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JaysRage (93.91)

Help me to understand the recovery

Recs

16

September 15, 2009 – Comments (38) | RELATED TICKERS: CHU

Our current Fed Chairman has officially declared that it's very likely that the recession is technically over.   He also mentioned that it won't "feel" like the recession is over because unemployment will continue to rise to above the 10% level into next year.    If I'm understanding this correctly, that means that there will continue to be even less people to spend money, correct? 

In addition, many analysts are predicting that housing prices will continue to fall into next year, reaching bottom somewhere around 10% less than current prices somewhere into the middle of next year.   So people will have less equity in their houses, causing less available, spendable cash, right?  

On top of that, from that I can tell, banks are still holding underwater loans for houses, cars and everything else in order to avoid having to write off and accept losses, so there is continued risk on loans.  

What is going to fuel the recovery?   Will it or can it be entirely fueled by inflation?    While I seek to understand macro-economics, I'm really really really not understanding where the money to drive the recovery will come from?   Please help. 

38 Comments – Post Your Own

#1) On September 15, 2009 at 3:40 PM, brickcityman (< 20) wrote:

Simple...

 

If you believe that unemployment is always a lagging indicator... then the deeper unemployment goes the bigger the recovery right???  See if unemployment had stalled out at say 8% then what fun would that be...  but if it goes over 10%, whoh-nelly we're talking about a new American century here.

 

 

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#2) On September 15, 2009 at 3:44 PM, JaysRage (93.91) wrote:

From everything I've read and studied, unemployment is a lagging indicator.   Companies, on the aggregate, are notoriously slow in reacting to downturns and that last big wave of firings usually is a forward indicator of potential growth, but.....how do we know when we're at the bottom of unemployment?   And, if unemployment is supposed to peak next year, doesn't that mean that the recovery is supposed to start next year?  

Doesn't there need to be some money supply to fuel the upward expansion and positively reinforcing upward movement in the economy? 

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#3) On September 15, 2009 at 3:53 PM, outoffocus (24.49) wrote:

banks are still holding underwater loans for houses, cars and everything else in order to avoid having to write off and accept losses, so there is continued risk on loans.  

Well first let me say that all auto loans are "underwater" because cars are depreciating assets. I guess the real key is how many of these loans will go (are going) into default due to unemployment? Personally I still can't see how, in an economy thats supposedly 70% consumer based, unusually high unemployment can be a lagging indicator. Maybe if unemployment capped at 7 or 8% that might be feasible.  But literally 1 in every 10 people don't have a job. Other than the basic necessities, what are these people going to be "consuming"?  I guess we will find out come Christmas.

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#4) On September 15, 2009 at 4:16 PM, carcassgrinder (47.53) wrote:

Outoffocus...

    I can tell you first hand what they will be consuming from watching the activity in my own neighborhood....which is probably closer to 4 in 6 that are jobless.  They will still consume....

*Sticky Buns
*Lottery Tickets

*64 oz. Mountain Dews

*Cigarettes

*Gas (usually buying about $1.78 worth at a time)

*Blunts

*Cheap Jewlery

*Nascar "trinkets"

*24" spinner rims

.....as well as a variety of other worthless sh!t laden with chemicals and poor workmanship.  They love the stuff!!  Remember, Government money spends even easier than earned money. 

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#5) On September 15, 2009 at 4:17 PM, jason2713 (< 20) wrote:

It will all come to light, and actually its 1 in 5 people are unemployeed or underemployeed, while the peopel that are lucky enough to find a job are receiving anywhere from 10-30% less salary.

Meanwhile lots of these people based their bills (notably their mortgages) on their incomes before the crisis. So their monthly mortgage payments are becoming even more of a burden, if affordable at all.  If not restructured or modified, they will default.  Or in my case, I'm 100K underwater, which can take up to 10 yrs to regain, where as if I foreclose on my 0 down payment mortgage, my credit will recover in half that time.  this is why you are seeing record foreclosures.

I don't see an end in site.  There are 3 huge problems in my eyes, or the tripple wammy.  Foreclosures, unemployment, projected higher taxes.  all of that spells doom to me.

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#6) On September 15, 2009 at 4:19 PM, carcassgrinder (47.53) wrote:

oh, I forgot to include....

*Chicken that's cooked in a gas station... 

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#7) On September 15, 2009 at 4:25 PM, nottheSEC (81.19) wrote:

 Companies, on the aggregate, are notoriously slow in reacting to downturns ...

Because as long as they can have somebody doing two peoples' jobs they will try lol.

Yes we have been out of a recession for months. That does not mean recovery will be brisk. I liken it to cleaning up after a flood. The damage will take time to correct, the behavior will be cautious but steps will be taken immediately. 

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#8) On September 15, 2009 at 4:30 PM, JaysRage (93.91) wrote:

So the consensus opinion is that full extent of the damage has been done......that the majority of losses have been taken, either on paper or in reality?   Is that the sentiment that is fueling the rally and the optimism?    Is it accurate?   Have a large percentage of the losses been realized?     Am I perceiving far more risk that there actually is?    What do people think?  

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#9) On September 15, 2009 at 5:02 PM, rofgile (98.98) wrote:

JaysRage:

 That's the sentiment in the real world and with mainstream economists.

 The CAPS blog sentiment is that there MUST be a pullback, Ben Bernanke is lying, we are all fools that are ignoring the real negative news, that there is some hidden surprise negative yet to be unveiled that will crash the market.

 -Rof

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#10) On September 15, 2009 at 5:46 PM, soycapital (< 20) wrote:

oh, I forgot to include....

*Chicken that's cooked in a gas station... 

That's worth a good chuckle man!!!

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#11) On September 15, 2009 at 6:04 PM, XMFSinchiruna (28.56) wrote:

We have witnessed a manufactured partial market recovery with no accompanying economic recovery whatsoever save for a minor bounce from deer-in-the-headlight levels. There is no recovery ... yet ... only a carefully propagated myth of a recovery to appease the people.

Bernanke just forgot to finish his sentence, and plans to add the second phrase sometime in 2010 or 2011.

He may say "the recession is technically over", but the full sentence was intended to read: "the recession is technically over because technically we are in a deep depression when you ignore the doctored numbers and examine the macroeconomic fundamentals with an ounce of scrutiny."

We are in the early stages of the greatest economic upheaval of the modern age. The $600+ trillion market for derivatives will continue to de-lever, and nations will continue to bankrupt themselves in a futile effort to plug up the hole with freshly printed fiat currency.

From Bear Stearns to the March low was merely a practice run ... call it a warning shot across the bow that was completely ignored by those in charge. The warning shot cautioned that the existing system had become irreparably broken, and yet they insist on peacemeal patches rather than an overhaul.

On a very basic and philosophical level, the response went in entirely the wrong direction.

Jim Rogers, Marc Faber, Peter Schiff, Jim Sinclair, Niall Fergusson, et al. have it right. Look to their counsel for interpretation of the warning shot.

Good luck to you all.

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#12) On September 15, 2009 at 6:43 PM, whereaminow (77.51) wrote:

nottheSEC and rofgile,

I offer a challenge for you.

Explain why unemployment is a lagging indicator, as in unemployment data is past information, and how this differs from any other piece of information that is collected by economists and presented as analysis.  In other words, why is unemployment being a lagging indicator special and different?  Isn't every piece of information just that - a piece of past information, and therefore a lagging indicator?  Do we have pieces of information that represent future information?  If so, please fill me in. I am always down for a get rich quick solution.

i eagerly await your response. 

David in Qatar 

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#13) On September 15, 2009 at 7:41 PM, truthisntstupid (95.14) wrote:

I think employers are slow to regain confidence and recall workers until declining inventories force them to.  Sooner or later inventories do get used down, you know.  Sure there's more to it than that but the world didn't just stop. 

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#14) On September 15, 2009 at 8:11 PM, stan8331 (96.25) wrote:

TMFSinchiruna - For argument's sake, let's say you're right about a major Depression lurking around the corner (I certainly wouldn't deny that it's a possibility).  Accepting that another crash is inevitable at some point, for the life of me I still don't see any investable advice being provided. 

If you can't accurately predict when the crash will happen and where and when the bottom will come, how do you plan to profit from it?  If the S&P falls to 400, do you buy at that point or do you stay in cash and wait for it to fall to 200?  Same question for 200 versus 100.  Telling us there will be a reckoning someday soon, without providing specific, verifiable details of the event and a valid means of profiting from it, sounds more like a religious belief than sound investment advice.    

Why not just invest in the highest quality companies we can find, keep a significant percentage of our portfolios in cash in order to be able to take advantage if another crash does materialize, and just let go of the idea that we will be able to out-smart the market?   

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#15) On September 15, 2009 at 8:30 PM, portefeuille (99.75) wrote:

clouds appreaching is a leading indicator for rain, the level of a river is a lagging indicator for rain.

Well, we have had this dicussion before (see here).

Some of the highlights:

 

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#2) On May 01, 2009 at 12:06 PM, russiangambit (99.29) wrote:

Don't you know all the bad news is a lagging indicator? Everything is going to be just fine by the summer, now that we got cosnumer confidence up (how did that happen, by the way? I remember it started with C and WFC good news) they will go out and start spending as usual. This is the current market premise, at least.
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#3) On May 01, 2009 at 12:17 PM, TMFDeej (99.07) wrote:

Hey russian.  I badly want to see the positive things that others are seeing in the economy...I just can't.  I am having a very difficult time understanding the current rally, but I highly doubt that it will stick.  Hopefully I'm wrong and I'm just a pessimist because I have been bearish on things for so long, but I doubt it.

All of this lagging indicator stuff is a bunch of garbage.  sometimes the bad news is just an indication of the fact that things are bad.  This is not going to be a V shaped recovery.  We will finally hit a bottom and sit there with slow to no growth for a while.

At least that's my $0.02.

Deej
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#5) On May 01, 2009 at 12:21 PM, russiangambit (99.29) wrote:

>We will finally hit a bottom and sit there with slow to no growth for a while.

Funny. I agree with you. I am just a bit irritated since I keep hearing about green shoots and laggining indicators from mainstream media . I don't know why they don't understand that by pushing half-truths they loose all the credibility sooner or later. It reminds me  USSR propaganda so much, it is not funny
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#7) On May 01, 2009 at 2:22 PM, TMFDeej (99.07) wrote:

Alsty, go away.

Deej
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#10) On May 01, 2009 at 4:59 PM, TMFDeej (99.07) wrote:

Sinch and I are friends and we've already discusses this.

Alsty, go away.

Deej
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#12) On May 01, 2009 at 7:29 PM, megank12 (67.88) wrote:

Alsty, go away.

Deej
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#14) On May 01, 2009 at 8:58 PM, alstry (99.78) wrote:

Alsty, go away.

Deej.
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#16) On May 02, 2009 at 8:16 AM, portefeuille (99.99) wrote:

All of this lagging indicator stuff is a bunch of garbage.  sometimes the bad news is just an indication of the fact that things are bad.  This is not going to be a V shaped recovery.  We will finally hit a bottom and sit there with slow to no growth for a while.

At least that's my $0.02.

Lagging indicators lag. Unemployment for example has recently been very good at lagging (for the last 2 recessions see figure 3.4 here). I don't consider them (nor mentioning that a certain indicator is lagging) garbage.
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I still like that figure 3.4.



enlarge

 

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#16) On September 15, 2009 at 8:38 PM, truthisntstupid (95.14) wrote:

stan

Makes sense to me.  Some people never did understand buy-and-hold.  What a lot of misinformation and twisted logic there was in comment threads following some of those articles on the death of buy-and-hold.  Hey, folks.  Guess what?  For all the times I read that buy-and-forget was in fact what was "dead",  I don't think many people ever did that.  Intelligent people never practiced the kind of buy and hold you were all knocking!  It isn't just buy-and-hold!  It is and always has been "invest in good companies and buy-and-hold-and-buy-some-MORE!  Dollar cost averaging is smart and forces you to buy more shares when the price is down, averaging down your cost or, if you're a dividend investor, averaging up your yield.  Trying to outsmart the market is speculation.

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#17) On September 15, 2009 at 8:41 PM, whereaminow (77.51) wrote:

A lagging indicator confirms a trend that is in the past.  That is all.  To make anything more of it is an effort at intellectual dishonesty.

The nature of an economy is that, unless someone is giving all the orders, it is constantly changing.  Why? Because an economy is the collection of individual actors.  The preferences and subjective evaluations of those individual actors are always changing. 

You can not use a lagging indicator to tell you where you are going.  To do so is to deny reason, to cast aside logic, and to disregard the very foundation of economic science.  You can only use it to tell you were you have been. This is useful information for historical study and nothing more. 

Unemployment for example has recently been very good at lagging (for the last 2 recessions see figure 3.4 here).

Seriously port, I thought you were a math whiz. That sample size is um, beyond small.

David in Qatar

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#18) On September 15, 2009 at 9:16 PM, whereaminow (77.51) wrote:

Oh and please don't group me in with alstry.  He's a fun guy and I like his personality, but I study economics.  He studies headlines.

David in Qatar

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#19) On September 15, 2009 at 9:38 PM, DEALWITHTHEDAY (33.41) wrote:

Logic is part of the equation. Psychology would be the other part. The market does not run on pure logic or pure psychology. Put the 2 together and you might make some money.

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#20) On September 15, 2009 at 11:06 PM, ChrisGraley (31.87) wrote:

The answer is that people lie.

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#21) On September 16, 2009 at 2:05 AM, awallejr (79.96) wrote:

"Seriously port, I thought you were a math whiz. That sample size is um, beyond small."

Small?  His chart shows 7 recessions since 1960, what more do you want?  Of course unemployment lags.  During recessions companies cut jobs, that is the smart thing to do.  Once the economy is out of recession and the economy starts to expand, companies start to rehire. That is just common sense and so far has always happened.  And if you want to argue that past performance is no guarantee for future performance, yeah you are technically right.  Aliens could always land on the earth and wipe out mankind.

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#22) On September 16, 2009 at 2:21 AM, automaticaev (< 20) wrote:

i work 100 hours a week.

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#23) On September 16, 2009 at 7:10 AM, rofgile (98.98) wrote:

Employment is a lagging indicator because the GDP will begin growing before all the jobs have returned.  The growth in GDP marks the end of the recession (where recession means.. receding GDP).

Porte's response is excellent and the graph is useful.

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#9) On September 15, 2009 at 5:02 PM, rofgile (97.24) wrote:

JaysRage:

 That's the sentiment in the real world and with mainstream economists.

 The CAPS blog sentiment is that there MUST be a pullback, Ben Bernanke is lying, we are all fools that are ignoring the real negative news, that there is some hidden surprise negative yet to be unveiled that will crash the market.

 -Rof

#20) On September 15, 2009 at 11:06 PM, ChrisGraley (99.14) wrote: The answer is that people lie. ------------ #20 comment is a pretty good example of where the CAPS bears are at right now (denial - media and govt and making up all the statistics indicating economic recovery.  That is not healthy).   -Rof Report this comment
#24) On September 16, 2009 at 7:19 AM, JeanDavid (82.92) wrote:

If you think the recession is nearly over, consider this:

http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html#ixzz0RBqfXSP8

 I do not know if shipping is a leading or lagging indicator, but either way, I think this does not bode well for the economy for the next few years.

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#25) On September 16, 2009 at 10:08 AM, JaysRage (93.91) wrote:

I appreciate the back and forth on both sides of the issue.    I guess I just haven't seen enough evidence on either side to change my original stance.    I think we're at a major cross-roads, where economic stagnation is fighting against inflationary monetary policy.    I don't see evidence or momentum for a recovery.   The only pressure I see upward is inflationary.    Banks continue to fail.   Companies continue to cut.   People continue to pay down debt.    I don't see any of these as fuel for a recovery.  

This isn't investment advice, but this is where I'm positioned.....   In my short-term portfolios, I now hold a very defensive position.   Many of my short-term holding have reached my target prices, and I've sold off and taken profits.    I am currently positioned 75% in cash and 25% in dividend blue-chip defensive positions and a position in CHU.    I'm looking for better entry points into Chinese and Brazilian stocks and some small caps.    I'm avoiding metals right now.   It's a little too hot to handle on that front from my perspective. 

I'm fairly young, so my retirement portfolio is all stocks and diversified.   I don't play around with that.   

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#26) On September 16, 2009 at 10:16 AM, whereaminow (77.51) wrote:

awallejr,

Yes, the sample size is small, and the sample uses bad data that is constantly revised. Be angry all you want. Port is your hero I know, but he's a con artist.

port,

Why not engage me in debate?  You've been ducking me ever since you got here.  I think the people see that you are an intellectual coward.

David in Qatar

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#27) On September 16, 2009 at 10:30 AM, bigpeach (30.22) wrote:

port,

Why not engage me in debate?  You've been ducking me ever since you got here.  I think the people see that you are an intellectual coward.

Are you just ribbing the guy, or is that a serious comment?

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#28) On September 16, 2009 at 11:09 AM, nottheSEC (81.19) wrote:

whereaminow  perhaps  I made a mild allusion to unemployment being a lagging indicator but ok...

  Homespun is what I know because I am not an economist. I am of the belief perhaps elementary that  companies "over fire" during recessions and overhire doing boons to maximize profits. Not making any judgments and all in good business.

Ergo It seems logical that employment is a lagging indicator because the economy improves before your boss hires you back. He enjoys the savings of having you do the job of two people for as long as it is practical. Again good business. 

Rofgile put it correctly, used the proper words and is a more seasoned investor. That being said I think we said about the same thing when he said

Employment is a lagging indicator because the GDP will begin growing before all the jobs have returned.  The growth in GDP marks the end of the recession (where recession means.. receding GDP).

My two cents...J

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#29) On September 16, 2009 at 11:22 AM, whereaminow (77.51) wrote:

bigpeach,

It is indeed a serious comment.  If anyone here has experience with the government lying it is ChrisGraley, as he has spent the last few months trying to expatriate.  Port can't address him directly, but runs off to his "..." posts and infers that he's a nutcase to his lackeys.  I've also addressed port directly many times, catching him in the foolishness of acedemic economics.  He never responds.  I just think it would be fun.  Kind of like Mike Tyson fighting an infant.

My point, for those who can't think for themselves, is that after the recession is over everything can be called a lagging indicator.  You have to be a fool not to see this.  I can collect any piece of economic information, put it up in a fancy chart, and show you after the fact that it was a lagging indicator.  It's straight witch doctory.  It has no value whatsoever except to the historically curious.

This is why Keynesians can't predict. They know nothing.  This is why port can't predict, he's just parroting what the other academics are saying.  They are always wrong for a reason.  They reject logic, especially in economics, which they believe is not logical because humans aren't always logical.  Of course, logic comes to rescue and if you use it right now, you'll see why that last idea is self-contradictory.

It's sad.

David in Qatar

 

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#30) On September 16, 2009 at 11:53 AM, nottheSEC (81.19) wrote:

Yes to an extent everthing is a lagging indicator or a point in time. The same argument was used to debunk quantum mechanics.i.e by the time you observe a particle it is no longer at that point. To me lagging is a point of reference for attemped explanation and not an absolute. COMPARATIVELY GDP rises before full employment post-recession is reached .As for personally calling people out . I cannot.

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#31) On September 16, 2009 at 12:02 PM, whereaminow (77.51) wrote:

nottheSEC,

I agree. I shouldn't be calling people out. It does greatly annoy me however when a good man, which ChrisGraley is from all that I have read of his work, gets ridiculed by a another who doesn't have the guts to say it directly.  That's just pathetic.

Thanks to rofgile however for pointing it out.

David in Qatar  

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#32) On September 16, 2009 at 12:16 PM, bigpeach (30.22) wrote:

whereaminow,

I must say, after reading your comments here, I am not surprised port has not debated you. You began by challenging rofgile and nottheSEC to explain why lagging indicators were "special". Go back and read their comments, and you'll notice neither of them said anything about lagging indicators.

You then tell awallejr that he/she is "angry", and that port is his/her hero is port. Reading comment #21, I'm not sure where you got that from.

Finally, you begin arguing with port about how lagging indicators cannot help with predicting. Re-read his comments. Port generally makes a point to not make predictions, and didn't do so here. All he said was that unemployment lags, and presented a chart showing that past unemployment peaks have coincided with the end of recessions. You seem to have a history with him that I am not aware of, but your comments here are out of line.

You have attempted to manufacture arguments with four different individuals that they did not want to have. You have pretended people have said things they did not, then tried to beat them on that point, and thrown in a few insults for good measure. Are you really surprised when someone does not want to debate you? Perhaps you could learn a bit of civility.

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#33) On September 16, 2009 at 12:20 PM, JaysRage (93.91) wrote:

I think there is a difference between an end to a recession, meaning "no longer going down" and a recovery, which means "going up".    Since the GDP is measured in dollars, if there are inflationary pressures that outweigh the downward pressures of the economy, the GDP could technically see an uptick, but it would not mean sustainable economical growth that would be expected in a recovery.  

I think that is the primary issue at hand.   Just because the GDP has stopped falling does not mean that the economy is ready to begin healthy growth.    And I think that is why Bernake used the terminology that he did......technically (as measured by the GDP), it appears that the recession has ended.....but there are many obstacles to healthy growth that must be overcome.....essentially all of the original causes of this economic meltdown, and additionally, the increasing unemployment.     

I appreciate all of the good back and forth.   I am at least able to finally understand the message that is being communicated.....and it is not a lie.....it just isn't as positive as it is being received in the general public.  

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#34) On September 16, 2009 at 12:30 PM, whereaminow (77.51) wrote:

bigpeach,

 #20) On September 15, 2009 at 11:06 PM, ChrisGraley (99.14) wrote: The answer is that people lie. ------------ #20 comment is a pretty good example of where the CAPS bears are at right now (denial - media and govt and making up all the statistics indicating economic recovery.  That is not healthy).   -Rof Report this comment

David in Qatar

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#35) On September 16, 2009 at 1:43 PM, nottheSEC (81.19) wrote:

Buffet recently said that( paraphrase) the fear of collapse is gone through government programs but the recession continues.  My newsletter suitable for cleaning windows says we are out of the recession.

In eithier case it has been a great blog JaysRage and good point that GDP is measured in dollars. Also I think in or recession of not we all can concur that recovery will be slow from here.  

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#36) On September 16, 2009 at 7:03 PM, awallejr (79.96) wrote:

"HE" ;p

whereaminow:

I certainly do think Port's contributions to this site are excellent.  They give me ideas on how to make money.  Silly me for wanting that from an investment site.  I do think he is a "tad" link happy and will one day create an infinite loop.  I also advise him to pretty much not get suckered into any "debate" with you.

I put debate in quotes purposefully. You don't debate people. You berate and basically use what you might think are clever ad hominem attacks. He'd be better off spending his time elsewhere.

As for my prior comment, I wasn't angry at all.  You will know when I am (basically when I start cussing). Re-read it, and this, in a "matter-of-factly" tone.

In any case, your reply of "Yes, the sample size is small, and the sample uses bad data that is constantly revised"  is a personal conclusory comment only.  How far back do you want to go?  1883 when the world is literally apples then to today's oranges?  Constantly bad data or constantly revised data?  I can't imagine anyone still revising data unemployment for 1960, 1970, 1980, 1990 or even 2000 at this point. 

You are free to disregard the chart and this reply, as I suspect I will be doing in any future response from you, unless you surprise me and actually make it civil..

 

 

 

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#37) On September 16, 2009 at 7:09 PM, awallejr (79.96) wrote:

JaysRage

Well you change the paramaters when you switch terms "going up" with "healthy growth."  Basically a difference in degrees.  As for sustainability, time will tell on that too.

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#38) On September 16, 2009 at 7:14 PM, automaticaev (< 20) wrote:

unemployed cant get a job till companies have money to throw away on people who dont do anything of value.

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