Owen B

Show Me Economic Expansion, Chairman Bernanke

Thank you Steve. I tend to follow the ECRI indexes over the Conference Board's for reasons to numerous to mention. Focusing on the two charts for ECRI's coincident index growth rate, I agree that through Oct. their "monthly" coincident index was not showing positive growth, but their "weekly" coincident index seems close to going positive. What do you make of this? Does this then bode well for the next update of the monthly coincident index?

Nouriel Roubini, One on One: More Doom and Gloom

A synopsis of just what Roubini's been forecasting (and why) over the past few years and why: www.erictyson.com/arti...

Here's a similar video and soundtrack: www.youtube.com/watch?...

Why the ECRI Is a Good Economic Indicator

> A1 = I've always looked at the WLI as something to confirm cyclical
> moves in stocks, and that is worth a lot to me.

>That seems dangerous given that the WLI apparently includes market data. Depending on the weighting given to the market data in the WLI determination your confirmation could end up being circular.

Not really as the WLI is not only stocks but also other unrelated indicators, i.e., confirming... and agreed, not leading the market at all.


On Oct 16 12:10 PM Wildebeest wrote:

> On Oct 16 11:04 AM Owen B wrote:

'BTE' Earnings Masking Signs of Coming Market Correction?

Thanks for the update, and list of things to watch as warning signs of a possible correction. However, I disagree with the characterization of Shedlok's article as "thorough." ECRI's reply shows that Shedlok's understanding of the WLI is limited.

www.businesscycle.com/.../

www.ritholtz.com/blog/...

Why the ECRI Is a Good Economic Indicator

A1 = I've always looked at the WLI as something to confirm cyclical moves in stocks, and that is worth a lot to me.

A2 = look at the link of a WLI vs. GDP chart that Kirk provided two comments above yours :-).

On Oct 16 08:33 AM Wildebeest wrote:

> As per instablog comment:
>
> The chart you have included clearly shows the ECRI WLI to be a coincident
> indicator at best, and on occasions a lagging indicator -- of the
> S&P at least. Therefore you can't draw anymore meaningful information
> from the ECRI WLI than you could from the S&P 500. (qualifier:
> for this data set dating back to early 01)
>
> Normally your articles are packed with data, and informative, here
> there is no data to support the title of the article.
>
> Q1. Is the ECRI WLI a leading indicator for the S&P 500?
>
> A1. Data set provided shows it isn't. It is coincident mostly but
> sometimes lagging. i.e the chart doesn't support the thrust of the
> article.
>
> Q2. Is the ECRI WLI a leading indicator for the economy?
>
> A2. Who knows. The chart I'd like to see is the ECRI WLI overlaying
> quarterly changes in GDP. That way we can see if it is a leading
> indicator of how the economy is travelling.

Why the ECRI Is a Good Economic Indicator

I generally agree with what you've written, with one important nuance. As I focus in on the run up to the start of the recession, ECRI was clearly pointing out the recession risk, but they were going on to make a delicate point about how cycles work -- not necessarily for us investors -- but seemingly for policy makers. (Delicate points don't do well on blogs I'm afraid.) The point being that there was a brief opportunity to create a manufacturing "short-squeeze" that would have forestalled (not prevented) the recession. This is important because once the recession took hold on top of the housing/credit mess, we would be/were in for a more nasty ride down than if policy was in a better position to handle the expanding credit crunch. If you know anything about ECRI, and clearly you do, they do not believe recessions can be avoided. I got most of this from a Jan. 2008 post from ECRI: kirklindstrom.blogspot...

Roubini: Don't Expect a V-Shaped Recovery

Roubini in context...

www.erictyson.com/arti...

No Chance of a 'V' Recovery

Yes, in March they said recession a done deal (at the time there was a big debate about recession because GDP was still coming in positive): kirklindstrom.blogspot...

But a few months earlier in January they were waving a BIG yellow flag for anyone that was listening, pointing out an unusual inventory situation/opportunity that was lost on everyone, especially policy makers: kirklindstrom.blogspot...


On Oct 04 09:33 AM JCC wrote:

> Agreed - Furthermore ECRI predicted the current mess a little late
> in March 2008, which was plenty of time to get out and preserver
> your capital.
>
> ECRI has done pretty well in the economic prediction business.
>

No Chance of a 'V' Recovery

You wrote, "ECRI has been wrong before and they were in 2007 about the strength of our economy"

But I've heard ECRI state that GDP growth reached a 4-year high in mid-2007. Is that not true?


On Oct 02 04:16 PM enigmaman wrote:

> Your points of fact are well taken but
>
> 1-ECRI has been wrong before and they were in 2007 about the strength
> of our economy
> 2-We have more houses then qualified buyers and 6 million more foreclosures
> on the horizon, builders are selling at looses just to stay in business,
> so housing is now our ball and chain and not the cavalry
> 3-India and East Asia are doing fine so far, whom will they sell
> their wares to to maintain their GDP, it wont be USA ,then who?<br/>4-
> Like all headlines, they show we are breaking records all over the
> place, but what lies underneath those numbers, todays stats were
> sobering because they indicate economy still needs to be in ICU and
> also needs pacemaker to keep its heart beating
> 5- Foreign demand for what?
>
> I want a V shape recovery, I really do, everyone prospers from a
> good economy, there is no reason to want it to falter because it
> takes all down with it. Then again there is no reason to believe
> everything will come up roses because we want it to, to expect a
> V shaped recovery after all that this economy and its people have
> been through in such a short time and facing a government that insists
> on adding debt upon debt without worry about an 18% tax revenue shortfall
> is insane, OK wishful thinking. The devil is in the details and the
> details are what we are not getting, but they are there is you search
> for them and when you find them they are worse then you expected,
> like today workers are losing hours worked at an unrepresented pace,
> worse then anticipated. Give you an idea about unemployment, at 9.8%,
> the Pres said his stimulus would add 3million jobs in the next two
> year, Ha, but lets say it did, the unemployment numbers would not
> change because the underemployed represent 3 million jobs, so before
> we can add one new job employers have to bring current employtees
> back up to 40 hrs work week. So the uphill battle is steeper then
> the Admin is letting on, peel the onion and make sure you hold your
> nose and shield your eyes otherwise it will make you cry

Leading Economic Indicator Isn't Indicating the Real Recovery

The LEI is a bastardized version of it's original self. Geoffrey Moore (ECRI Founder) helped develop the original LEI in 1960, but since 1979 he left it to the mainstream economist to manage (see how that worked out) and he went forth with the WLI and other leading indexes at Columbia University and ECRI.

As a result the LEI and WLI often diverge, and the LEI is usually a step behind (same thing happened with 2001 recession).

www.bloomberg.com/apps...

BTW, is your chart of ECRI's weekly coincident is showing some upturn, or not?

Looks Like a 'V' to Me

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?

What if It Is a 'V' Recovery?

This blog post (see link below) chronicles links to more complete ECRI public statements from Jan. 2008 - Mar. 2008 regarding recession:

kirklindstrom.blogspot...

After careful review, it seems ECRI was not surprised by the recession as some have tried to suggest.


On Sep 07 09:16 AM fotokemist wrote:

> Thanks to all for an enlightening post and discussion. I am new to
> this game and continue to be amazed at the quality of information
> and discussion available on the web.
>
> If memory serves, Steve posted something in February or March from
> ECRI predicting improving business conditions by summer (pardon my
> laziness for not digging this up.) My point is that somewhere there
> is an ECRI report from six months ago for each month.
>
> Could one of you folks much more experienced than me do an assessment
> of how they have been doing recently?
>
> I am among the group that is concerned that the level of government
> interference compared to earlier events may have had an adverse effect
> on their models. Given my poor understanding of cause and effect
> in the current environment, any knowledge of their models, etc.,
> I would find some current "calibration data" very helpful.
>
> Steve, thanks again for all your effort.

Shanghai Index Declines 4.7%: Bubblevision Permabulls vs. Web Permabears

JF, I agree with you that there were a few individuals that called end of Armageddon in early March, but I was thinking more of market sentiment as a whole.

Have you seen this? www.reuters.com/articl...

Here Come the Economic Clowns

Either ECRI is totally full of it, or people are going to be caught flat-footed:

www.reuters.com/articl...

Shanghai Index Declines 4.7%: Bubblevision Permabulls vs. Web Permabears

Good article.

Reading this passage i found myself out of step with your description, but then figured being out of step is what makes a market.

"The sky is falling-financial Armageddon" phase ended Mar 6-9 at SPX 666 low; then "the recession will soon be over phase," whose end can be dated no later than Apr 29-30 when ECRI made that call, though the market had it figured out much earlier than that; followed by a May-June market consolidation; then "the better-than-expected 2Q earnings" phase, starting July 13 with Meredith Whitney’s pre-opening Goldman call on CNBC; followed quickly by "the better-than-expected 3Q GDP phase," which just ended as at least six major banks raised their estimates to around 3%."

My sense is similar, but with slightly different timing:

=The sky is falling/Armageddon phase lasted well into May.

=Sometime in May, following ECRI "end of recession this summer" call, I think Armageddon did come off the table for most.

=Then in June as the market fell, bears gained some control, with variations on an "Armageddon light" story.

=Armageddon light then passed away with the GDP and report on July jobs, and people need to decide if they want to finally buy in when the markets up 45% from its lows.