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Erik McCurdy
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Erik is the senior market technician for Prometheus Market Insight and has been performing chart analysis since 1995. The software program that he developed to monitor long-term stock market trends has correctly identified 92% of the cyclical turning points in the S&P 500 index since 1940.... More
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  • ECRI Believes Recession Has Begun 1 comment
    Jul 10, 2012 2:38 PM | about stocks: SPY, DIA, QQQ

    In an interview with Bloomberg today, Lakshman Achuthan of the Economic Cycle Research Institute (ECRI) renewed the recession call that was first made late in 2011, indicating that they believe the US has entered a recession as of the second quarter of 2012.

    What we said back in December was that the most likely start date for the recession would be in Q1 and if not then, by the middle of 2012. I'm here to reaffirm that. I think we're in a recession. I think we're in a recession already. As I said back there, it is very rare that you know you're going into recession when you're going into recession. It often takes some big hit on top of the head.

    What is a recession? It is not a statistic; it is a process between production, employment, income and sales. When you look at those four measures, they are rolling over. It is not all about GDP. It is about jobs. It is about income and sales. A recession is a vicious interplay among output input employment, income and sales. When you look at 2001, you can't find two negative quarters in a row, yet you lost 3 million jobs. Or half the value of the NASDAQ. How are you going to tell someone that wasn't a recession? When you look at the data today, you see that industrial production is off of its April high. Manufacturing and trade sales, much broader than retail sales, is off its December high. Real personal income growth, which does not always go negative during a recession, has been negative for several months so it is consistent with a recession having already started.

    I think there is this belief that somehow government or a central bank will stave off a recession. For the last 220 years… you have had 47 recessions. Why are we going to avoid the 48th? Here we are in the wake three years out of the last recession. You see this leading indicator. It leads, it is the drivers of the business cycle and it is doing this bumping down. People look it that and they say, each time they throw in some money or do something, you get less for it. I am surprised given the trillions of dollars spent around the world that that indicator is as weak as it is. That is a recessionary reading.



    (click to enlarge)

    During the last nine months, the ECRI forecast has aligned closely with our own computer models, which have also indicated that the development of a recession is a virtual certainty at this point. Our Cyclical Trend Score (NYSE:CTS) generated a sell signal in early April, indicating the highly likely start of a new cyclical downtrend. Since then, the stock market has exhibited behavior consistent with the formation of a long-term top and we expect the decline from April to move down to new lows sometime during the next two months as the macroeconomic environment continues to weaken.

    We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: Market Outlook, Economy Stocks: SPY, DIA, QQQ
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  • gausmus
    , contributor
    Comments (110) | Send Message
    Two signs that seem to support your recession call are national electricity sales volumes and mogas consumption. I like to look at both of these as their usage is ubiquitous and there are no real alternatives that are practical. They are a pretty clean look at economic activity with very little lag. In both instances, the YOY volumetric consumption is lower in 2012 than 2011. The former by 2.5-3%, the latter by about 5%.
    11 Jul 2012, 01:12 PM Reply Like
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