ECRI: GLOBAL SLOW-DOWN IS COMING
18 May 2011 by Cullen Roche
17 Comments
I can’t figure out how their indices work for the life of me (they appear to just mirror the S&P 500), but the folks at ECRI have been remarkably accurate in recent years. Lakshman Achuthan, Chief Economist of ECRI, says global industrial growth is set to peak this summer. He says a slow-down is “for sure”, but not necessarily forecasting a new recession.
If industrial/manufacturing slow, what’s left to drive the US economy? This was the only segment showing any sign of actaul recovery and most of it driven by global demand, not US. Now it looks like Australia is starting to crack around the seams and maybe Canada – both, economies who have benefited from raw material demand from the industrial/manufacturing sector. If China, the last bastion, is slowing, then I don’t know what but it won’t be pretty.
This isn’t just a slow down, this is the whole ball of marbles.
I’m not predicting doom and gloom, but this is the end of the EM infrastructure, annual double digit GDP growth cycle we’ve had for the past decade.
I think it’s akin to what happened with tech companies over the past decade – the cycle “truly” peaked for them and their respective share prices in 2000, however, they have gone on to become much bigger behemoths than they were back then.
I think we are on the cusp of the same for the EM countries and their auxillary tracker financial assets such as the industrial stocks and commodities…
I think a major growth relapse or even outright recession is a near lock in the US within the year…
The dynamic we emerge with coming out of this is going to be interesting. I think you’re going to see the hated companies, such as big Pharma, emerge as the next great global growth and market story over the coming years…
Man, I hope you’re right, but it’s so hard to imagine the paradigm we’ve all been living under for so many years – EM infrastructure/debt growth – ever coming to an end. That’s undoubtedly the linear extrapolationist in me talking, though.
ECRI uses a variety of leading indexes, such as the long leading index, to capture their views on the economy. The confusion I think comes in when the public obsesses over the Weekly Leading Index which is publicly available, but does not incapsulate the entire picture that ECRI is looking at.
Right. I should have been more clear here. Achuthan is referencing his long leading indicator which has a very good track record. Their weekly indicator is less useful IMO….
http://www.ft.com/intl/cms/s/0/96ec2b02-8146-11e0-9360-00144feabdc0.html#axzz1MfUuMvCd
QE III is in the bag…stocks higher.
QE3 is dead. The US Treasury is bankrupt.
CR, I read LA’s “little book” (advertised in their website) dealing with their “black box” forecasting model and how to use that for market timing. If I had followed their recipe in the last 10 years I would have done a lot better – and I did a lot better than the S&P 500. Hell, If I had done what the little book said since the time I read it in 2008, I would have done a lot better in the last 2 years. I highly recommend reading it (takes about a day of leisurely reading).
Thanks. I have tried to be pretty open minded with them, but I just don’t see how the weekly indicator is useful. The long indicator appears very useful however….Is that the one he discusses mostly in the book?
Gangsters need to crash the market including stocks and commodities to justify QE111. Then when announced everyone will pile back in. But soon enough high oil prices will kill economy as dollar crashes. Inflation is BAD for stock. Dow = 3000
The ECRI use to be very accurate as a leading indicator until last year. In summer 2010 the ECRI fell to -10 and stayed there for 2-3 months. In the past this definitely signaled recession. Yet for the first time in ECRI history, they predicted a recession that didnt happen. Could be that 0% interest raters and QE have so distorted the economy, that ECRI isnt a good indicator anymore.
“”QE3 is dead. The US Treasury is bankrupt.”"
The treasury being bankrupt would all but guarantee QE3.
“Yet for the first time in ECRI history, they predicted a recession that didnt happen.”
Completeley wrong. The external interpreters of the WLI predicted a recession, while the ECRI people said they do not predict a recession, in spite of the WLI drop to -10 (probably because of their long leading indicator).
Here is link to an Aug 2010 attempt that ECRI made to push back against the “double-dippers” who hijacked the WLI last summer: http://www.businesscycle.com/news/press/1909/
Excerpt: “…the attention to the WLI has been accompanied by a deluge of misinformation which we tried to address in an earlier article titled, “Weekly Leading Indicators Widely Misunderstood.” We’re concerned that, since then, further unenlightened commentary is still creating such confusion about this very useful tool that it will undermine confidence in its efficacy. We therefore address the main lines of criticism…”
http://commodityetflist.com/ has a good concise piece that mentions the length of the chart on the long indicator.
I think this is a really big deal and gonna take note.
Cullen,
what are your algos saying? They must have had a short signal already?
Thanks,
InvestorX
Yes, today`s leading indicators also seems to confirm the data. We are slowing down.
Fasten your seat belts, the inflation trade will be hurt.