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davejh23 (< 20)

ECRI says new recession is unavoidable...

Recs

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September 30, 2011 – Comments (8)

What's significant about this call?  They've never issued a false alarm on a recession call. 

Summer 2010, ahead of the QE2 announcement, many feared the dreaded "double dip".  Part of the reason for that was the ECRI's index of leading indicators reached a level that had previously always been associated with recession.  However, even amid all the talk of a new recession, Lackshman Achuthan declared that the fears of an immediate recession were overblown.  While the index level was saying "recession", the underlying indicators were not as worrying.  Stock prices feed into the index level, and the stock correction pulled the index down, but the ECRI was looking for a "vicious cycle" that typically pulls us into recession, and they didn't see it...no recession call.  I doubted the lack of a recession call at the time, but it appears that they were right...even if we would have slipped into recession without QE2. 

This time, Achuthan says "You haven't seen anything yet.  It's going to get a lot worse."  Best case scenario is a mild recession.  "We don’t make these calls lightly. When we make them, it’s because there’s an overwhelming objective message coming out of our forward-looking indicators. What is going on with the leading indicators is wildfire; it’s not reversible.”

8 Comments – Post Your Own

#1) On September 30, 2011 at 11:37 AM, dctodd27 (< 20) wrote:

I guess Buffett isn't one of their leading indicators

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#2) On September 30, 2011 at 1:56 PM, Frankydontfailme (28.86) wrote:

Yeah... but the chicago PMI looks pretty good :) who to trust?

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#3) On September 30, 2011 at 2:14 PM, davejh23 (< 20) wrote:

"Yeah... but the chicago PMI looks pretty good :) who to trust?"

Just because it beat expectations doesn't mean it looks "pretty good".  The Chicago PMI also contradicts the ISM and Philly Fed numbers that are both signaling recession. 

The Chicago PMI is also the most volatile of the three, and did the worst job of the three at predicting the last recession...it was still in decent growth territory in the Fall of '08 (a year into the recession)...right before it fell off a cliff.

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#4) On September 30, 2011 at 3:42 PM, rofgile (99.20) wrote:

Wow.  I read that article - it looks extreme?  Fine, say that you are predicting another recession, but the ECRI seems to be trying to convince people that things are going to be really really really terrible and that the ECRI is never wrong.

I'll take note, but I feel like some others that the US and world recession has left employment already fairly low - so much of the slack in employment is already cut out.  I just don't see unemployment getting many percentage points higher (as ECRI article says should be expected).  

Further, while yes some indicators are weak or negative - others remain positive.  Bank lending was increasing - they were loosing their standards for lending in August.  Earnings are still high.  I'm skeptical still of another crash.

-Rof 

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#5) On September 30, 2011 at 3:57 PM, portefeuille (98.92) wrote:

the US and world recession has left employment already fairly low

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German unemployment falls to new low in Sept

Thu Sep 29, 2011 8:30am EDT

* Jobless rate at 6.9 pct, lowest since reunification

...

BERLIN, Sept 29 (Reuters) - German unemployment fell much further than expected in September, showing companies were still hiring despite fears of a coming economic slowdown that could be worsened by Europe's debt problems. 

...

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#6) On September 30, 2011 at 6:17 PM, Frankydontfailme (28.86) wrote:

davejh, you're preaching to the preacher. I don't expect us to immediately fall into recession though. Still enough business activity to keep us slightly positive for the next couple of quarters. When we do inevitably fall into recession, the fed will print.

 See Bullards comments today...

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#7) On September 30, 2011 at 6:45 PM, NerfBall (< 20) wrote:

Well I guess we'll have to wait and see what forward earnings outlooks are looking like. Arch Coal is down big (to under $13 per share) in after hours trading after slashing its forward guidance to well below expectations, and this despite it trading at $36+ less than six months ago and it being still very favorably viewed by Wall Steet, with 19 of the 26 analysts covering it rating it either a 'Buy' or 'Very Strong Buy' and with a median consensus price target of $33.

I realize this is just one company with its own unique set of circumstances and issues effecting its forward outlook, but ACI has historically been a pretty strong company, so this at the very least cannot be taken as a positive sign in my opinion. 

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#8) On October 02, 2011 at 4:59 AM, walt373 (99.86) wrote:

Keep an eye on China. The Chinese real estate bubble could be in the process of popping and threatens to drag its suppliers down with it... commodities, industrials, and all related companies, industries, and economies.

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