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« Recession Forecasting: News from the ECRI | Main | Profiting from the Confusion over Europe »

October 02, 2011



So if the ERCI is wrong what indicator have you come up with that has a better track record then the ERCI? Oh you do not have one? Oh let me guess you are just another writer (with a blog making a futile attempt to make money through advertising) that rehashes everyone else's work, claiming it is something new and enlightening. I will be watching to see if your website survives the coming depression, the good ones will.


It is interesting to see how everything develops. I have even read a prediction according which everything is lost and there will be a war in europe.

Also, some pundits say that Germany is secretly planning to get out of the € and bring back the D-mark. The marks are being printed as we speak they say. But because it is a secret plan we can never know for sure *gasp*.

Oh well, I guess some people just always need to see humanity on the brink of a collapse. Maybe it's because this time it's different...

Angel Martin

Gary, are you familiar with the Dunning-Kruger effect ?

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It would be interesting to see what his updates show considering that ECRI too made the recession call only around September 21 privately per (retracted) Hussein...

Gary W

FYI - from the blurb on the ECRI site it seems that their models are not open-loop process analysis type that everyone else does. They seem to model process dynamics and feedforward from one process to others. They cannot model feedback, which involves policy decisions, but they can hypothesize what policy decisions are likely to be. If I'm using terms that you don't understand, then you are obviously behind the state of the art in forecasting.

Let me give you an example in plain English. The super-committee on debt reduction is unlikely to reach agreement in time - leading to drastic reductions in defense spending and social programs. There is no dooubt that this will happen, because the GOP is dedicated to Obama's removal, and only to that goal. Now, the recovery is too fragile to withstand this kind of seismic shock. The economy will contract so quickly that no corrective action will work - since this is a new type of risk that will generate mass fear.

All other forecasters have no way to account for this kind of process thinking. ECRI hints that they consider such dependencies in their forecast.

My money is on ECRI. There will be a massive recession, unless the super-committee pulls a rabbit out of hat that contains no rabbits - not even rabbit eggs.

Liberal Roman

I have been saying this for more than year now, the economy will turn around whenever the Fed and the ECB decide to end their tight money policies. When will this be? Could be tomorrow. Could be in 20 years (see Japan).

QE2 mattered. It ended for a little bit the tight monetary policy expectations of the market. Look at this chart:

This is the implied inflation expectation of the market for the next 5 years by measuring the Spread between 5 year Treasuries and 5 year inflation protected Treasuries. Right now its saying the market expects 1.6% annual inflation rate over the next 5 years. And that expectation continues to plummet.

On the bright side, I was encouraged by a speech from St. Louis' Fed Bullard who said "“the Fed has potent tools at its disposal and is not now, or EVER , out of ammunition.”

So, there we have it. When will they do something to change the tight monetary policy? Well from the chart, you can see that in 2009 they let inflation expectations fall to -0.44% before anything happened. (Remember the Fed didn't cut rates to zero until well into 2009!)

In 2010, they let inflation expectations fall to around 1.4%.

They are now down to 1.65%.

In a fiat monetary system, the idea that a central bank is out of ammo is absurd. Its just how much does Bernanke want higher inflation expectations. Forget about meeting his full employment mandate, he isn't even meeting his 2% inflation target.


I didn't see it mentioned, so I will add the ADS business conditions index to the list of candidates.

Bill Luby's Economic Data Trends plot at vixandmore is also pretty interesting.


"In a reversal from last week, the stock market was terrible in spite of news that was pretty good."

The S&P was down about 10 points (week over week), I wouldn't say that is terrible, in fact a 10 point swing in 1 hour is not that unusual.

Angel Martin

Actually, I should have not been so broad brush with the PIIGS as I believe Ireland has been certified by the troika as meeting its deficit targets.

On the other hand, Portugal, it was just revealed did not meet it's 2010 target as it previously claimed...

Angel Martin

Jeff, i sure don't see much signs of progress in europe. About the only good news to come out of the PIIGS in about two years is from Spain this week, where the central government has slightly exceeded its goal for deficit reduction.

That's a man bites dog story for the PIIGS because all we have seen from these countries is committments that are never kept. With the latest Greek fail on their deficit targets being business as usual.


I agree that the 12-month rate of change of the S&P alone does not mean much - there have been other such instances in just the last 30 years alone in 1984, 1987 and 1995 that have not amounted to recessions.

Paul Nunes

your recent posts very helpful; thanks for adding the extra reports and links.


Martin -- Some of these indicators did not exist when either of these methods was developed!

It is a great question for researchers: Should we include new data sources, losing a rich history of other points? If we do so, we have not made a real-time forecast, but instead are creating a model that fits the past.

The ECRI clearly uses data from the stock and commodity markets.



RB -- He has several different approaches, including the one involving the S&P 500. The business cycle indicator does not actually use stock prices, and I showed the version that was advanced by nine months.

Obviously I don't think there is zero chance of a recession, but it would be unprecedented given a number of economic indicators.

And thanks for your continuing comments and suggestions!



After having read with interest Bob Dieli's most recent report (thanks for having provided it to us), and taking into account the sharp and still fairly recent plunge in consumer confidence and small business optimism (as highlighted by Doug Short), here's my guess: maybe, just maybe, Bob Dieli's Mr. Model gives much less weight to the data concerning the level of consumer confidence and small business optimism than the ECRI does.


Thanks for Mr. Dieli's report - looking at the S&P 500 chart in his report, it looks to be a month out of date. With September's close, we would be in the "zone of death" that he describes. It would be interesting to see what his updates show considering that ECRI too made the recession call only around September 21 privately per (retracted) Hussman. With regards to the stock-market related usefulness of the ECRI WLI, I have made the point here in the past that as CXO and some others have shown, the WLI is coincident with the stock market.

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