Dr. Ken Mayland: A year of decent growth is a resonable presumption (Porte, Griffin, checklist get in here)...
Even when you take the Greece crisis and BP oil spill into account...
Yesterday, I had a pleasure of attending Surface Finishing Industry’s annual conference and trade show, where one of the keynote speakers was Dr. Ken Mayland, one of the nation’s most recognized economic forecasters.
Before I go into what Dr. Ken had to say, let me first “tell” you a little bit about Dr. Ken (I promise it will be worth your time).
Here is what I gathered from his company’s website (ClearView Economics):
Dr. Ken Mayland is President of ClearView Economics, LLC, a firm specializing in economic research and forecasting. Ken was previously the Chief Economist of two major financial institutions (First Pennsylvania Bank and KeyCorp). Graduating with degrees in economics from MIT (undergraduate) and the University of Pennsylvania (M.A. and Ph.D.), he has spent more than thirty years studying the business cycle and providing economic analyses to a variety of constituencies.
Ken is a member of the Blue Chip Economic Forecasters and Financial Forecasts survey panels, and several wire service and newspaper survey panels. He has been a past member of the Economic Advisory Committee for the State of Ohio under various Governors, and he has held several leadership positions with the National Association for Business Economics. Ken is frequently quoted in the local and national media, is listed in Who’s Who in America, and has won several awards in recent years from the Federal Reserve Bank of Chicago for “best forecasts.” As a member of the BusinessWeek Annual Economic Forecasting Survey panel, Ken hit the 2002 GDP, unemployment rate, and CPI inflation projections within a tenth of a percent. Ken was the second best forecaster in USA Today’s forecasting panel for all of 2003. Bloomberg Magazine (November 2004) identified Dr. Ken as the nation’s top forecaster (!) in its mid-2003 to mid-2004 tally of forecasts. For the most recent forecast year (mid-2004 to mid-2005), Bloomberg Magazine (December 2005) had Dr. Ken as the best forecaster (tied) of the unemployment rate and the fifth best forecaster of the inflation rate. In a feature article, Fortune Magazine (11/27/00) identified Ken (along with three others), “as one of the sexiest economists alive.” (He will NOT, however, do presentations sans shirt.)
In the first half of 2006 USA Today has once again identified Dr. Ken as one of the nation's top ten forecasters for 2005! (#7) AND...
in December 2006, BusinessWeek determined that Dr. Ken was THE #1 most accurate forecaster for 2006!!! (12/25/06 issue.)
And now the "triple crown!" Dr. Ken in 2007 won the Lawrence R. Klein award for Blue Chip Economic Indicators forecast accuracy. This award is presented by Arizona State University for the person who best forecasted real GDP , CPI inflation, the unemployment rate, and the 3-month Treasury bill rate over the 4-year period 2003-2006. By design, the winner of this award must be a consistently good forecaster. The award carries a substantial monetary prize. The picture below shows Prof. (and Nobel Laureate) Lawrence Klein (UPenn) and Randy Moore (Blue Chip) along with Dr. Ken.
OK, let’s now get into what dr. Ken had to say yesterday.
As I don’t yet have the access to the slides from his presentation (will have it next week), I’m just going to try to share with you a few points Dr. Ken tried to make yesterday (sentence highlighted in bold are taken off Dr. Ken’s slides. Other stuff is basically my recollections):
- Recovery is not synonymous with Recovered
We are in a recovery mode. However, that doesn’t mean we’ve recovered. It will take years to get back to “good old times”.
But the recovery has started.
We have 3 quarters of “growth” under our belt
2009 Q3 = 2.2%
2009 Q4 = 5.6%
2010 Q1 = 3.0%
- Manufacturing sector tends to do well when 12 months of sales growth is GREATER than 12 months of inventory growth.
That transition occurred in September of 2009.
(Understanding correlation between sales and inventory is most important part of understanding economic/business cycles).
At the end of 2007, demand for goods dropped sharply to a very low level (because of the credit crisis), but the manufacturing sector cut its production to an even lower level. This means we have been using up inventories for 2 years.
Looking back in history, every sharp drop in production (and inventories), just like the one we had in 2007-2009, was followed by a big jump in demand for production: It is not unusual to see 12% year-over-year growth after such sharp drops.
Steel industry is ramping up big right now.
3 Key sectors started improving last year: Housing (foreclosures are still a drag), Auto industry (very busy), Capital Spending (after cutting to the bone, some big companies made surprisingly good profits last few quarters. There is more money available for capital equipment. Capital spending is up 12%).
Projecting that auto industry production is going to pick up was the easiest forecast in the world. Two reasons:
1. Our annual scrappage rate (13 mil/yr) was higher than our production rate (normally 16 mil/yr) for 2 years.
2. Demographics (population is constantly growing)
Even though people are driving cars longer than before, and trying to fix them instead of buying new ones, let’s face it: when a car dies we don’t stop driving. You and I might by a used car, but somebody (the person who sold us the used car) will buy a new one.
LESSONS FROM 2007 – 2009
- The economy is cyclical
- The Economy has a penchant for over-doing it (tends to form bubbles)
- The “innocents” get hurt (people and companies alike)
- Policymakers will respond (lower taxes, lower interest rates, increased government spending)
- Politicians will exploit the pains and fears of the public (they will focus on the negatives, and will make them look worse than they actually are, just to promote their agendas, get elected, etc.)
- The economy inevitably recovers (IT’S A HISTORICAL FACT)
LESSONS APPLIED TO 2010
- We are at the bottom of several cycles
- “Innocents” get relief
- What are the new bubbles? (size of Federal Government? Deficit?)
So that would be it for right now (Dr. Ken did also say the Greece issue is most likely a good thing for U.S.).
Once I get the slides (with a bunch of very useful charts), if there is any interest, I might post some of those. In the comments below, Ill try to post a few more things I remember from yesterday.
And one more thing: I invited Porte, Griffin416, and checklist34 to this post not just because they are my fellow bulls, but also because Porte has been saying for months that Germany’s economy and manufacturing is doing very well (almost reaching the “boom” quadrant in his “weird-looking” chart), Griffin has been reminding everyone for months that economy and stock market are cyclical (and we are on the way up if you haven't noticed), and checklist34 had this post where we covered some of the same stuff Dr. Ken talked about.
I apologize to Dr. Ken (here is the link to his website) for the simplification of his presentation. I hope there are no inaccuracies in this post, but if there are, I apologize.