Owen B

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...

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.

Beating on the Federal Reserve

ECRI posted new stuff about their home price upturn call on their website: businesscycle.com

A summary.

"With U.S. home values far below their boom-time highs, most observers are resigned to an indefinite downdraft in home prices. It is this uncertainty about the ultimate bottom in home prices that has converted so many mortgage-related derivatives into toxic assets. Yet, at long last, the end of the home price downturn is in sight.

One key reason for the turnaround in the outlook is housing affordability, which is hovering around all-time highs. The current combination of drastically reduced home prices and very low mortgage rates has hardly ever been seen in living memory…

Most importantly, the U.S. Leading Home Price Index (USLHPI), designed to predict cyclical turns in real home prices, has now been rising for five months… But a three P’s analysis (see chart below) of the level of the USLHPI reveals an even more promising picture… the recent upturn in the USLHPI is almost as pronounced as the median in comparable past cycles… it is almost as pervasive; and … it is just as persistent. The implication is clear: this is a genuine cyclical upturn in the level of the USLHPI. Such an upturn in the USLHPI amounts to a forecast of a cyclical upturn in the level of home prices this year…"

Beating on the Federal Reserve

Agree with your "show me" attitude, so what do you make of the ECRI's weekly coincident index rising. July shows still negative growth, but right direction?

Perhaps There Are Unseen Green Shoots

Found a list of quotes from their calls vs. forecasts of others (consensus?) through 2007 on their site:

www.businesscycle.com/.../


On Jul 20 10:34 AM TeresaE wrote:

> So, what were they forecasting in '05, '06, '07 and '08 right up
> to September?
>
> Don't remember reading much (anything) about the upcoming problems,
> yet here we are.
>
> I could be wrong, and if I am, please point me to their forecasts
> from those years so I can see for myself.

Perhaps There Are Unseen Green Shoots

I've followed ECRI ever since The Economist magazine highlighted their performance in calling the 2001 recession when most others missed it completely. Below are two recent comments from Lakshman in a discussion thread on the bigpicture blog that relate in part to the issue of "if we were in a 1929-33 type downturn how would ECRI indexes fair?"

# lakshman Says:
July 17th, 2009 at 6:31 pm

mark Says:
July 17th, 2009 at 8:53 am
Just another recession? Same as it ever was? Maybe.
Let’s assume for the moment that ECRI is right. (And by the way, only an economist could call 1929 - 1933 a “recession”.) In any case, what we want to know, what we need to know, is what does that mean for stock prices? The last recession ended in 4Q ‘01 but stock prices didn’t bottom for another year.
So what say you Lakshman?

Hi Mark,

Thanks for your question about the U.S. Long Leading Index (USLLI) after the last recovery began.

After correctly navigating the 2001 recession in real-time, USLLI growth peaked in January of 2002 and did not bottom again until March of 2003.

By the way, I’m not an economist (and ECRI doesn’t use econometric models for forecasting the cycle) but I do know something about business cycles. Every depression consists of one or more very deep recessions. You can see for yourself on the NBER website here: www.nber.org/cycles/

Kind regards,
Lakshman

# lakshman Says:
July 17th, 2009 at 6:42 pm

David Merkel Says:
July 17th, 2009 at 12:52 pm
Lakshman, I give ECRI the benefit of the doubt regarding this because of your great track record. What would help me (and possibly many others) would be if you would point out what components of your underlying indexes are showing strength at present.

Hi David,

I appreciate your question, but the components of our indexes are proprietary. Nevertheless, the key reason our leading indexes work is not because of some special component(s) that we have, but rather because of what they illustrate when the three P’s are observed.

In this case we’re seeing a pronounced, persistent and, perhaps to your point, a quite pervasive rise in the number of components contributing to the rise. For example, in the Long Leading Index it’s not just easy money that is driving it up, and in the shorter leading indexes it’s not simply the stock market, or ISM (which in fact isn’t included).

I hope this helps to address some of your concerns.

Kind regards,
Lakshman