Reliable Data Places Odds of Imminent Recession ≥ 90%! Mauldin Calls Recession. Poll Time...
John Mauldin calls Recession.
The Recession of 2011?
By John Mauldin
August 20, 2011
The Recession of 2011?
It was relatively easy for me to forecast the recessions of 2001 and
late 2007 over a year in advance. We had an inverted yield curve for 90
days at levels that have ALWAYS heralded a recession in the US. Plus
there were numerous other less accurate (in terms of consistency)
indicators that were “flashing red.” (For new readers, an inverted yield
curve is where long-term rates go below short-term rates, a
[thankfully] rare condition.)
And since stocks drop on average more than 40% in a recession,
suggesting that you get out of the stock market was not such a
challenging call. Although, when Nouriel Roubini and I were on Larry
Kudlow’s show in August of 2006, we got beaten up for our bearish views.
And you know what? The stock market then proceeded to go up another 20%
in the next six months. Ouch. That interview is still on YouTube. Timing can be a real, um, problem.
There is no exact way to time markets or recessions.
My view then was based on the inverted yield curve (as an article of
faith) and, not much later in 2006, my growing alarm as I realized the
extent of the folly of the subprime debt debacle and how severe a crisis
it would become. I changed my assessment from a mild recession to a
serious one in early 2007 as my research revealed more and more fault
lines and the damning interconnection of the global banking system
(which has NOT been fixed, only made worse since then). I should note
that my early views were rather Pollyannaish, as I thought (originally)
that losses to US banks would only be in the $400 billion range. I keep
telling people that I am an optimist.
With the Fed artificially holding down rates on the short end of the
curve, we are not going to get an inverted yield curve this time, so we
have to look for other indicators to come up with a forecast for the US
economy...
Notice that with Rosie’s combined index where it is today, we are
either at the beginning of a recession or already in one. And the Philly
Fed Index is consistent with a 90% chance of a recession.
And that is again consistent with the following chart from Rich
Yamarone, which I used last month but that bears looking at again. Rich
is chief economist at Bloomberg. (By the way, for Conversation
subscribers, I just recorded a powerhouse session with Rich, which will
be available as soon as we can get it transcribed.)
Is There a Recession in Our Future?
I previously wrote, in late July:
“And the last chart is one I had not seen before, and is interesting.
Rich notes that if year-over-year GDP growth dips below 2%, a recession
always follows. It is now at 2.3%.”
Oops. Last week David Rosenberg updated that chart. This from Rosie:
...
But these are charts of single data points. You can quibble that the
Philly Fed could be influenced by something local or that the 1.6%
number might be different this time. So Lance Roberts of Streettalk
Advisors (with me looking over his shoulder) created an index that
combines a number of economic indexes in an effort to build an index
that is not subject to single (or double) indicators. The
Streettalk/Mauldin Economic Output Index is composed of a weighted
average of the following indexes:
Chicago Fed National Activity Index
Chicago PMI
The Streettalk ISM Composite Index
Richmond Fed Manufacturing Survey
Philly Fed Survey
Dallas Fed Survey
Kansas City Fed Survey
The National Federation of Independent Business Survey
Leading economic indicators
Note that there are six regional and national indicators, plus the
NFIB survey, which is national. Lance’s index is not driven by one
region or index or survey. When the combined indicator falls below 30,
it has always indicated either that we are in a recession or about to be
in one. The chart is overlaid, below, against GDP and LEI (leading
economic indicators) - both tend to have a fairly high correlation to
our Economic Output Composite Index. And LEI is currently supported by
the yield spread and money supply (more on that below).
A few quick notes before the chart. First, note the increases in the
index with the onset of QE1 and QE2 and the sharp drops when QE ends.
The red at the end of the chart is the recent drop, and it takes us into
recession territory. Recessions are indicated by gray bands
...
Now, a comment on the uptick in the leading economic indicators this
week. Even the ECRI noted that it was because two of the financial
components added to the positive numbers. One was the sharp rise in M2
money supply. But a lot of that is because people are going to cash,
which is not all that positive from a macro viewpoint. The other is the
steepness of the yield curve, which is being manipulated at the short
end. Without their positive contributions, the index would be down 0.5%,
down three of the last four months, and in a pattern that led to a
recession in late 2007. Coincidence?
One last chart from Batman, I mean Rosie. Here he gives us the latest
data from Larry Meyer’s Macroeconomic Advisers, where they track the
real GDP index (inflation-adjusted). It is also in recession territory.
...
LIVEJOURNAL THE_RECESSION POLL
Poll
The Recession of 2011?
By John Mauldin
August 20, 2011
The Recession of 2011?
It was relatively easy for me to forecast the recessions of 2001 and
late 2007 over a year in advance. We had an inverted yield curve for 90
days at levels that have ALWAYS heralded a recession in the US. Plus
there were numerous other less accurate (in terms of consistency)
indicators that were “flashing red.” (For new readers, an inverted yield
curve is where long-term rates go below short-term rates, a
[thankfully] rare condition.)
And since stocks drop on average more than 40% in a recession,
suggesting that you get out of the stock market was not such a
challenging call. Although, when Nouriel Roubini and I were on Larry
Kudlow’s show in August of 2006, we got beaten up for our bearish views.
And you know what? The stock market then proceeded to go up another 20%
in the next six months. Ouch. That interview is still on YouTube. Timing can be a real, um, problem.
There is no exact way to time markets or recessions.
My view then was based on the inverted yield curve (as an article of
faith) and, not much later in 2006, my growing alarm as I realized the
extent of the folly of the subprime debt debacle and how severe a crisis
it would become. I changed my assessment from a mild recession to a
serious one in early 2007 as my research revealed more and more fault
lines and the damning interconnection of the global banking system
(which has NOT been fixed, only made worse since then). I should note
that my early views were rather Pollyannaish, as I thought (originally)
that losses to US banks would only be in the $400 billion range. I keep
telling people that I am an optimist.
With the Fed artificially holding down rates on the short end of the
curve, we are not going to get an inverted yield curve this time, so we
have to look for other indicators to come up with a forecast for the US
economy...
Notice that with Rosie’s combined index where it is today, we are
either at the beginning of a recession or already in one. And the Philly
Fed Index is consistent with a 90% chance of a recession.
And that is again consistent with the following chart from Rich
Yamarone, which I used last month but that bears looking at again. Rich
is chief economist at Bloomberg. (By the way, for Conversation
subscribers, I just recorded a powerhouse session with Rich, which will
be available as soon as we can get it transcribed.)
Is There a Recession in Our Future?
I previously wrote, in late July:
“And the last chart is one I had not seen before, and is interesting.
Rich notes that if year-over-year GDP growth dips below 2%, a recession
always follows. It is now at 2.3%.”
Oops. Last week David Rosenberg updated that chart. This from Rosie:
...
But these are charts of single data points. You can quibble that the
Philly Fed could be influenced by something local or that the 1.6%
number might be different this time. So Lance Roberts of Streettalk
Advisors (with me looking over his shoulder) created an index that
combines a number of economic indexes in an effort to build an index
that is not subject to single (or double) indicators. The
Streettalk/Mauldin Economic Output Index is composed of a weighted
average of the following indexes:
Chicago Fed National Activity Index
Chicago PMI
The Streettalk ISM Composite Index
Richmond Fed Manufacturing Survey
Philly Fed Survey
Dallas Fed Survey
Kansas City Fed Survey
The National Federation of Independent Business Survey
Leading economic indicators
Note that there are six regional and national indicators, plus the
NFIB survey, which is national. Lance’s index is not driven by one
region or index or survey. When the combined indicator falls below 30,
it has always indicated either that we are in a recession or about to be
in one. The chart is overlaid, below, against GDP and LEI (leading
economic indicators) - both tend to have a fairly high correlation to
our Economic Output Composite Index. And LEI is currently supported by
the yield spread and money supply (more on that below).
A few quick notes before the chart. First, note the increases in the
index with the onset of QE1 and QE2 and the sharp drops when QE ends.
The red at the end of the chart is the recent drop, and it takes us into
recession territory. Recessions are indicated by gray bands
...
Now, a comment on the uptick in the leading economic indicators this
week. Even the ECRI noted that it was because two of the financial
components added to the positive numbers. One was the sharp rise in M2
money supply. But a lot of that is because people are going to cash,
which is not all that positive from a macro viewpoint. The other is the
steepness of the yield curve, which is being manipulated at the short
end. Without their positive contributions, the index would be down 0.5%,
down three of the last four months, and in a pattern that led to a
recession in late 2007. Coincidence?
One last chart from Batman, I mean Rosie. Here he gives us the latest
data from Larry Meyer’s Macroeconomic Advisers, where they track the
real GDP index (inflation-adjusted). It is also in recession territory.
...
LIVEJOURNAL THE_RECESSION POLL
Poll