ECRI: The Stock Market Doesn’t Mean There’s no Recession

Lakshman Achuthan and the ECRI are sticking by the recession call they made in September 2011 when Achuthan stated (see video here):

“Our indicators are falling a way that only occurs when a recession is underway or starting”.

“Right now we’re in for a recession”.

Obviously, we weren’t in a recession, but they still see it coming.  And Achuthan doesn’t think the surge in stock prices validates anything:

“But of course, there is the elephant in the room, the impressive upturn in stock prices. How can we possibly be in a recession if the stock market is doing so well?” asks Achuthan. It is important to remember that the stock market is not the economy and the economy is not the stock market.{Stock prices can rise during recession, please see page twelve.}

The Economist recently noted, “It is tempting to attribute the strength of the Dow to optimism about the American economy. Tempting, but wrong. Studies have shown almost no correlation between GDP growth and equity returns…this rally in the Dow has been accompanied by the weakest GDP growth of all the bull markets since the Second World War.”

Achuthan wants people to know that “cycles in economic growth and stock prices do not always move together. It is true that 80 percent of the past 15 recessions has associated equity bear markets, but in three of those 15 recessions there not cyclical downturns in stock prices. Specifically, this happened in 1980, 1945 and 1926-1927.”

Regardless of whether the U.S. economy is in a recession or not, the conversation with Achuthan underscored that the recent euphoria in the stock market should be taken with a healthy dose of cynicism. As Warren Buffett likes to remind us, we should “be fearful when others are greedy and greedy when others are fearful.”


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • SS

    Cullen, how much longer can these guys go before just admitting “we were wrong”?????

  • Bruce in New Orleans

    Now I am really confused. “Be fearful when others are greedy and greedy when others are fearful”; I am fully in the market and it has appreciated so I am (as are many others) fearful. So now I should buy right especially when ECRI is predicting a recession.

    I think the US market will go up for 2 reason: The US dollar is still a (the) safe haven currency and there are a lot of “investors” looking for a safer place to stash their savings. And the easiest way to get into the US dollar for many of them is to buy US stocks and benefit from the market appreciation. “Laisser le bon temps rouler!!!”

  • hangemhi

    The line “… since the Second World War” along with the “… since the Great Depression” is so tiring to hear. That was the last time we had a private sector debt bubble – therefore it is the ONLY period we should be comparing things to. Yet each time those lines are used they are comparing this recovery to all of the ones “since the….” instead of the GD recovery. So ECRI discredits themselves twice IMHO

  • Skeptic

    If a recession is declared to have begun today or in the prior 6 months, will you all promise to willingly and openly admit that you were wrong? I think we can all admit that forecasting a recession or claiming that we are currently not in a recession is not a full-proof science. ECRI, Hussman, etc all have models that appear rather accurate up until now. Not to sound like I’m bashing some or defending others but how can one be sure that Cullen’s model isn’t right… until now? Just trying to keep everyone honest. And for the record, I see evidence that indicates we are in a recession as well as evidence that we are not. So bottom line, I don’t know.

  • Andrew P

    If you can’t tell if we are in a recession or not, does it even matter? It can’t be a serious recession if you can’t tell you are in one until data is examined years after the fact.

    Even if Achuthan is right that we are in a recession while the stock market is going up, the fact that the market is going up must ameliorate the recession. A rising market maintains the value of collateral and prevents margin calls from bankrupting investors. I remember seeing the historical account of the 1927 recession in TV shows on the Great Depression. The downturn didn’t get serious until the stock market crash wiped out margined speculators, and even then it was manageable until the banks fell like ten-pins.

  • Anonymous

    “It can’t be a serious recession if you can’t tell you are in one until data is examined years after the fact.”

    The recession began in 12/2007, but it wasn’t until 12/2008 it was declared. I guess you’re right. Yeah, it must have not been that bad…

    This goes to the heart of forecasting. Anyone who possibly guessed correctly will be mocked until the prediction comes true, but by that time, the predictor will be forgotten. And all those who mocked such recession calls will then claim that THEY were actually right- if x, y, or z hadnt happened.

    Moral: macro prognosticators are 99.999% full of it, on timeline or scale but usually both.

  • JKRow

    All you geniuses poking fun at ECRI for their “bogus” recession call haven’t even interpreted the timeline of their call correctly. From the paper at

    “It was against this backdrop, in late September 2011, that ECRI made a recession call. A couple of monthd later, in December 2011, we clarified our view of the likely recession timing, saying that we thought it would begin by mid-2012, but not be recognized before the end of 2012. We said this because, over the last six recessions, the median lag between the recession start date and the first negative real-time GDP print had been half a year. As it happened, in January 2013 there was a negative GDP print, consistent with our belief that the recession had begun around mid-2012.”

  • GLG34

    Did you watch the video in the link? Achuthan, in late 2011, said:

    “it’s (the economy) going to worsen from here”.

    “Right now, we’re in for a recession”.

    And then in this video, Achuthan is asked “when (is the recession)” and Achuthan says: “Now”.

    I don’t see why people are protecting the ECRI’s call here. They made an explicit recession call in late 2011 saying we were in a recession “now” and yet they’ve revised their story and now look like a bunch of liars. They’re liars. What else is there to say here?

  • Alberto

    the easiest (and the safest) way is to buy US treasuries not US stocks, expecially if someone believes the stock market is gone and something nasty is going to happen (and if he still believes in the virtues of the US dollar). I’m again a buyer of long dated treasuries. Time will tell if I’m stupid or not.

  • JCB

    I remember his initial call. We are approaching two years since his recession call. Achutan reminds me a lot of John Hussman. The latter has been predicting a recession/market calamity for 4+ years and the former a recession for almost 2 years. At some point they will be right and they’ll say I told you so. But its becoming harder and harder to take them seriously.

  • perpetual neophyte

    “If a recession is declared to have begun today or in the prior 6 months, will you all promise to willingly and openly admit that you were wrong?”

    I, for one, would and I’d like to think Cullen would as well. He’s usually the first to point out that he has been wrong on plenty of occassions. If there is no “recession,” however that ends up being defined, in 1Q2013, I would give ECRI more credit if they came out and said something like:

    “Based on all of our usual predictive measures, we should have had a recession in X quarter of Y year. In hindsight, our model was wrong for Z reason.”

  • Cullen Roche

    I will absolutely admit being wrong. But I also get to admit being right in the meantime since I came out 2 years ago and said ECRI was wrong. So maybe I should soak it up while I can. :-)

  • Jim

    Timing recessions, IMO, is like timing the stock market … a fool’s game. If one’s definition of a recession is contraction in GDP, well, that’s something measurable. But we all know these things tend to run in cycles, so while indicators like the equity markets, housing, employment, etc. have been improving, there isn’t much evidence of anyone making big bets that all will continue to go up in a straight line.

    Even if you could accept that the stock market is an accurate indicator of economic expansion or contraction, and point to the headline news that the Dow recently cracked a record high and has appreciated over 15% since November, it’s flat over the past 6 years or so. That by no means indicates that the recession is “over.” Quite the contrary. Why has it taken this long to recover? Why do world markets suspect that a little thing like Cyprus could be the next Microstrategy Inc. and American Home Mortgage, poster children of the dot-com and sub-prime implosions? That’s not confidence that the economic contraction ever ended, and I don’t care if it’s S&P2000 tomorrow morning.

    The real economy is still plenty miserable for plenty of people. It’s just that they represent a huge swath that’s not in the stock, job or housing markets. Might be time to reassess our definitions of recessions, wouldn’t you say?

  • Aar Bee

    ECRI recession call parody. Funny!

  • CharlesD

    Regarding ECRI, Hussman, etc. These are smart people. Perhaps too smart. You don’t have to have an elevated IQ to understand that,in
    investing,it’s no sin to be wrong (we all are frequently). The sin
    is to stay wrong. That is, leave your ego at the door and you will
    be a better investor. As the late (unfortunately) Marty Zweig used
    to say “don’t fight the tape”. He also said “I always have a view but I bend that view based on what the markets are telling me”. Howard Marks likes to say “it’s OK to have a view. Just don’t act like that your view will always be correct.”