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John Early  

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  • GDP Model Update: Q4 Now Looks Negative [View instapost]
    bixbubba, there are 2 other quarters in the data period where the oil price declined by a larger percentage: Q4 2008 and Q1 2009. Obviously other factors are not as negative now as they were then.

    The estimate of the model goes from 3.3% Q3 to -0.14% Q4. The 25% oil price decline for the quarter (69% annual rate) accounts for less than 1% (less than a third) of this 3.44% estimated decline. Even if oil had no impact on growth Q4 should still be substantially weaker.

    I don't know of any reason why the relationship between growth and oil should be different this quarter than in the past 10 years, but that doesn't mean there is not one.
    Jan 28, 2015. 12:46 PM | 1 Like Like |Link to Comment
  • GDP Model Update: Q4 Now Looks Negative [View instapost]
    Thanks Bob. The standard deviation is 1.3 so it does seem probable that the number will come in below 1.2%.

    bobdark, I think the biggest difference in this model and the mainstream outlook is the lead time for housing starts and the indication of oil. With the 9 month lead time housing starts have a very negative indication for the 4th quarter. Most people believe falling oil is good for the economy. While I think low oil prices are beneficial after a long lag, on a concurrent basis I believe falling prices are a sign of a weak global economy which will be a drag on the US.
    Jan 28, 2015. 09:44 AM | Likes Like |Link to Comment
  • 5 Reasons GDP Growth In Q4 May Be 0% [View article]
    The oil lead is longer than I expected when I calculate it with annual growth it is more in the 15 to 17 month lead range. I will keep an open mind about this lead time.
    Jan 5, 2015. 09:27 PM | Likes Like |Link to Comment
  • A Brand New Way To Track The Labor Market [View article]
    Don't know anything for sure. What I suspect is that when short term rates are below 2% or so the yield curve ceases to correlate with the GDP growth rate. For example US between 1930 and early 1950s. Also since 1995 there have been 6 recessions in Japan with no inverted yield curve. The Italian yield curve last inverted in 2008, but their economy recently went into recession.

    If short rates are above 2% I think the yield curve is the best leading indicator of recession.

    Most employment measures are lagging indicators. In a normal expansion growing above 3% a slowdown in growth has time to show up after a lag in faltering employment data before a recession begins. Since we are growing around 2%. I suspect a recession could start before the lagging indicator of employment show a decline. 2013 grew at 1.6%. 2014 is growing at about 2.1% through 3 quarters. I am expecting Q4 to pull full year growth down a bit.

    Earnings? are you talking about corporate earnings or earnings of labor?

    Corporate earnings often lead GDP about 1 quarter, but it varies.

    In the last 7 years nominal GDP has annualized 2.7% (weakest 7 years since 1938) while as reported earnings have annualized 4.2%. I suspect the difference is leverage, financial engineering and accounting games. When the economy weakens just a bit more the leverage etc that has elevated earnings above GDP growth rate will likely shift to making earnings plunge. In the last few years "as reported" earnings have had a higher standard deviation than anytime in history. When the downturn comes earnings should fall fast and hard.

    I don't have any smoking leading indicator pointing to an eminent recession. My baseline forecast of growth is 1%. In the last 7 years real GDP has annualized 1.1%. The last 5 years have grown faster than my estimated baseline. I perhaps have a bias toward expecting growth slowing toward or below the baseline.
    Nov 16, 2014. 11:50 PM | Likes Like |Link to Comment
  • A Brand New Way To Track The Labor Market [View article]
    What is your definition of a bear market that excludes the 30% plus decline in 1987. Also the four recessions between 1936 and 1954 were not preceded by an inverted yield curve.

    Nov 16, 2014. 01:04 PM | Likes Like |Link to Comment
  • A Rational Look At Stock Market Risk [View article]
    Why don't you show what the SPX:AGG chart looked like in 2007 since the SPX peaked in October 2007 instead of starting your chart 9 months after the market peaked in July 2008.
    Sep 23, 2014. 05:27 PM | Likes Like |Link to Comment
  • What Everyone Remembers That Never Happened: Why Job Growth Will Be Revised Down [View article]
    levin70 Thanks for the input.
    Sep 17, 2014. 05:50 PM | Likes Like |Link to Comment
  • GDP Q3 On Track For Sub-1% Growth And A September Correction [View article]
    Historically the 2.2% is well below average, but I think it has been and continues to be a fulcrum between stall speed and escape velocity. You are right when growth has climbed above that level following a recession it has always strengthened further. On the other hand when it has been above this level and fallen to it a recession has always followed if the economy was not already in recession. It's curious growth has hung out at this level for two years. From opposite expectation we will both be watching to see which way it goes.
    Sep 15, 2014. 05:05 PM | Likes Like |Link to Comment
  • GDP Q3 On Track For Sub-1% Growth And A September Correction [View article]
    Salmo Trutta
    Credit growth such as
    lags quarterly GDP growth about 7 months. This does not tell you about a rebound in 2015.
    Sep 9, 2014. 12:35 PM | Likes Like |Link to Comment
  • Rosenberg: The Next Recession Could Be 4 Years Away [View article]
    There is a pretty strong correlation between interest rates and the ratio of the monetary base to GDP. Some charts on this are in this article.
    Sep 4, 2014. 11:07 AM | Likes Like |Link to Comment
  • Rosenberg: The Next Recession Could Be 4 Years Away [View article]
    "In the last 50 years the yield curve has a 100% accuracy rate for predicting recessions, with no false positives."

    I See the data the same way and also note the yield curve inverted to forecast the first recession of The Great Depression. Yet I consider the possibility that the yield curve does not give warning when short rates are held below about 2%.
    Sep 4, 2014. 10:06 AM | Likes Like |Link to Comment
  • Rosenberg: The Next Recession Could Be 4 Years Away [View article]
    "which?" answer: all. There was no inverted yield curve prior to any of those four recessions. I did misspeak slightly: while the 3 month T-bill yield was continuously below 2% from 1933 through 1952 it was a bit above 2% for a few months prior to the 1953 recession.

    How do you measure tightening for the recessions in 1937, 1947 and 1953 and how is it different than the 3 month T-Bill yield in this cycle bottoming back in 2011?
    Sep 2, 2014. 12:47 PM | Likes Like |Link to Comment
  • Rosenberg: The Next Recession Could Be 4 Years Away [View article]
    Yes, but the 4 recessions prior to 1954 all began with short rates below 2% and no warning of the yield curve inverting.
    Aug 27, 2014. 02:17 PM | Likes Like |Link to Comment
  • Taxes Don't Lie [View article]
    Thank you for your comments. We obviously see some things from a different perspective and I want to understand yours better.

    You point out "a rising capital goods to consumer goods ratio that we find as recessions approach." I looked at a couple of possiblities of what you may be referring to. The one that I think comes closest was the ratio of "private non residential fixed investment" and "personal consumption". What the chart says to me is that investment is much more volatile than consumption and when the economy is growing it grows faster than consumption and when the economy shrinks it shrinks faster. I didn't really see any clear relationship between this pro-cyclical ratio and the long term growth rate. I believe the analysis of marginal tax rates and brackets finds correlations with the long term growth rate. A change in the marginal rates occasionally corresponds with the shift between expansion and contraction, but I don't think the correlations between marginal tax rates and long term growth are much help in timing a business cycle.

    You state, "A lower tax rate represents a potential permanent lower cost on businesses..." Suppose a tax bracket on personal income were added to existing brackets where the portion of personal income above of $1 million dollars had a marginal rate of 45%. How do you see this effecting the business costs of wages, equipment marketing and the like?

    One other area where we may see things differently. You say "Surplus spending would act to stimulate the demand side." What the data suggests to me is that if more business revenue is taken as personal income part of the increase on the demand side is taken up by increased imports. The positive correlation between marginal tax rates the balance of trade is another reason I believe business revenue spent on the business has a larger growth effect than business revenue taken as personal income.

    Do not have any interest in being a hero to some political spectrum, but am curios if you have a preferred measure of "net business investment?"

    In reference to comments further down we may have miscommunicated. The data I have shows nominal GDP did not make a new high till 1941, while real GDP surpassed the 1929 high in 1936. I am curious if you have a data source to show real GDP did not continuously remain above the 1929 level from 1936 on.
    Aug 16, 2014. 04:20 PM | Likes Like |Link to Comment
  • Taxes Don't Lie [View article]
    Not all government spending counts as GDP. Transfer payments like social security do not add to GDP. When the recipients buy goods or services it counts then.
    Aug 16, 2014. 11:54 AM | Likes Like |Link to Comment