On November 7, 2011, Lakshman Achuthan of the Economic Cycle Research Institute (ECRI) appeared on CNBC again to talk about recession. Achuthan was very adamant in his insistence that the business cycle simply could not be reversed from its downward course. The talking points almost sounded like a campaign. It included precious gems like “divergence from [the ECRI] is resolved by the consensus coming around to the ECRI’s view” and “other economists do not see the recession because they are using models that fit the data.” According to Achuthan, on average, people do not recognize they are in a recession until about six months into it.
When pressed for the “secret sauce” or even just one smoking gun indicator, Achuthan remained staunchly elusive. When really pressed, he offered up some relatively obvious signs of weakness like housing. Achuthan prefered to talk about a “contagion in forward-looking indicators.”
The CNBC hosts were mildly frustrated by Achuthan’s elusiveness and even more uncomfortable juxtaposing the recession claims with a stock market that is not discounting a recession. After all, the market is supposed to be so brilliant that it discounts everything and anything about six months in advance.
I maintain a half-suspicion that ECRI’s stellar record in calling recent recessions potentially makes them culpable in starting recessions. I will be very happy for the ECRI to get this one wrong, but the call for an imminent recession is uncomfortably consistent with my technical claims from June that a bear market is coming in 2012, and what I called the confirmation of that view two months later in August. As always, I am executing on the technical signals one step at a time. For now, the stock market remains in a very bullish position despite levitating in an extremely overbought condition.