10 Signs of a Recession 28 comments
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Happy Birthday, America!
The typical economic cycle consists of two main phases: Boom and Recession. The phase leading to a boom is called expansion and that leading to a recession is called contraction. Another way of looking at this is considering expansion the transition from recession-boom and contraction the transition from boom-recession.
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10 signs that an economy’s in recession:
- Automobile companies are down (GM)
- Package Carriers are hurt (UPS)
- Real Estate companies are down (DHI)
- Financial Sector is down (CS)
- Aluminum and Steel companies are down (AA)
The trending in the first 5 sectors looks bleak. Are we really doomed?
Remember I said there are 10 signs. Let’s look at the next 5 signs and then discuss the recession for real:
- The airlines industry is trending down (DAL)
- Retailers such as Sears are down (SHLD)
- Construction equipment manufacturers are down (CAT)
- Mid-sized hotels are down (CHH)
- Industrial real-estate developers are down (FWLT)
Looking at the chart above, it’s obvious that FWLT and CAT are trending down but are the only ones not in the red yet. This is semi-good news. There’s still some expansion going on in industrials and agriculture – this indicates that we are in the contraction mode of the cycle and are currently looking at imminent recession. However, I’m hoping that corrective measures are taken before this situation actually spirals out of control. What corrective measures, you may ask?
First and foremost, there should be an increase in the short term interest rates. This will help in 3 immediate ways:
- Higher interest rates strengthen the dollar by making it a lucrative investment for all. If the dollar has to be competitive with the Euro, this increase has to happen soon as the Euro banks hiked their interest rates this past week. A stronger dollar gets more bang for the buck and brings back a semblance of balance in the currently insanely skewed US trade deficit.
- It separates the wheat from the chaff. People who don’t deserve loans don’t get one as they can no longer afford to—the biggest problem with low interest rates is that it creates a low barrier to entry which forces business to compete for diminishing margins and mandates quantity versus quality of loanees. Therefore, our subprime crisis of today.
- It helps drives inflation down. In the early 1980s when inflation was severely high, the Fed tackled it by increasing interest rates. Rates were as high as 18% then versus the paltry 2.5% they are today.
I believe the Fed would have increased interest rates already had they not been pulled into salvaging and saving the banks caught in the quagmire of the subprime crisis.
The chart below shows whenever the economy’s been in a recession historically (see 1980 or 2000), an increase in interest rates has had an ameliorating and rejuvenating effect on the market. The Y2K downturn was converted into an upswing in 2003 through the increase in interest rates. It’s time we saw an increase in both interest rates and the market versus inflation, for a change.
Today’s economies are global and the US has a lot of things to go manage at the same time (fix the $, inflation, deficits, energy demands etc.). Just increasing the interest rates may not be the silver bullet anymore. It’ll require a series of steps besides that, such as the bursting of the energy bubble.
What do you think?
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This article has 28 comments:
What is the matter with America that we can't see this??
Most Americans see it, but the Politicians pander to environuts, and would rather talk than do what needs to be done.
Many Coastal areas have not even been explored yet much less exploited.
The stupid fact is the enviro wacko's have succeeded in making it illegal to process oil shale, drilling in ANWAR & off-shore drilling. But their time is fast coming to an end. The more pain Americans feel at the pump and the cash register, sooner they will wise up.
has been discovered.
OTOH countries like Iran & Venezuela are falling behind on oil production not because they are running out of oil but because of crazy dictators with harmful policies. Iran is in such bad situation, that they will soon need to import petrol in spite of sitting on one of the largest proven oil reserves in the world.
On July 6, DanD1 wrote:
remember "New Clear"? Was George Bush uttering code words for the future? The press presented him as a bumbling idiot because he couldn't pronounce nuclear; maybe he pronounced it the way he wanted it said? Report abuse
cars running on bio-fuels and gasoline. They make the ethanol out
of sugar cane which is far more efficient than using corn. But they
have an advantage. Their climate and soil is great for sugar cane
growing. Much of US is not.
In US, to produce 1 gallon of ethanol requires 3/4 gallon of gasoline. Average car in US consumes 600 gallons of fuel/year
and that boils down to 60 gallons of ethanol per car per year.
No wonder gasoline and food prices are going through the roof.
I assume you don't know too many of the 97% of the population struggling or unable to meet it's household financial obligations each month either. Drill and do alternatives same time. What's wrong with a massive sustained push into all areas?!?!
At least he has the fortitude to stand up and be counted which is more than I can say for 95% of the rest of the politicians. He has proposed a solution which did not require a mental giant to see. I am sure there are others who see the same but they all lack the guts to say so. You say he is dangerous........to who........the liberals.....the environmentalists....t... far left.........who?
He is an American patriot unfortunately who can't get elected but truth be known.........he should be the next President because he is "qualified" to be.
So he ran around on his wife ...........who gives a ++++.
Can he run a country is the question. Obama is unqualified but he is charismatic and he is probably going to be your next president. Good luck !
"I am a liberal and progressive, but I can't see any good coming of an ever weakening dollar."
Yes, no good will come from it. The only reason we have been devaluing the dollar is that if we tried to strengthen the dollar we would go into an economic depression.
Of course, as we devalue the dollar our economy continues to decline, just in slow-motion instead of in one giant crash.
Ultimately, which would lead us to a deeper depression- a strong dollar or a weak dollar? Probably a weak dollar, because our economy is basically a pyramid scheme built on debt, and the longer we go trying to keep the economy afloat by building up the pyramid, the bigger a crash we will have when it finally comes down.
1). George Bush doesn't have a clue (about energy or the economy in general. That is pretty clear from his so-called "strong dollar" policy)
2). John McCain doesn't have a clue. He admits he doesn't understand the economy. Hey, give a guy a break, the other politicians don't understand the economy either.
3). Barack Obama doesn't have a clue. He thinks the US is a prospoerous nation that he is going to steer slightly in the direction of welfare state at the expense of prosperity.
Earth to Barack: The US economy is a bankrupt pile of rubble and you can forget about expanding any programs because we will be hard pressed to be able to continue to fund the ones already on the books. And as far as the "moon shot" for alternative energy.
Yes we need a Manhattan type project. Hopefully it won't be a corrupt program like ethanol where we starve third world people in order to put money in the pockets of ethanol hucksters.
And if we have a Manhattan project on renewables and if we do it right, then MAYBE 50-75 years from now we will be getting over 50% of our energy from renewables.
What do we do in the next 50-75 years?
I don't think Barack has an answer. But, hey, don't feel bad, Barack. Nobody else has an answer either.
1). Aggressive development of Electric Vehicles.
2). Manhattan project to develop renewables (wind/solar). And don't forget that wind and solar are intermittent. We either are going to need to develop giant energy storage devices or we need to develop a global "monster grid" for electricity so that when the wind is blowing in Timbuktu we can send the wind energy to people freezing their nuts off in Inuvik Canada.
3). more nuclear plants
4). Drill, drill, drill for oil
5). As far as questionable future sources such as biofuels and hydrogen- their shortcomings will probably mean they never amount to much but we should still do a little bit of research, who knows we might come up with something. Biofuels will probably have a small role in the future to power military jets and air travel for rich people.
Just don't give us this BS that a program to develop renewables constitutes an energy policy.
People complain that drilling will take 10 years to get oil. Yes. And R & D on renewables will take at least 50 years before they can realistically be expected to provide most of our energy.
What do we do until then? The things that might address that are:
1). Aggressive production of conventional energy sources
2). Aggressive pursuit of conservation. Some may not be fun. We may have to give up automobiles. Still, it beats alternative 3.
3). Our society simply dies off for lack of energy. Problem solved.
It's not just oil--It's a nation of consumers over-extended on easy credit, debt over their heads, and inflation pushing them under.
Even gas at $2.00=50%=1/2 won't save them--or the banks!!
Back on topic: Pretty good article on recognizable markers on the way to recession. We're 3/4 way down the mountain and the brakes -(more fiat liquidity)-ain't working!!
Go vote for Obama if you think higher taxes is the Rx for recession!!
jan
Solutions to this mess? Heck if I know, but I do know that a "Manhattan Project" endeavor on alternative energy sources would produce real tangible change and significant energy sources in far less than 50 years- more like 10-15. Look at how far solar has come just in the last few years (I read somewhere that solar panels have increased efficiency 3X in less than 10 years). Or even research on hydrogen or electric cars- heck a decade ago, people were saying we wouldn't see electric cars for 30 years if we were lucky and now we're looking at a strong likelihood of a reasonably affordable ($35k) commercially available electric car in 2010.
Bottom line is we still live in a great innovative country and can work our way out of this if we put our minds and our money to work in the right places- alternative energy and infrastructure. Stop spending billions on Iraq that could be spent on research and development of new energy and shoring up our sagging infrastructure- bring our money and our focus back home for once.
Seeking Alpha ought to be more or less dedicated to discourse about intelligent and productive investing ideas and thoughts. While it is true that political views are part and parcel of the investing scene and whom the next resident of the White House is will have a lasting effect on the economy many of the views offered are "talk radio" inspired. Seeking Alpha ought to limit, and or temper in an editorial fashion a good portion of the discourse to maintain creditability.
That having been said I offer this thought of my own. The essential problem of the economy, the debt/credit crisis, housing declines, the sinking dollar, etc., stems from one thing alone, and that is the advent of PEAK OIL. This is not a Republican or Democrat thing, nor is it Detroit's fault. It is OUR fault as a nation that has used energy, cheap energy in a profligate manner (along with the rest of the world) since the beginning of the eighteenth century. We are about five percent of the worlds' population and we use fully twenty five percent of the oil produced to run our economy. With world oil production peaking and then declining within the next few years the world economy will suffer along with the US significantly. Our investing and other thoughts should be focused on cooperative solutions to mitigate the biggest problem humanity has faced. If all of us, Republicans, Democrats, Right, Left, Conservative, Liberal, Evangelical, radio talk show host, or otherwise continue being so divided and unwilling to compromise we are doomed to a radically changed future.
Second most of the economic problems we face now and really ever since the great depression involve socialized or fascist industries. Freddiemac and Fannie are basically business in bed with government. Defense, Banking, energy, are highly regulated and affected by government policies. Lobbiest and big business interest controlling government is a direct result of the amount of money the government spends as a ratio to GDP. Blaming the free market for the failures of socialism and fascism is like blaming the rape victom for the rapers actions.
What we need to do is create as much as possible a wall of seperation between business and government. Its not the free market that is causing any of these problems. Rather is it failure of regulated markets, socialism, and fascism. The mortgage industry got so bad because of Fed induced low interest rates in combination with the idea that the government is going to bail everyone out.
Our country has one industry after another starting to become dominated by big businesses. Our government is the largest monopoly of all and it is created more monopolies and ogopolies through its policies.
Wildhawk no offense but OBAMA has said less about his platform and his ideas than any politician I've ever listened to. He speaks in platitudes and veils is ideas (if he really has any) in messages of hope. He's like the Joel Osteen turned into a politician.
We went into Iraq because Saddam went off the reservation after the Gulf War and was a continuing threat to the Saudi's. Iran is the last great threat to the Saudi empire and their days are numbered. Remeber the photograph of GW holding King Faud's hand. That said it all.
We'll never leave the middle east as long as we need Gulf oil, period. Besides, low grade, on-going combat is beneficial for the MIC (Military Industrial Complex). Yes, it's wrong, but life's not fair and wussies get screwed.
The "spice" must flow.
Play the game and go long RIG, COP, CHK, and KPM and you will feel better about high oil and gas prices.