Looks Like a 'V' to Me

Double-dip anyone? History shows that with this big a bounce in leading indicator growth (chart shown below), the momentum is so strong that we can't have a double-dip in the economy.

Weekly leading indicator growth is at a 38-year high at 20.8%. Some comments from the Economic Research Cycle Institute, courtesy of Reuters:

With WLI growth rising to a new 38-year high, U.S. economic growth is poised for a stronger snap-back than most expect," said ECRI Managing Director Lakshman Achuthan.

The index was pulled higher this week by stronger housing activity, he said.

ECRI has predicted that the longest U.S. recession in more than a half-century will end before the summer is out.

Last week, Achuthan said a double-dip recession in the fourth quarter is "out of the question.

Looks like a "V" to me.

Comments

[redbaron:]

Right On! But while this was becoming obvious, my accounts have more than doubled and without using margin,leverage or options; just small cap stocks. The best part of this bull market may have already occurred, and most analysts are still waiting for the other shoe to drop. The author has it right, but how much better would it have been to have seen this on March10?

Sep 17 06:47 AM

[logicalthought:]

Gee, and what was ECRI saying about the future in, say, July of 2007? Well, let's go to the videotape:
www.businesscycle.com/.../

How about February of '08? Although the full report isn't available to non-subscribers, this little summary makes its conclusions pretty clear:
www.businesscycle.com/.../

Seeing as they completely missed the mess we're currently in, what makes you think they can accurately forecast its end?

Sep 17 07:21 AM

[Nick36:]

Looks can be deceiving, especially when the government is interfering in the economy.

The current stronger housing activity is due to $8,000 government subsidies for home buyers. Which are set to expire on November 30.
www.bloomberg.com/apps...

There is some talk of extending this subsidy and even increasing it to $15,000. But my point is that a lot of the current improvements in the economic indicators are due to non-recurrent government spending. Which produces spikes in economic activity. But these spikes go down as fast as they go up, when temporary government spending programs end.

Government spending is very different from normal business activity. Government spending is temporary and unsustainable, whereas normal business activity is more permanent and sustainable. And I find it a little surprising that the ECRI director is so ignorant that he can't tell the difference between the two.

After this so called V-shaped recovery, another V is set to occur producing a VVVVV type of economic stagnation, the kind that happened in Japan during the last 20 years.

Big government spending has never produced a permanent economic recovery and never will. Because the government doesn't produce any wealth. The government only redistributes it and consumes some of it. Which leads to economic stagnation in the long-term.

Sep 17 09:19 AM

[One Eyed Guide:]

Comparison to past trends are only good if you are in a similar situation. Currently the economy is deflating, at least as far as what loans are based on (the CPI has factors in it aren't really considered if you are a bank looking at asset values which are still deflating, just not as fast.) This means that your chart ending in 1968 has no comparible situations and should not be used for comparison.

Net Bank lending is still decreasing and expansion is what is needed to permit a V shaped recovery. Until this expands at the same rate as in previous recoveries you can expect slower growth.

We'll see.

Sep 17 09:59 AM

[mb2:]

The doom & gloomers - most of the authors (really salesmen & amateur analysts) that post to this website got it wrong. There were so many quality stocks that were obviously extremely undervalued back in July, a monkey could've thrown darts at the pink sheets & picked some winners. And you know what?... There's still some value out there if you're willing buy-in for the long term & ignore the noise for a couple of years!

I'm tired of reading every morning on SA about how insanely overvalued & overbought the markets are - just to watch it go even higher. Is there going to be a correction? Sure... You can't go this far so fast with one. And today is one day closer to the inevitable. But, the fact is the hedgers & shorts have gotten their behinds handed to them day after day since mid-July. And I'm sure they do not dare add-up the costs to their portfolios for fear of falling into depression.

My point is: V, W, U, whatever - I don't care. Buy quality & hold on! Forget the daily experts!

Sep 17 11:33 AM

[denko:]

Hmmm ... no where near a 'V' at this stage.

No likelihood that the US will recover from its earlier excesses - as at the time when it entered into the housing collapse.

Well not until the US generates its own savings.

Failing that, savings will have to be bought from the profits of China's depressed labour cost savings.

So this process/mechanism will have to perpetuate for some time yet.

One leg of which is the US consumer - to continue to gorge herself on the mostly unneeded and under-priced bling and propylene plastic appliances that go 'plink in the night', or if not, then probably the very next day.

If that is the case, this is only a small bounce.

A bounce supported by those expecting and punting on a price model that implies the consumer standards of pre Jul 2007 are to one day return.

Not only return but will then continue to climb and spiral unendingly upwards - as before Jul 2007.

This assumes too that the US consumer will be at the top of the consumer goodie hierarchy - which seems unlikely.

Not very likely at all ...

So don't expect a permanent recovery. Perhaps ever.

Think rather of the world economy to follow a 'y' - in the lower case - if an alphabetic symbol must be had.

Perhaps better yet described by the khaf sofit of the hebrew alphabet?

Oy vey? Who knows¿

A world economy landing up ultimately on the trash/garbage heap, stashed atop all the wasted and discarded poly-propolene products that ever supported the American dream¿

Sep 17 05:52 PM

[Owen B:]

In your post about how ECRI must be wrong, you missed (?) reports that don't hold up with your conclusions.

kirklindstrom.blogspot...


On Sep 17 07:21 AM logicalthought wrote:

> Gee, and what was ECRI saying about the future in, say, July of 2007?
> Well, let's go to the videotape:
> www.businesscycle.com/.../
>
> How about February of '08? Although the full report isn't available
> to non-subscribers, this little summary makes its conclusions pretty
> clear:
> www.businesscycle.com/.../
>
> Seeing as they completely missed the mess we're currently in, what
> makes you think they can accurately forecast its end?

Sep 17 07:30 PM

[snagglesnarf:]

This is nothing but a bubble and the reason we have bubbles is because there is too much wealth chasing too few investments.
Recessions/Depressions occur, in part, to destroy wealth and get the markets back to a more rational plane. Go ahead, Mr Chan, and throw all you got into this market and see what happens.

Sep 17 08:04 PM

[E Nuff Sed:]

ECRI leading indicators only lead by approx. 6 months. So a W could be possible in 2010.

Sep 17 09:50 PM

[logicalthought:]

Owen,

That was March of 2008; as that point, the economy was already falling apart.


On Sep 17 07:30 PM Owen B wrote:

> In your post about how ECRI must be wrong, you missed (?) reports
> that don't hold up with your conclusions.
>
> kirklindstrom.blogspot...
>

Sep 17 09:57 PM