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Why QE3 in Sept. - We already are in a recession per Gary Shilling



August 13, 2012 – Comments (2) | RELATED TICKERS: SPY , DIA , QQQ

Shilling says a new recession has begun in the U.S.

- in the second quarter — following on the heels of the recession in Europe. He says the current recession is different from previous ones because it wasn't caused by rising rates or another housing downturn but rather a drop in consumer spending due to a weak job market.

"We've had three consecutive months of declines in retail sales," says Shilling, president of A. Shilling & Co., an economic research and forecasting firm. "That's happened 29 times since they started collecting the data in 1947, and in 27 of the 29 we were either in a recession or within three months of it."

read or hear full interview

2 Comments – Post Your Own

#1) On August 13, 2012 at 12:32 PM, amassafortune (29.23) wrote:

The Consumer Metrics Institute's tracking gives a daily update to the trend. These few graphs give investors an early peak at the trend rather than waiting for reports like the ISM, GDP, etc. 

These few slides also ilustrate why Shilling is probably correct that a recession already began in Q2.

Looking at the Consumer Metrics Institute's Absolute Demand Index Over Past 4 Years, note we are at the lowest point in the past 12 months. 

Note also how consumer demand continued to slide during the recovery since 2009, except for a strong period from May-Aug 2011.

In my own experience, many friends, neighbors, and family members were very happy where they were in 2008 and are trying to either preserve that level of comfort, are trying to hold onto something approximating that level, or are rushing to pay down debt so the real owners of their "stuff" can never ask for it back. Others are cutting back to help their children continue to make progress under these circumstances. Some just need to keep cutting back to balance their modest or non-existent raises against their double-digit health insurance premium increases.

Consumer deleveraging after a long period of debt expansion is as right as rain. The government should be trying to moderate it, but not reverse as stridently as they are.

As citizens, it is up to us to be intelligent and mature enough not to blindly elect the one who most convincingly promises us more. 

This is a healthy period of reflection. Instead of couples going separately to nice restaurants, they may spend a little less and get together with a few bottles of wine and orduerves. The bill will be lower and the experience more fulfilling and memorable. 

The RV may go so the cabin can be kept. Someone who could not afford an RV can now afford a good used one as prices drop. Couples striving for that retirement McMansion may opt to restore a farmhouse with some nice acreage and a pond.

The charts show consumer deleveraging has continued despite the easy money policy. We always hear "don't fight the Fed", but "don't fight the consumer trend" may also be a concept to keep in mind.  

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#2) On August 14, 2012 at 12:31 AM, amassafortune (29.23) wrote:

One more data item from Slope of Hope. This is the Commitment of Traders chart showing commercial and retail (non-commercial) long and short activity.

Look especially at the NASDQ 100 chart and the recent blue (retail, non-commercial) trend. As the market has been rising since early June, retail has been buying. The lower, mostly red, half of that chart indicates commercial has been increasing short positions as retail is increasing longs.

This could just be institutional hedging because all those guys need to do is approximate the market to hold onto their six-figure (and larger) salaries. Or, it could be significant.

Finally, read one of my favorite, old kirkydu posts, Shake, Shake, Shake.  

From a technical standpoint, the market is on the verge of breaking above resistance which would be a meaningful bullish signal. Even if the market can't quite do it alone, the Fed could pretty easily funnel enough digitally-created dollars to primary dealers to make it happen. In fact, one reason the market is this high is that many expect the Fed to do just that. 

Given this Shilling post, the Consumer Metrics Institute charts, and the Commitment of Traders data, I'm remaining cautious. 

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