Saturday, February 25, 2012

ECRI sticks with Recession call

Feb 24th 2012 (CNBC video)

In Short:
Recent jobs growth is a lagging indicator. Coincident indicators show slowing growth. Most leading indicators still support a recession, except markets, which are up due to central banks' printing.

In Detail:
Since the recession call 5 months ago, all the coincident data shows slowing growth:
  • YoY GDP growth: peaked 3Q10, falls to 1.5% in 2Q11 and flatlined since then
  • Personal income growth: same
  • Broad sales growth: same
  • Industrial production growth: down to a 22 month low as of Jan

Taking these together: the coincident index is at a 21 month low. And leading indicators (apart from the stock market) still support this.

Velocity of money is at a record low in US, Europe, China. The money is going to the market, hence the new highs.

Jobs are a lagging indicator: follows consumer spending growth. Expect jobs growth to flag in the next few months. Personal disposable income has been negative for 5 months.

Recession should be here by mid-year 2012, but the consensus would probably take 6 more months to recognize it.

Early 08: recession begins in Dec 07, but got a double digit springtime rally, Oil went to $147 inside a recession...because of the money being printed.


Hope they're right - I want to buy cheap shares. Mabye they are, and the market is being pumped up by piles of newly printed money. OTOH: Are they just finding excuses and moving the goalpost (first to June, then to saying it wont be recognized till 6 months after this)?

No matter what, I just wait. Buying in a recession is the easiest and lowest risk way to make big money. I am not good enough to trade the ins and outs of the market.

Market action definitely does not agree with ECRI yet. For the last 3 months, it has been very strong in its daily action: going up on high volume, ignoring bad news (Greece), and with pullbacks that are on low volume, or U shaped. We simply don't see any weakness. If ECRI is flat-out wrong, I gotta wait a year or two more before I get my wish.