The Recession Calls Were Wrong

When I started this website I knew pretty quickly what would generate traffic and attention.  If you write about things that really scare people, conspiracy theories, Apple and gold you can drive enough traffic to a financial website to make a  decent living (until people realize you’re basically scamming them).  I told myself I’d choose quality over quantity and that I would TRY, above all else, to provide relevant, educational and ACCURATE information for people.  I knew it wouldn’t be enough to make the site sustain itself, but I truly felt that the alternative was a dishonest and low value way to write about finance, money and investing.  I don’t always succeed in this goal, but I always try.

One of the few things I’ve been right about is the “no recession” call since many notable investors and pundits began loudly declaring recession in late 2011.  I said none of the indicators were pointing to renewed recession and that the likelihood was for continued meager growth within the de-leveraging cycle.  In essence, misunderstanding the balance sheet recession was deadly for your portfolio and your general understanding of macro trends.

Now, I know I don’t make many friends writing happy things about the economy, but the bottom line is that the global economy could be much worse, policy makers could be wrecking the economy and American businesses could be far worse off than they are. We’re in this world where things are adequate enough to remain positive.  All things considered, that’s pretty positive since we’re coming out of the worst and most unusual economic crisis of the last 80 years.   This morning’s economic data was just further confirmation of this reality.   Here are three clear indications that the recession calls were completely wrong and are likely to remain wrong for the foreseeable future.

1.  Jobless claims are at a post-recession low:

2.  US PMI continues to show a clear expansionary trend:

3.  The Orcam Recession Index, which helps steer me to my main conclusion regarding growth, remains positive:

 

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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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Comments

  1. Careful there. Lots of respectable outfits made that recession call — John Hussman, the people at ECRI — and you seem to be crowing that you are the voice of reason but they are scammers and conspiracy mongers.
    You got a call right, for now. You might get the next one wrong.

    I’d be more interested in analysis of why we haven’t fallen into recession. Is there something wrong with Hussman’s system, or ECRI’s analysis? Were they mis-reading data? Is there data that you are seeing that they ignore? Are new factors (QE, deficit spending) at play here? Is it ‘different this time.’ Has the recession merely been put off for another year?

  2. “US PMI show a clear expansionary trend”? One bad month, and we would be back to stagnation.
    I don’t know if the indicators you mention are really enough for a victory lap.

  3. Hussman has turned himself into a permabear, and the results are not pretty. His HSGFX fund is down for the last 3 yrs while market is up a lot. ECRI for some strange reason went out on a limb, trying to get ahead of their own data. Tried to make a big splash and they belly flopped. The difference is that Cullen is balanced, and lets a variety of data guide his calls (e.g. no recession in first half 2013). The others seem to make up their mind first, then look for data to support what they already decided.

  4. I know that you’re a regular poster here, do you just skip all of the “no recession” articles”? In general, Cullen’s explanation on why we aren’t heading for recession has been discussed ad nauseam on this site!

  5. What will be the ultimate cost of demanding that things continue on as before through the use of infinite stimulus and market gunning? Apparently no one cares. I will tell you one cost. Justice is dead. The guilty and morally bankrupt have all the rewards. The just have been punished. What a great system. I hope you are all proud of yourselves.
    -rufus

  6. I was wrong on the recession call – it didn’t happen. But to say it was obvious or ‘clear’ that it wasn’t going to happen I think is inaccurate. It was clear enough to incite the Fed to adopt an open ended policy of QE – so clearly there were very real and relevant risks. We’ve seen close calls in both 2011 and 12 – and this economy is still very reliant on artificial stimulus to generate meager growth. I keep referring to this as a Lance Armstrong recovery – sure it’s growing, but it’s very important to recognize the factors that are assisting those 7 wins in a row.

  7. Cullen,

    With the Fiscal Cliff in the past and the Debt Ceiling debate looking like there will be some solution- What, if any, major pot holes to the broad economy do you see in the coming year?

    Regards

  8. C’mon Mountaineer. It says secular bear MARKET. Not secular bear ECONOMY. And if it was a secular bear MARKET, why is the market at all-time highs?

  9. It almost sounds like people want a recession from reading the comments! Imagine if the wealth affect from home price appreciation as well as employment continue to get better. We could be looking at a pretty strong economy in the next few years.

  10. @Mike, even though we have been in a shorter-term cyclical bull market in stocks for almost 4 years, we are technically in a very long-term secular bear (sideways and/or down)as long as we have not broken through the two S&P 500 highs recorded in March 2000 and October 2007. We are getting very close to breaking them today (within 3% of an all-time high). As Doug Short says, you can only tell in hindsight (like the NBER with recessions) as to when you entered and when you exited a long-term secular bear market. So I think Cullen was accurate at that time.

  11. I stand by my original comment. Norman was basically calling BS on Cullen’s statement that he has avoided jumping on the premature recession call bandwagon over the past few years. His supposed evidence supporting this claim is nothing of the sort. Furthermore, large stock market rallies are not abnormal for secular bear markets, they are the norm. Plenty of people have made note of this over the past few years and have made considerable amounts of money along the way.

  12. Market is at a 5 year high, but NOT at an all-time high. It is below both the March 2000 and Oct 2007 peaks in the SPX.

  13. Yeah, I know, deficit spending will boost corporate profits and stave off the recession.
    Profits at a record high, wages at a record low — good for traders, not so good for workers.

  14. “It almost sounds like people want a recession from reading the comments!”

    This is unfortunately exactly the truth. People start off with predispositions like “All deficit spending is evil.” or “I love Obama.” and then attempt to force their economics to fit this worldview.

    What is so refreshing about this site (and MR) is that it explicitly attempts to start with the apolitical factual basics and then describes economic situations from these apolitical factual foundations.

    Despite the notion of “balance sheet recession” having been explained repeatedly on this site, it doesn’t fit into some people’s preconceived ideas about the evil president, evil government and so forth ruining the economy, so they unfortunately reject it… hoping that they can salvage their malformed economics.

  15. Thanks Cullen for all the great work. Your work has really changed my way of thinking about our economy.

  16. 666? What? Is that some kind of devil worship reference there? Not that I care… to each his own! ;)

  17. The S&P500 bottomed out at 666 on March 9, 2009 after a 57% fall from Oct 2007 peak. Many would love to buy the SPX at that level if they got the chance again. It was a rare incredible buying opportunity.

  18. other than Hussmann and ECRI from what i read over the last year the consensus was muddling through.

    i don´t know what goes into ECRI´s model. i guess manipulated bond yields could be in part responsible for false signals.

    to make a recession call you need at least a man. PMI print of 45 or below. clearly they didn´t want to wait for that for whatever reason.

    but everybody remember – the time when those calls where made things clearly looked down. and if there wasn´t a high recession probability you wouldn´t have seen such dramatic action as Draghis commitment to break the ecb law and the fed to introduce infinite QE.
    kudos, if you saw these strong measures come (and work) then.

    i wouldn´t rule out a recession coming this year. whoever makes a call on that right now, will be a hero. in hindsight. other than jobless claims (lagging) i´m watching PMI readings and the trend in purchase mortgage applications.

    one last point: there was indeed a recession over the last year – in S&P earnings estimates for 2012+2013. so the bears were right at least in part.
    see Yardenis chart: http://blog.yardeni.com/2013/01/s-500-earnings-squiggles_8.html

  19. Wow, obviously I wasn’t buying then! I didn’t change anything… just left it all in my broadly diversified stock and bond index funds and bit my nails a lot. Turns out it wasn’t a bad strategy… only bought the usual (automatic) amount from my monthly paycheck.

  20. “When I started this website I knew pretty quickly what would generate traffic and attention. If you write about things that really scare people, conspiracy theories, Apple and gold you can drive enough traffic to a financial website to make a decent living (until people realize you’re basically scamming them).”

    That is the main reason I have been going to PC! For reasonable and rational news on the economy and the markets. I go to ZH for the more colorful and scary stuff but know better to ‘filter’ out stories by the self-serving fear mongers. The same applies to the Drudge Report.

  21. But what about Tea-Party bomb throwers in congress? In a last ditch attempt to remain relevant and “save us” from “the out of control debt and deficit” and “bloated federal government” and to punish the 47% of us who are parasites ruining America, do you think they could possibly cause us to actually default… or alternatively, force massive near term budget cuts? … or do you think their big-money backers will make a few phone calls in the end, and tell them to lay off (since the big-money guys would presumably have too much at risk in the market to tolerate that kind of irresponsible behavior)?

    I’m going to go with the latter… I think a few phone calls will get made. I think they already have been in fact (thus the delay in the “debt ceiling” “fight”). I think the billionaires made a play at swinging things massively their way… but they now have settled into the reality of divided government for another four years, and probably will “work with” Obama to get the best deal through that channel that they can. He’ll probably give them a decent deal too, since he’s always been partial to accepting campaign dollars from them in the past!

    Probably what will happen is that a “reasonable” package of cuts will get made for the mid to long term, which will hopefully only marginally suppress the continued recovery…. and who knows, perhaps the economy will (by chance) heat up enough to compensate!

    I wonder what the billionaires are thinking though. What is their understanding of how the system works? Are they ignorant enough to shoot themselves in the foot economically? Or does a deepening recession present opportunities for them?

  22. That was a silly comment. If the Tea Party had half the “big money backers” that Obama has, i.e Goldman Sachs, Harvard, Microsoft, Google, GE, etc., etc., then the Tea Party would be…Obama.

    Our Congress is filled with equal opportunity economic dunces. Let’s just agree on that and keep the partisan snipes out of it.

  23. It’s sad that I agree with you b/c we will be sitting here in 15 years still waiting for the market to clear, while everyone claims that the economy is still performing under its “potential GDP”, even though it was only a debt-fueled illusion for the past 30 years.

  24. the only one who wins with this keynesian crap is the financial class- the insolvent banks and rentiers. at some point interest rates WILL go up and occupy such a large proportion of our output, and we will shutter to think we accepted simplistic theories like substituting artificial aggregate demand to achieve an always unsustainable GDP during such a debt bubble. the markets need to clear but will only be allowed to over decades. until then, almost everyone loses income, assets, and quality of life.

  25. Cullen is smart enough to do one of two things: predict WHAT will happen but not WHEN. Anyone attempting to time macro predictions is a fool, but missing the timing doesnt mean they were wrong. the recession call of december 2007 wasnt made until what? end of 2008? so I agree, stop patting your back. when a path is seen as unsustainable, smart money is wrong for years, but it doesnt mean they were wrong on substance, but timing. i actually applaud hussman for staying away from this juiced, totally artificial market; his flaws are two-fold: he didnt invest enough in 2008-2009 when he should have AND he continues to attempt to time his macro market calls.

  26. you should continue to read ZH bc a lot of it is pretty profound financial thinking, ex- the apocalyptic stuff. not necessarily thorough(since it is a blog), but it illustrates the way an investor should think.

  27. All of the “indicators” out there were valid before the world money printing marathon. Now I trust only my eyes and ears, which tell me:

    – Cousins in their 20s are spending 6-8 years pursuing MBAs and PhDs because a) there are no good jobs and b) they can live off of student loans
    – My co-worker can’t unload his house in Miami despite it being pristine and priced at 65% off the purchase price
    – My father’s wages haven’t budged in 5 years
    – My local mall for the super-wealthy (stores such as Burberry, Hugo Boss) is deserted M-F.

    Just my two cents

  28. sadly, expected wages for your cousins will not be sufficient to carry their student debt loads.

    so i agree, this “recession call” nonsense is pretty meaningless in a low-growth environment stimulated by monetary and fiscal policy. if we get 2% growth with 10% stimulus, tell me- what is our “true” level of output, and what does such artificial support do besides recap the insolvent banking system while misallocating capital and preventing the market from ever doing the one thing its meant to do- utilize price-setting mechanism

  29. In spite of all the claptrap about “having avoided the fiscal cliff” US consumers still have to swallow a number of taxhikes:
    – People earning over $ 250.000 ($ 400.000 ??) are taxed at a higher rate.
    – After two years of lower Social Security premiums, the premium is back to the 2009 level.
    – The new “Obamacare” taxation.

    California also has higher taxrates and the threshold for the highest taxbracket has gone lower (in California).

    Look at the website of the IRS. They have REAL TIME data on how much payroll tax is coming in.

    In the 4th quarter of 2012 a record amount (since the middle of 2009) of US companies missed their (already lowered) earnings estimates.

  30. Obama certainly has his share of billionaire backers, especially in 2008, but the financial sector guys (in particular… including Goldman Sachs) dropped him big time this go around, and they made a play to put one of their own in. Now that they really have a tool to do it (Citizen’s United), they can “make their voices” heard now more than ever… and for every one you listed (Google, GE, etc) there’s a Sheldon Adelson (did he really spend the $100 Million this last go around like he threatened?), Koch bros, etc. They and Obama will probably kiss and make up though now. Look, I’m not saying Obama and the Dems are better… better than the bomb-throwers, yes, I’d say that, but not better than the Repubs in general. Bomb throwers are idiots, but the rest at least know not to kill the goose that lays the golden eggs, and are always partial to backroom deals. In some ways I’m sympathetic to the idea that the Dems are MORE dangerous to us average folks because the GOP lacks the credibility to actually get painful cuts through. That’s why McConnell is so interested in having Obama “lead” on spending cuts… because he knows that’s a minefield (i.e. getting specific on cuts), especially for Republicans.

  31. I’m not sure what you mean by “keynesian crap.” If you’re talking about stimulus spending, that is LONG over with. Our deficits now are due to the three biggies:

    1) Social Security
    2) Medicare/Medicaid
    3) Defense

    Farm subsidies (something McConnell was very upset were going to be cut, so he insisted they put them back in for the cliff deal), scientific studies, park service, all that… it’s chump change.

  32. keynesian crap as in the belief that aggregate demand is efficiently and properly substituted by the public sector.

    I would note that the same keynesian logic pervades monetary policy, i.e. the belief that the government can and should attempt to combat decreased economic activity by delaying needed clearing.

    and i agree with you, especially given that your big three are only supporting their current year expenditures and NOT accrued obligations. you should, however, included unfunded pension obligations, which is another 1.5-2 trillion on the balance sheet

  33. Bulls make money, bears make money and pigs get slaughtered. A drop to 666 would make some a whole lot of money. The question is what would a drop in the major indexes do to the economy?

  34. This argument is Pollyana wall street bs. Lets pick a recession or growth indicator and throw it up on the board.

    For working Americans..those who have a job…this is ‘feels’ like a recession and for those without jobs…many more Americans than are represented in the ‘official’ statistics this feels like and is a depression…jobs are hard to find or non existant, no leverage in workers negotiating higher salaries….worse yet workers are told to take the reassignment at a lower wage or find another job, housing prices are artificially forced higher from banks holding on to shadow inventory, top line revenue growth stagnates as profits show up only through previously mentioned job conditions and stocks are higher based on the liquidity trap.

  35. The Dow Theory is not only a tool for speculation but a useful one in order to forecast business conditions. Thus, the Dow Theory acts as a useful business cycle predictor. Dow Theorist Schannep writes in his book (Dow Theory for the 21st Century, page 65) that the last 24 bear markets have been followed by 17 recessions 9.6 months on average AFTER a bear market.

    Therefore, when the market is in a clear primary bull market as it is now (http://www.dowtheoryinvestment.com/2013/01/dow-theory-update-for-jan-18-no-time.html ), it is not very likely to witness a recession in the coming months. The odds don’t favor a recession.

  36. The market is not the economy. You obviously didn’t even read that article you cite. The conclusion was just broad macro musings that were dead right:

    “While there is ample evidence of economic improvement in recent months I still believe there is zero evidence that the secular bear market has ended. This doesn’t mean there isn’t a great deal of money to be made during the bear market (on both the long and short side), but at some point we must recognize that our global imbalances all remain. Admission is the first step. We’re clearly not there yet.”

    Ironically, someone responded in the comments to THAT article with the same nonsense. I was pretty clear about my views. http://pragcap.com/is-this-your-average-secular-bear/comment-page-1#comment-39476

    I’ve written hundreds of articles since 2011 describing why the economy wouldn’t contract. That was dead right. The market is a different story and depending on where you were investing the global imbalances I discussed in that article have had hugely negative impacts on some markets and economies in the world. Maybe read the articles next time before you criticize?

  37. The article was about global imbalances and how we haven’t really resolved any of our problems.

    I don’t think Norman actually read that article as there’s nothing in there that’s actually wrong. And I was very clear in the comments regarding my market stance.

    The European issues aren’t resolved, the US deleveraging isn’t resolved, the problems in China are still apparent. Global imbalances are still a huge issue. And many major global indices are currently in bear markets or suffering. The all world index is still 10% below its 2007 highs. Anyone who invested money at that point is still very much feeling the secular bear market.

    The bottom line is: have we cleared our global imbalances? No. I’ve been pretty optimistic about the USA in recent years and even here I say we haven’t cleared the balance sheet recession yet. I don’t know if my positions on all of this could have been stated more clearly and anyone who’s been following closely has been well aware of this.

  38. The all world index is flat since you wrote that article. Americans are so egocentric. There are dozens of bear markets around the world yet all they can focus on is the S&P 500.

  39. Talking about secular bull and bear markets and global imbalances doesn’t mean there can’t be huge market rallies at the same time. I replied to this specifically in the comments on that article so it has nothing to do with that article two years ago!. I don’t even know why I have to respond to these kinds of articles from people who don’t even track my work very closely.

    I get plenty of stuff wrong and I clearly stated that I was wrong about not buying and holding after that 2009 crash, but I have NOT been wrong on the recession calls in recent years. I’m happy to get called out. No one is right all the time. Just don’t mislead people about what I did and did not say. That’s all I ask for.

  40. Yep, I read the comments earlier today and your normal caveats were there in the comment section. If anyone takes the time to read a bit deeper they would know this.

  41. Is this the same Mike Norman who laughed in Peter Schiff’s face in 2006 when he said there was a housing bubble? You made the worst call in economic history and you have the arrogance to criticize other people’s work? You’re a two bit hack working at a chop shop. Get out of here.

    http://www.youtube.com/watch?v=60CLQse27p8

  42. We’re obviously still in a secular bear market. A market rally doesn’t change the fact that anyone who bought stocks in 2007 is still underwater.

  43. There are over 6500 mutual funds, 1000’s of separately managed private accounts, 100’s of ETFs and hedge funds. 1000’s of “financial advisors” working at your local bank. All if whom said there was not going to be a recession or never said there would be one. But there is only one person who writes about his no recession call every 2 months on his own site. On the other side of this call stands the usual long list of perma bears like Comstock, Rosenberg, Hussman, and Pimcos who 4% equity new normal.
    Thank you Cullen you are doing gods work. Millions of investors who also didn’t think a recession was coming and never read you could not have made money with out your call they never saw.
    It is 2013. What have you done for all of us lately?
    Pick up 100 mutual fund commentaries in 2011. none of them thought a recession was coming either. they dont think to point out something that was fairly obvious to many but the list of bears cullen brought to bus readers only to dismiss. Cullen’s Prag Cap Followers(who all went from MMT stalworths to MR experts)should be thankful he didn’t create a site filled with sensational posts on gold, apple, and fear. Forget for a moment that he has posted on those topics and posts and like people magazine uses a photo of a celebrity taken buy the Paps to write an article about how terrible the Paps are. Forget that. Just focus on how lucky you are he didn’t try and scam you. Because that wouldn’t be good for you? You should thank him for doing what should be standard operating procedure. Please thank your doctor for not overbilling your insurance. Thank your politician for not approving that shopping center next to the 5 condos he could have dealed on. You would not have known how bad he could of screwed you had he not promoted the idea which MOST would not need to point out. exceptional character!

  44. In that case, it would be most interesting to figure why then did the Fed unleash the most aggressive QE to infinity, were they to share the same view that the US was not heading for a recession.
    Is it that big a stretch of imagination that quite possibly the economy was heading for a recession last year, which prompted the super aggressive QE which consequently boosted a few months of data? Another kick of the tin can?

  45. What is it about the internet that gives grown men the courage to run around making snarky comments to people that they would never say in public? I point out ONE thing I’ve gotten right in the last few years in an effort to make a simple point and the trolls start infesting the site. Did I do something to insult you? I try to remain very cordial with everyone even the mud slingers, but for some reason the insults always seem to fly at me from the direction of anonymous regulars. What gives? You obviously read my website a lot. It’s free. No one forces you to come here. If you don’t like the content you just don’t show up. It’s that simple.

    I never claimed to get everything right. I get a lot of things wrong. But I think I get more right than wrong. Maybe that doesn’t matter to you. But my writing here isn’t about getting everything right. It’s mainly about trying to explain and explore how the world of money works. The site has become almost entirely educational. And of course, the foundation of those educational tools are only useful if they actually apply to the real world. So, it’s important to show some level of competence in applying the actual understandings to the real world around us. I think I use a rather unusual approach that substantially differentiates me from most of the “1,000’s” of people you listed. Obviously, you must agree seeing as you visit the site quite regularly and seem to have a thirst for the free info being provided.

    I am all for criticism. What I don’t appreciate is snarky anonymous comments from people who visit almost daily and soak in the free information only to lash out when they’re in an unpleasant mood.

  46. I think many people missed the Kalecki equation and the effect of deficits on corporate profits while consumers are NOT saving. Then QE did move animal spirits (or manager of OPM).

    A good point on the impossibility of timing macro calls – you need to wait for price action to confirm, etc.

    Regarding the recession there seem to be two stances:
    – the economy is entering the recession till proven otherwise – seems to be the wrong one
    – the economy is NOT in a recession till proven otherwise – this one is maybe a bit behind of the curve, but so is the market recently (maybe due to QE and belief in magic)

    So what indicators do we have:
    a) recession:
    – 3 of the 4 coincident US indicators have peaked after H2 2012
    – Coincident/lagging indicators (LEI) is negative
    – Japan and Europe in recession, China with a sub-50 PMI until recently
    – Global PMI was sub-50 until recently
    – Empire State and Philly Fed oscillating up and down around recession line

    b) no US recession
    – weekly job claims, UE going down
    – US ISM PMI was below 50 for 3 months until recently, but it is now above 50, mostly neutral reading
    – China, US PMIs moved up recently
    – (US) Credit growth in aggregate is still positive
    – ADS, CFNAI, orders-inventories confirm non-negative US PMIs

    I have been very conservative and defensive in my portfolio since March 2011, but it has worked well for me so far – up with limited drawdowns and thus outperforming. I think we are entering the last ebullient leg of the cyclical bull market, where caution is thrown to the wind (“tail risk is dead”). So I will most likely start underperforimng for a while. Also note that the world economy has tripped on the brink of recession quite often since mid-2010, but was “brought back” by fiscal and monetary stimulus. The price is high though – there are no free markets anymore, nor true capitalsim.

  47. Agree. Short-term “pragmatic” management, breaking all sound principles is no real solution to a structural problem. On top of that is catering to entrenched interests.

  48. You need to differentiate whether you are median, below median, top 20%, top 10% or top 1%. For the top 20% it is an expansion. For the 1% it is the ultimate victory – although you f§$% up, you get even higher profits and ultimate control of government, instead of going bankrupt and in jail. For the median it is a stagnation. For the below median it is a recession.

  49. Cullen,

    Initial claims – I always thought it is not an indicator to predict recessions.

    Could you kindly specify which PMI are you using?

    Regarding the statement that there is no recession now – should not we wait another month to completely dismiss ECRI call?

    The most important question – what do you expect for Y13?

  50. Why does anyone care about a govt produced piece of data (GDP) anyway?

    Just look at what is included in the measure, then you’ll realise it’s a pointless measure.

    We’re 4 years on from the credit crunch, and all around the world real businesses are still struggling and job losses are growing, despite QEinfinity.

    Yes, ever decreasing circles, the money printers are running out of bullets, and their only option is to do more and more, compounding the problem.

    Soon we will have full blown currency wars, more nationalistic posturing and aggression, all guaranteed to scare entrepreneurs into hibernation.

    It’ll end in tears, when Cullen’s short-term trumpet-blowing will be a forgotten footnote of Keynesian madness.

    It’ll be fascinating to watch him try to wriggle on to the right side when the time comes though.

  51. “short-term trumpet-blowing?” … “Keynesian madness?” … I’m not seeing anything that Cullen has stated that matches that description. What are you talking about?

  52. Recessions are more likely when the government and Fed believe that the economy is overheating, unemployment is low, particiation rates are high, and inflation is emerging and irrational exuberance have taken hold.

    It sounds perverse but these are exactly the times when both fiscal and monetary/interest rate policy get tightened, thus bringing on recession.

    While ECRI and Hussman would, imo, have been correct in those sorts of times, what they didn’t allow for in the last 18 months was the extreme desire by the Fed and Government not to allow deflation to take hold and a depression to take place as a result of multiple recessions, with the second occurring during a time of high U6 and U3 unemployment, capacity underutilisation, falling house prices, banks in crisis and having to abandon mark to market to retain an appearance of solvency and for the Fed to have to keep buying assets from banks to provide them with liquidity/reserves.

    They just didn’t realise how far Bernanke would go to avoid any real chance of general depression.

    I think the bond bears are going to make a similar mistake. The govt will use fiscal policy to soak up excess demand to slow the onset and size of interest rate increases, thus preserving bond prices or at least slowing their fall. This is particularly the case while the Tea Party remains strong in Republican pre-selection/primaries and the Republicans control the house. They will choose to accept slower growth in nominal GDP to repair the Public Balance Sheet.

    It doesn’t matter whether MR/MMT means they don’t have too, the social norms and partisan politics will bring on fiscal consolidation rather than allow fast interest rate rises. Better to make the “haves” and corporations get a little less net surplus through increased tax/reduced govt spending than to have a fast increase in interest rates, a bond price crash and destroy support for the unemployed.

  53. Exactly, Their is not right or wrong. They both have been fighting the tape for years. They are not near is good as they think. Hussman is a broken clock. At some point he will be right, but at what cost? So maybe he’s flat or up a little in a bear market. While he just missed a 100%+ run in the SPY? I would be revisting my model in a hurry and learn from my mistakes…..

  54. Cullen,

    I am regular reader. In previous posts (10-May and 25-June) from last year you suggested your recession model indicated a possible recession in 2013. Have you revised your estimate for this year. I realize part of your analysis in early/middle of 2012 may have included some impact from a 2013 fiscal cliff that has–thus far–largely been avoided. If you did revise your 2013, please send me a link to the post.

    Thanks.

  55. While the US PMI is still in expansion territory, if you were to run a regression from early 2010 to present I think you’ll find a negative slope….the trend is the wrong direction. Let’s hope it continues the most recent move up.

  56. Daniel,

    I don’t pretend to be able to forecast more than a quarter out in the future. I use a pretty strict recession model that gives a definitive “yes” or “no”. At times, I’ve stated that there was a high risk of recession in 2013 (mainly due to the fiscal cliff), but those risks never materialized. See my 10 Q&A for 2013 for my latest thoughts on the economy (mainly regarding Q1). Hope that helps.

    Cullen

    http://pragcap.com/10-questions-and-answers-for-2013

  57. Cullen,

    It time to eat crow. Perhaps you should try focusing on predicting one quarter in the past.

    ;-)

  58. Let’s not get ahead of ourselves…don’t be surprised, if that -0.1% isn’t later readjusted to +0.1 %….still pretty anemic, though, no matter how you look at it.

  59. Heh, I am really surprised seeing no comments on GDP today on this site… let’s wait then. Yet balance is moving in favor of ECRI as of now )