Lakshman Achuthan was on CNBC this morning digging his heels in on his recession call. He says the macro data is actually getting worse.   He says we’re seeing the same patterns that we always see heading into recessions.  Specifically:

  • GDP growth peaked in Q3 in 2010 and has flat lined since early 2011.
  • Personal income growth has peaked.
  • Broad sales growth has peaked.
  • Industrial production has peaked.
Mr. Achuthan also points to the 21 month low in coincident indicators as a sign of impending recession (chart below).  He says the economy is going to slip back into recession in the first half of 2012.   So we won’t even know about the recession until August or so…just in time for the election….

Source: CNBC



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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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  • Alberto

    Mr.Achuthan is betting his excellent and almost immaculate career on this. I’m listening to him very very very carefully.

  • tout

    He makes a compelling argument!

  • Avon

    I’m not convinced. I agree with him that the economy is much more fragile than people want to let on, at least in the business press in general. Still, in my mind his call will really be decided what happens with Iran. And that’s not an argument he is making. He’s making the argument that this is happening in the economy itself and he has made it since late September 2011.

    So if something happens with Iran and oil goes up to 150 dollars a barrel, then he’ll get his recession but it won’t prove his call.

    What should be noted, however, is the fact that consumer credit is booming like crazy, and it’s not done to expand purchases, it’s taken on just to keep up with living standards.

    See more here:

    (Yes, Mr. Roberts isn’t a brilliant writer but his data is spot on – and so are his instincts).

    The American citizen is underwater by debt, and deleveraging is now slowly grinding to a halt and may even increase in the private sector. What’s supposed to happen is that private debt should be becomming public debt. But what is now happening is that both private and public debt are exploding – at the same time.

    Meanwhile, real GDP growth last year was 1.7 %.
    This year? If it even breaches 2 % it will be a victory.
    And now China is slowing down, Europa is in Recession and oil is shooting up.

    The American economy, had it been more stable, could have dragged the world with it. But it’s not, because 70 % of it’s economy is the consumer which is again taking on a lot of credit debt just to finance the existing necessities of life.

    So he’s right that the economy is very weak and it has structural – deep – weaknesses but the trigger will come from abroad, not internally. And that’s one thing he doens’t talk about.

  • Gordon


  • BJM

    Go back and watch interviews with him in early 2008 when everyone was doubting him. It’s almost eery – he says almost verbatim what he says today RE the stock market being out of whack with the underlying data, the Fed etc…

  • Roger Ingalls

    That was a link worth reading. Thanks

  • jt26

    The market doesn’t seem to be pricing it in … while the US may decouple from the ROW, rarely does the market decouple from the economy (certainly not certain sectors of the market like financials). So who’s wrong … or the corollary, which came first, the chicken (economy) or the egg (markets)?

  • Anonymous

    You say if something happens with Iran, but something has already happened. The oil that used to flow to Europe from Iran is now not flowing and is being subsidized by US supplies. Thus higher gas prices here in the US which has preceded the vast majority of recessions. As the price of oil goes so goes the economy. If anything the oil situation is providing the need for military action.

  • Mike2

    Sell in May and go away, far away . . . .

  • VII

    You got love a man who doesn’t waver to the consensus. Especially when the consensus calls him a charlatan and vampire economist.

    His call doesn’t line up with some poeples hope of riding the easy stock market bus up to Dover. “Can’t wait to get to Dover…it’s so great I hear no one ever comes back” Ignore him. Call him a fool. But why? Why ignore anyone who could help you? The market is not plug and play.

    At the very least if you don’t agree with him. At least he gives you one of two bears to futher support your bullish consensus argument. Until he and Dr. Hussman turn Bullish. You have the green light to sleep on the Dover Cliff tour bus with everyone else. I’m sure they’ll wake you up if something get’s bad :-).

    Anybody have the phone number to the guy who decides wether Greece CDS get Triggered?

  • Obsvr-1

    Geez, talk about the CNBC pumpers wanting to shoot the messenger …

    if the facts don’t align with my message/forecast they must be disposed of.

    Street talk link above disturbing, consumer credit (debt) expansion used to finance sustenance, suspending the de-leveraging process. Watch out below ….

  • ES

    I’ve been seeing improvement all around me. After the shock of 2008 when everything froze average people finally starting to spend again. Corporations are starting to spend also since they got more cash than they know what to do with.
    But one thing that concerns me is the price of oil. US economy is very sensitive to that. And the fact that everyone thinks that the worst is behind us, of course.
    In short, I started selling my longs because at SP500 over 1350 we are pretty high up and it will take a strong bull momentum t take us higher. But what will take us higher? I don’t think with gas at $4-5 a gallon we can go higher.

  • dgc

    In September, when Lakshman Achuthan made his recession call, the S&P was near to 1100, now it is over 1350. The last time I heard him probably in December, he said that the recession would begin by April. Now he is emphasizing mid-2012.

    I’m not saying he is wrong – I think the recession will worsen. What I will say is that it is dangerous to use his recession calls for market timing.

  • Coolidge Low

    Lakshman Achuthan is on the money……

    The central banks liquidity pump has now gone to far and is working against the American consumer once again! Let’s face facts, given that manufacturing accounts for only about 12% of GDP, it is mathematically impossible for it to drive GDP growth. Without the consumer driving that growth there is no chance of a recovery. Global liquidity has risen $2 trillion in the last couple of months and is and will drive oil to $200 a barrel. The central banks need to start pulling the liquidity out of the system or risk the recovery. Investors hedge accordingly.

  • VII

    @ ES

    I agree with you on improvements. Local Auto dealerships are doing well. Chevrolet just reopened here…which was closed up. Every where I look people are remodeling business or coming into new leases(yes that means some are leaving also). But a local Fortune 500 company( Biomedic) is paying the highest bonuses on record this year. (180% of target based on your band). This will go straight into local consumption, etc. I see some great things happening and my local handy man I can’t get to come do some stuff. He is beyond busy. My neighbors seem to all have some work truck doing remodeling or fixing up needed repairs. I could go on…but were headed in the right direction. I agree here in southern california. Things have gotten alot better. ON the weekends all of our restuarants are packed in and around L.A. I can only imagine how good Northern California will have with Tech making such a comeback.

  • tradeking13

    He was also on Bloomberg saying much the same things:

  • Beethoven

    Bingo! The ECB has been pumping liquidity into the european banks since november, and scared money has come to the American shores looking for a safe haven.

    Gas and oil prices surging will destroy whatever disposable income the american consumer has left.

    ….but this IS an election year, so plan on seeing strong FED and Gov’t intervention to prop up the system until voting time.

    War with Iran is inevitable; no US president has lost re-election during active military operations.

  • Octavio Richetta

    So now I have listened carefully to all three LA media appearances today: CNBC, BLOOMBERG RADIO, and BLOOMBERG TV.

    You can listen to them so I will not bore you with a summary of what he said (He did say pretty much the same thing in all three, but the drilling he got in CNBC Was great because they made him emphasize his reasoning). However, what I can do is add my two cents on the recent puzzling rise of the WLI and its GR which has hapenned with no effect Tom his recession call!

    My two cents are based on a subtle point that I picked up when he talks about the central bank liquidity and his effect on the economy and the stock market, or more broadly speaking, risky asset prices which also include commodities, corporate bonds, and even some european sovereign bonds with former high ratings as of late.

    He points out that despite all the central bank easing here and elsewhere, the velocity of money is very low here, Europe and China. He doesn’t say so explicitly but it is clear he takes this as the key evidence for what he calls “the lack of traction” of monetary easing on the economy. Hold on I am to done yet!

    On the other hand, he also talks about the effect of liquidity on risky assets, the stock market in particular, WHICH, AS YOU PROBALY KNOW, IS ONE OF THE KEY LEADING INDICATORS THAT MAKE UP THE WLI. So what I believe is happening, and he does not tell you explicitely about (here I am putting the words in his mouth) is something like the following.

    “CB liquidity has pumped up one of the leading indicators in the WLI, namely stock prices, but we do not see that liquidity having an effect in the economy capable of reversing the path towards recession, as confirmed by the low velocity of money.

    So we are, judgmentally, giving the consistency in the other leading indicators in the index more weight in maintaining our recession call and thus, kind of ignoring, the stock-market generated up blip in the WLI. And, BTW, the validity of our approach is confirmed by the following key coincident indicators… which all indicate we continue o. A steady path towards recession”

    We have to do all this incredible reverse engineering because we do not subscribe to his service. But I bet this is all spelled-out in his latest reports to clients.

    And, btw, I believe the FED subscribe to their service. I recall reading in SEVERAL occasions that AG loved ECRI. I don’t see why, with all the money the FED, how Benny would start penny-pinching by canceling the subscription:-)

  • David


    That will be the thing to make him correct on his call. We may not have the sticker shock at 4 bones any more, but it will have a very negative effect if we see a slow grind up to 150/wti again. That would probably put brent around 170??

    He has such a great track record that I hate to go against him. Things do seem better today than in the past couple of years, but growth and innovation has been so low that it seems like we never got out of the recession to begin with.

  • Alberto

    This is a great reading. I found the link on the Mosler’s web site. Essential.

    Saudis often warned U.S. about oil speculators…

    Wall Street (and the City and all the others…) are killing this civilisation. Do you understand this or not ?

  • Truth Squad

    Off course is “getting better”: massive fresh money is being injected into the system by massive government deficits and again consumer credit expansion; with all these massive interventions growth didn’t keep up with inflation and income distribution is getting worse by the day. This with widening trade deficits and the dollar starting to tank again (and it will tank if the uptrend continues), as people finds less use for the dollar (excess of dollars in circulation accumulated for trade & financial speculation purposes during decades).

    But exponential laws don’t work in nature, with an expansive deficit and credit J6P is barely keeping up with inflation, so he is actually getting poorer and B-Ferro will tell you that debts don’t matter, that you can rehypothecate all the times you want and have the FED buying all the crapp in the world if necessary (with world central banks owning already assets equivalent of 40% world GDP marked-to-market, price only sustained by central planning interventionism, the space for price fixing and liquidity pumping is getting smaller), with J6P not watching a cent this does not serve much purpose, but if everybody did and consumption really got hot prices would soar. 1980 there we go again.

    But how is stagnant wages and steady inflation getting better! ES says oil prices are dangerous for the economy, but what is worse, all this policies aggravate the situation because the deeper we go, the higher effect they have on economic activity and wealth each time we have one of these reflation cycles.

    Things are only getting better because there has been a massive excercise of can kicking everywhere, the question is: the diminishing returns of money printing (credit expansion and government deficits) on productivity gains and wealth creation trend keeps steady; the effect of these policies are becoming shorter and shorter at an alarming rate. People does not realize this have been going since 4 decades ago, not 1 or 2, but 4. It’s all the same sort of policies and the diminishing returns are very clear to anyone who watches at all the data available. Conditions are getting worse (working more for less and with worsening living standard) even if apparently you have a temporary wealth effect by liquidity pumping from depressed prices, once prices rise you are again in a conundrum.

  • Beethoven

    Didn’t mosler have an article a month or two ago about $120/bbl oil? I seem to remember reading his warning about an upcoming price shock.

  • Esteban

    I’m almost certain that in Sept or Oct he was on Bloomberg radio saying the recession would start no later than Q4 2011. Sorry, can’t find a link. Anyone else have the same recollection?

  • Coolidge Low
  • pragcapfan

    Lach says something like “no decline like this in last 50 years without a recession”. The chart says to me something very similar happened in about 1995 without a recession. I don’t understand his comment.

  • Octavio Richetta

    Esteban above is 1000% rite! Take a look. LA was really pessimistic! talked about double digit unemployment. AND MOST IMPORTANT OF ALL HE WAS GIVING A TIME FRAME FOR THE RECESSION OF Q3, Q4 2011.

    Now, can it be that when all is said and done we entered a recession in Q1 of 2012? If this is so, his miss wouldn’t be so bad. Rosy is calling for 1% GDP in Q1.

    If we enter a recession in Q2 or Q3 I don’t think LA can claim he predicted the recession correctly. I have said a zillion times forecasting most difficult step is forecasting the timing of the event. I started forecasting Argentina would devalue the currrency in the mid90s. This is what they should have done in order to revive the economy, improve their debt situation and avoid a default. We all know mow they were irrationa, delayed action as far as they could and ended up devaluing at the end of 2001, with default following ….

    Another example, Shilling was predicting the housing bust since 2004. In terms of stock investing, how good was the call back then?:-)

  • Charles

    No he usually says we are about 6 months early so like someone earlier said I think Aprilish was where it should begin. That doesnt mean he is not right because the last recession the data at the TIME signaled EXPANSION but then the government went back as they USUALLY do a few months/quarters later and revised the data downward and he got his recession.

    As for the market as a leading indicator thats nonsense – even more so nowadays than in the past. It knew nothing of the tech bubble in February 2000. It knew nothing of the biggest crisis if our lives in fall 2007. And now we have far less ‘free markets’ than we did in those times.

  • Charles

    He didn’t say we were in recession in Q3 or Q4. He said he didnt know if we were “currently” in recession (around 1:10 minute mark) as Task asked him in the interview which was at the end of Q3, beginning of Q4. He also stated we wont know a lot of data is in, a year later.

    On unemployment everyone who pays attention knows the reality of the unemployment rate and why its not double digit. If we had a normal participation rate unemployment would be double digit. If you put a few million extra on disability, another few million drop out of the labor force, and a bunch of kids now living at home post college rather than working (i.e. never entering the workforce) you have a deflated unemployment rate. That doesnt mean things have not improved the past few months but based on any ‘normal’ participation rate it would still be double digits.

  • Esteban

    At the 1:30 mark, he sure sounded like he believed the recession would start in Q3 or Q4 of ’11.

  • Octavio Richetta

    Mish makes a point similar to pragcapfan above:

    As you can see Mish really dislikes ECRI. He makes a lot of good points but still their forecast I think is the most reliable and timely oir there.

  • Larry

    @VII, this post about a U.S. economy that is improving a whole lot. It is the most bullish on the economy that I have seen from you in a long while. But the heading over the cliffs of Dover remark sure seems like you remain bearish on the equity market, is that so? What do you see as potential catalysts for an equity sell-off? Anything else beside the triggering of Greek CDS?

  • Cy Hailow

    @ Octavio

    Good post, very well thought thru.

    One item I’ve picked up from various Eurozone (EZ) commentary is that the ECB funding action (LTRO) that require banks to post assets (however dodgy) as collateral also is leading to lower velocity of money by tying up those pledged assets unproductively. In more normal times assets are loaned, and the funds used for investing activity in a virtual cycle with a significant multiplier effect.

    Further, FTAV ( notes that:
    Buried in the ECB’s release on December’s monetary developments, for example, Societe Generale analysts noted the biggest-ever monthly decline in loans to the non-financial sector

    Overlay imposed austerity (EZ now and USA to come?) and it sounds like a pretty toxic mix to me.

  • Not an Economist

    So if you think he is right what is/are the smart move(s) from an investment standpoint?

  • quark

    I’m not sure how this is being viewed as a revelation when jobs being created increased slightly while personnel income is stagnant. Poor quality job creation and more individuals are going to college because they can’t find jobs. The change in the demograhic profile reflecting a greater weight to 40+ individuals exiting from the commuter train which takes me to work every morning tells me where many of the discouraged workers are turning and why the debt levels are growing.

    Consumers use credit to replace the fall in wages due to globalization in order to maintain their living standards. Why would their behavior change. Since Jimmy Carter as President first tried to counsel the American consumer of the vices of the use of credit and then changed his position when the economy went into a tailspin there was no turning back from the use of credit to expand the economy. Consumers have now a generation of training on the virtues of credit. Policy makers and business leaders, like slave holders, have chosen to beat the consumer with the whip of debt vs freeing them through investment that would result in employment.

  • Octavio Richetta

    I went back And listened to all three LA appearances today, and can confirm that my analysis above is correct.

    If you put together the CNBC and Midday surveillance piece with TK, you get confirmation that indeed stock prices are part of the WLI and that LA believes they are not a reliable leading indicator this time around due to the well documented distorting effect of liquidity in risky asset prices. All other leading indicators confirm the recession call and thus he sticks to it. I agree with his rationale and also point out that ECRI has always being EXTREMELY conservative in making their recession calls. I don’t think the call is dependent on either the worsening of the European crisis or high oil prices/an Iranian crisis. Even tough such events may make it worse.

    What to do investment wise? The key is timing. On interest rates, we may have a temporary up move on long rates but they will stay down, go even lower, long term. With US equities, let’s put it this way, sp500 is up 8% YTD and I don’t think there is room to duble that in 2012, so you are looking at 8% tops from this level and that is an ultra optimistic scenario. If you are going to be in equities, I would stay away from the junk that has gone up so far this year and avoid high beta stocks. Me, I am now 130% short via SPX 1350 June puts I have been buying at an average price close to 60and are now price at around 50. Last lot I bought was at the low of the day today @48. YTD I am negative about 0.5%

    I am well known for being consintently too early in my calls, usually a couple of months, seldom more than a quarter, certainly less than two quarters, and I have been trying t short this market since mid-December. I have no crystal ball, the odds is this market will come down as sp500 @ 1360 doesn’t jibe with current fundamentals but a lot of people have gone broke on perfectly fine fundamental reasoning. That is why I am playing it via puts. I put 5% into them and assuming I am wrong and recover about 2% of the premium, then my downside is about 3%. A reasonable upside scenario would be having the guts to hold the puts until the sp500 dips to around 1200, quite likely if economic data/Europe/Iran mess-up things. This would triple the value of the options and result in abetter than 10% overall return. But be careful with options there is no easy way to see money melt away at the speed of light that holding options when the underlying asset moves against you, it is all leverage:-)

  • Andrew P

    Of course nobody really knows anything when you are discussing the future, but LA could be right. The biggest thing is the stagnation in income growth. If he is right, it would be nice to get a final blowoff in the market indices that provide an opportunity to sell. Very often things rise the fastest right before they crash. So I will be looking for opportunities to sell at good profits in the next few months.

  • Anthony T

    I agree that it was compelling. But I went back and watched the original call on 09/30/2011, and he clearly said that the recession would start in Q3 or Q4 of 2011. Now, it’s a sleight of hand to say that he called for mid-year 2012.

  • Octavio Richetta

    The economy is a complex animal would you believe that people who are not paying the mortgage, delinquent and/or close to foreclosure, have on average an extra $1700 to spend and they are 3.9 million providing 65 billion, or 5% of disposable income they can spend? Shilling and others believe this is why consumption spenditures have not taken a larger hit.

    Shilling has a series of 3 excellent articles on US housing on Bloomberg. I will post the links.

  • Octavio Richetta
  • LRM

    Thanks for the links,your efforts are appreciated. Great discussion on the L.A. recession call by all above

  • Octavio Richetta

    Btw, I posted in the most recent thread a link to a GMO’s JG interview in Bloomberg. He does see income and wealth distribution as a big problem for the us economy. Sees about three quarters of the market overpriced but believes it may stay like this a long time. Rules out a 30% decline (which I hopefully believe indicates it may happen) and likes commodities and land a lot. Finds stocks outside the us fairly priced at best which makes it boring for him.

  • LRM

    @ OR
    I had read the GMO letter but have not seen the Bloomberg interview.
    As you noted, JG feels that there is a lot of fair value in quality stocks and has no mention of the past prediction of correction of S&P he has mentioned in previous letters. His introduction in the letter had some good points regarding how individual investors have a lot of opportunity to outperform portfolio managers if patient and wait “for the good cards”
    Over all, I was surprised by JG being neutral more that previous except for bonds which are very over valued.
    If you are still following this post, I wondered if you can discuss the way you short the market vs what was posted on a former thread by VII.
    You are using puts while VII is using SDS I believe. In a recent tweet, Cullen said his short just became real and I confess I don’t know for sure what that means operationally but I think he is also using options for his shorts.
    I have not been a options investor so a short ETF looks more understandable to me but are risks controlled better with options?
    Will check out the JG interview

  • Larry

    @Not an Econo.. , You asked: So if you think he is right what is/are the smart move(s) from an investment standpoint?

    If you think ECRI is right about a coming recession, or even a slowdown in GDP growth to 1% like Rosenberg is calling for, then you would be way “underweight” in stocks, and overweight in bonds. If I were you, I would not go short now, too risky for me. 25% defensive equities like SPLV, 55% bonds, 5% gold, 15% cash for buying opportunities after equities (presumably) fall. Good luck.

  • quark

    cnbc hosts are patsy’s and clowns….it’s merely a propaganda machine for the business community. While in and of itself promoting business is a good thing these clowns tout stocks like curb traders. They are either crying because the fed and treasury aren’t bailing business out or because the government is getting in the way of business.

  • Octavio Richetta

    Ouch! Was in the middle of preparing a very detailed response to your question and my IPad wiped it out as it refreshed when I came back to this tab. When I get the time and energy I will try again:-)

  • wallyfurthermore

    If you are going to predict a ‘recession’ or any other economic event you have to put a DATE on it or else it is no prediction at all. Everybody knows a recession is coming someday… could be a week, could be years.
    No date, no credit for a prediction.

  • VII


    Hi Larry- I’m bullish on people…I’m impressed by what I’ve seen from many businesses. I’ve seen some incredible people start businesses ignoring all the reasons why they will fail. We just keep on moving forward in spite of the folly of congress and wall st.

    I’m not buying the SPX here. I do think some stocks are not bad…but because I believe better pricing lies ahead I can not think of why I’d be these names now.

    I continue to like natural resources, agg, oil etc.

  • KB
  • valwayne

    Folks, Obama has done such terrible damage to our nation with his arrogance, extreme left wing ideology, massive wasted corrupt spending, Solyndra, Ener1, and nation destroying debt that we may never recover. We’ve been in a fools bubble for the last few months created by Obama borrowed massive corrupt spending spree and trillions in funny money created by the federal reserve trying to support Obama’s nation destroying debt. Today we found out that durable good orders fell 4%. A huge decrease. The funny money is sending gas toward $5 a gallon which is killing consumer spending. The recession folks has begun. We may not feel it for a few months, but soon UNEMPLOYMENT will start to go up from record high levels. Obama is responsible. He has been the worst, most disastrous, most failed leader in our nation’s history, and we are about to feel the price!