more complex.

This is a long-winded way of saying that I appreciated this article. Oh, and I won't likely be submitting an entry. :)

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