There is the view that forecasting is a democratic affair and that the consensus is not only fair and balanced but more accurate...just ask any lemming.
You figure that if I spend all day here, each post will register as a grain of sand that will eventually turn the tide of opinion so that it flows my way...I'm counting on you lemmings to consider this.
The pursuit of Truth about the future is always a self-fulfilling prophesy provided I have the microphone and not some band of gypsies that think their globes are the only ones...
The ACRI model seems to be a well modeled black box. Given its producers background, I would take them more seriously then the grab-bag of economic experts that the seem to partake in all those surveys.
Using the two quarters of negative growth definition of a recession, makes for a rather high hurdle, and makes the "official" recession a lagging indicator of the general business downturn.
I take ACRI's pronouncement as a positive sign. But the future data for the real estate sector obviously does not exist, and current data is not very reliable.
Well - I for one - can't argue with the analysis. Until the liquidity spigot is turned off & credit/debt growth is restrained I see no way an 'official recession' happens... RE may go down but something else will bubble up and spill over.
If you 'believe' in markets & capitalism you might be glad we continue to experience growth... but would also have to be keenly aware of the risks posed by the ongoing aggressive credit/debt expansion.
And if you tend toward conservative Friedman & Mise-Austrian style economics (extremely pro-market forces) your view pf this expansion becomes a complete nightmare scenario.
Maybe you aren't so worried if you are more a more liberal Keynesian type...
I'm not a strict follower of either actually... I certainly don't follow the conservative economic dogma so am not completely obsessed with the inevitability of the credit/debt cycle like 'the Austrians'... but I believe they accurately understand what leads to these boom/bust cycles and we are clearly well along that path.
While I don't believe the 'Keynesian Solutions' to an eventual 'credit crisis' will completely moderate the mess - it is better than doing nothing - at least from a political perspective. Think of it as Mise on morphine.
But as long as the CBs continue to expand credit and consumers continue to take on the debt... this can go on.
there is NO pick up whatsoever in jobless claims. need those for a recession.
Well, having seen some recession related layoffs up close and personal (in the dot com bust) my obeservation is that they seem to come fast and hard all at once.
Companies I was working for/with with literally went from rapid hiring to laying off half their staff in the period of a month. In fact it got to the point where these companies were laying off employees that were just hired after they had quit their old job and before they started their new job - signing bonus to severance pay all in one exciting week.
I don't think we'd see a gradual runup in jobless claims leading to recession. I'd expect it to catch most people out of the blue.
Well - I for one - can't argue with the analysis. Until the liquidity spigot is turned off & credit/debt growth is restrained I see no way an 'official recession' happens... RE may go down but something else will bubble up and spill over.
I agree too, except I think real estate is largely the end of the road. I think the rapid increase in foreclosures is the beginning of the liquidity drying up - at least for the consumer economy.
Where else can the consumer go to borrow $250,000 more than they can pay back? And I think (perhaps optimistically) that the Fed knows what's going on and won't allow any other outlets to materialize (i.e. no buying stocks with 10% margins).
The Liquidity spigot is still going very strong- When that stops- Armageddon begins-when? Hard to say, but social and economic cycles change- nothing goes on forever.
"Well - I for one - can't argue with the analysis. Until the liquidity spigot is turned off & credit/debt growth is restrained I see no way an 'official recession' happens... RE may go down but something else will bubble up and spill over."
To me, the question is whether the liquidity spigot can flow as fast as credit contracts when the forclosures start to hit. Lots of people who bought from mid-2005 to mid-2006 are underwater. People with low or negative CLTV can't refi their way out of their problems. Somebody will have to eat those loans.
I don't think we'd see a gradual runup in jobless claims leading to recession. I'd expect it to catch most people out of the blue.
I agree - everything happens faster today... communication is the reason.
Execs don't have to wait for the pony express & the bean counters to manually count the beans... now their ERP systems give 'em pop up windows every morning telling them to 'buy hog belly futures' or 'lay off' as soon as they log in.
To me, the question is whether the liquidity spigot can flow as fast as credit contracts when the forclosures start to hit.
Well so far the markets are betting the 'financial pipefitters' at the respective CBs around the world can keep up.
I'm not sure how long it will continue but am reluctant to doubt them until I'm shown hard evidence it is over (as opposed to just 'reason' & 'logic').
I hate to sound like a 'polite' version of patrick... but the reality is so far the supply of liquidity has MORE THAN kept up with demand.
Have we, as an economy, found a way of abolishing recessions ( using one crude tool, i.e. short term fed funds rate)? No more overcapacity, inventory overhang, change in consumer behaviour?
When was the last time the consensus of economist/strategist forecasted a recession.
Answer (inho): NO and NEVER
In my view, as soft landing is wishful thinking. If we get a soft landing with housing in a recession, manufactring in recession our domestic car manufacturing in real slowdown our external deficits in record territory, a very tired consumer etc etc....I guess we will never have a recession again, (because all the fed has to do is lower rates).......dream on!!!
I would hate like hell to believe that those who predict a soft landing (not those on this site, but outside this site) have a hidden agenda.
Is there any constituency in the United States that needs a soft landing? Needs it badly?
I would look first at the Bush administration. Dead last on the list of things it needs is a hard landing. Dead last. It would be a complete killer for them.
And definitely, very definitely, Mr. Bernanke is in the bulls eye. Boy, is he ever! I wonder if the phone has already rung?
All Things Considered, December 8, 2006 · A move from the city to the suburbs used to signal prosperity for American families. But last year, the number of poor suburbanites outnumbered poor people in cities by 1 million for the first time. That startling statistic is part of a new report that examines poverty trends in the first part of the decade.
"I hate to sound like a 'polite' version of patrick... but the reality is so far the supply of liquidity has MORE THAN kept up with demand."
But demand is not keeping up with supply.
Paul L. Kasriel
Director of
Economic Research
312.444.4145
312.557.2675 fax plk1@ntrs.com
I love the Feds quarterly flow-of-funds report. It usually is the mother lode of enlightening
economic nuggets of information. And the Feds latest release on
December 7 of third-quarter data was rich with these nuggets. For starters, the decline in U.S.
bond yields in recent months is less of a mystery when you take into consideration the sharp
slowdown in the rate of domestic nonfinancial borrowing. Chart 1 illustrates the point.
Relative to nominal GDP, nonfinancial domestic borrowing (i.e., the annualized dollar change
in debt outstanding) peaked at 19.7% in Q4:2005, moving down to 13.9% in Q3:2006 the
lowest percentage since Q4:2003.
Chart 1
Domestic Nonfinancial SectorsCredit Mkt. Borrowing / Nominal GDP
%
Although not the only nonfinancial sector accounting for this slowdown in borrowing, the
household sector was the principal one. Chart 2 shows that after hitting a post-WWII high of
14.6% in Q3:2005, household borrowing relative to disposable personal income (DPI)
dropped to 8.8% in Q3:2006 the lowest since 7.6% in Q3:2001, when the economy was in a
recession. Notice in Chart 2 that precipitous declines in this percentage tend to be followed by
the onset of economic recessions (indicated by the shaded areas in the chart).
The cave-renting windbags say that in a typical housing cycle, the decline is more like 50%...they then conclude that since everyone is calling for a bottom, then they all must be wrong.
I know of NO ONE who says we put the bottom in yet. I know of NO ONE who says its over...When you are desperate and wrong, as the phony windbags have been, your last line of defense is to put words in the other guy's mouth and set up some phony straw man. Every snake-oil salesman does just that.
Housing will continue to be the weakest link in the economy, but will not drag other sectors down into a recession. In past business cycles, weakness in housing was due to tight monetary policy, which influenced not only housing but all other sectors. This time, an extremely loose monetary policy led to over-investment in housing. Now, housing is undergoing its inevitable adjustment to reflect underlying trends in income growth, demographics, and tax policy. In the third quarter, residential construction reduced real GDP growth by 1.2 percentage points, meaning that excluding housing real GDP grew at a 3.4% annual rate. Given the lag between housing starts and the measure of residential construction in the GDP accounts, expect housing to exert similar downward pressure on real GDP growth in the fourth quarter. HOWEVER, expect this downward pressure on real GDP growth to abate in 2007.
Bottom Line: This is not a traditional housing cycle as the scared bears would have you believe. This cycle and downturn has not been caused by a credit crunch. In very sharp contrast, it was produced by a credit bubble and oversupply of money (remember the 1% FF rate?) and resulting housing overbuild. We now have an inventory correction as we return to more normal levels, not a traditional credit crunch correction that is doomed to go lower by yet another 25% to 50%.
The usual segment of the food chain wont be participating the coming fun. DARWINISM at its BEST!
This all seems a little premature to me. Like thinking that a plane crash is survivable before the plane even hits the ground.
The fact is, until the economy and the banking system can absorb the comming wave of forclosures, which is just now beginning, we have no idea what the end result will be and no one else does either.
The forclosures are rising fast and no one argues won't continue to rise. However, banks can still afford to ask market price for houses (that aren't selling in my neighborhood), so the holding costs have not begun to hurt. The actual numbers of forclosures is relatively low so no pain yet. What happens when they aren't so low?
When forclosures are at or near record highs and their growth in numbers seems to be stable and banks are able to withstand the pain....that's when I'll believe we are in for a soft landing.
But to take the pulse of the guy sitting next you, while the plane, plunging toward earth with a wing on fire, is still 2000 feet above the ground and declare that the burning wing is not a fatal problem, seems a little premature.
We may in fact walk away from this, but we won't know till it hits ground.
I have seen, blogging in the last couple of days, folks offering evidence of payments to folks that are foreclosed to leave immediately to prevent damange to house. Evidence that folks that are foreclosed on can get a new mortgage.
If true, then the cycle can just keep on keeping on.
Another thing to keep in mind is that soverign nations are playing with this with resources available that can fight world wars.
If national security is keeping leadership elites alive and well, you can bet that measures to the same full measure as war can be deployed before the ending.
Osama,
The jury is still out on a recession, that's because there hasn't been a credit crunch... yet.
The 2006 vintage subprime MBS are revealing the true credit quality of current home buyers. A handful of mortgage originators have folded in recent months because they had to buy back poorly performing loans.
Some might see that as noise, while others might see that as an indication of greater structural issues.
Another question is who remains to buy up all this inventory? Home ownership has expanded from 65% to 69% of the population in the past few years, and many of those are losing their home, not buying one.
True, many of those individuals may just keep on keepin on....but now the bank has a house that has sitting costs and is in a market competing with others. And those buyers may just add another log to the fire down the way.
We haven't seen how the banks and the resale market deals with this in large numbers. I don't think the pain comes from people getting out and staying out of the market. The crash will be when the credit crunch (or pinch) starts to show up, or fails to show up, in the return the MBS investor demands.
IF the money stays easy and cheap even with high forclosure rates....then it may be goldilocks....but I see too much stuff "pending" to think it's over.
SWAG- back a ways, the government paid farmers not to grow food to keep prices up.
Nothing to prevent the government from buying up all those homes and demolishing them.
Not likely, but what has come to past was not likely either.
Like no one thought that what China is doing by buying $ for Yuan, forcing the Yang holder to buy bonds, and then buying US securities with the $ would ever be done.
A little reality check: ECRI did not call a recession until March 2001, that is after when the Fed had cut rates a couple of 100 basis points, after Nasdaq had cratered, after corporate profits had plunged. Essentially after the party was over. Not very useful from an investment perspective.
So, nothing prevents the ECRI from coming around and calling a recession in March if their indicators then show that the economy is indeed already in one. In other words, they are coincident. Not forecasters.
ITS BEGINNING TO DAWN ON ME WHY SCARED BEARS CAN'T GET IT RIGHT.
BEARS tend to spend all of their time analyzing historical or coincidental data that has long ago been discounted by a forward looking stock market. Its already in the price. The market always looks forward but BEARS continues to navigate the investment highway while looking out the rear view mirror. They are totally preoccupied with yesterday's newspaper. This is a profound fundamental analytical flaw that deploys a methodology that will never let the player get out in front of the curve.
BEARS play a backward looking game, while the market always plays a forward looking game. And right now, the market is focused on the 2H of '07 while BEARS are still flogging and analyzing old and irrelevant trucking, housing and retail data.
The BEAR persona is best described as the "ARTICULATE INCOMPETENT."
When was the last time the consensus of economist/strategist forecasted a recession.
Answer (inho): NO and NEVER
Wrong.
The answer is ALWAYS. Whenever consensus of economist/strategist is saying "there is no recession in sight" the recession ALWAYS hits very soon after that.
The reason is, the times right before the recession are usually the best ones.
Idaho Spud: and it's my understanding that they went tango uniform because of extreeme "delinquent within the first three payments" loans. Wait until lots of FBs with merely bad loans get foreclosed upon.
The trend in the economy right now is one of deceleration, so to me it's more of a reach to assume we'll level off here and have a soft landing than continuing on the current tragectory towards a hard landing. For now though, the Eternal Sunshine of the Uncritical Mind is winning the day.
I'm a pilot, and I loved the plane crash analogy, but pilots spend a lot of their training learning to handle even the most extreme and unlikely of emergency situations. In the current situation, aircraft technology is assumed to be so good that crashes are assumed to be a thing of the past and the pilot is assuming the flashing red lights in the cockpit are strobe lights for the New Year's party.
And CapitalistPig, you sound exactly like so many of the traders I've watched implode over my career. It's the forward looking indicators that are flashing yellow right now, and the lagging indicators that are flashing green still. Hubris and a strong trend are the leading causes of premature career death among arrogant young traders.
Since jobless claims and corporate bond yields are not showing significant signs of stress yet, I don't believe the recession call can be made yet. This can change if CR's construction job losses trigger some changes or if layoffs increase in the New Year since i heard it said (was it CR?) that employers are loath to lay off employees around Christmas.
This is a profound fundamental analytical flaw that deploys a methodology that will never let the player get out in front of the curve.
The flaw in the perma-bull scenario is they read those same papers and project into the future nothing will ever change - that it is all rosy going forward. So miss the big drops.
Miss the run up is no better than enjoying the run up to lose it in the end.
The truth is somewhere in between and 'the market' as a whole misses the 'truth' or there would never be a speculative run up nor would their ever be resultant crashes - the '29s and '87s would never have happened.
That is not to say a few very shrewd or lucky individuals can't nail it both ways... some do. They get in early on the ride up and get out before the big dip down.
But those drops are fast and most folks get trapped if they wait too long. So if not out now, when?
BTW - I've been heavily in the market since about '89. Started in about '83. So while I am pessimistic about long term economic trends (debt & loss of domestic productive capacity)... I'm still in the game - tentatively.
But it is becoming more apparent, at least to me, this continued liquidity, foreign & domestic, is going to float both trash and treasure for a while longer.
The foreign CBs are rebalancing to a more neutral mix between USD & euros - and selling USD assets - that is the story I read.
However it could also be that maybe the hedgies are involved too & dumping long positions in the USD simultaneously - or selling on options before it gets worse. I doubt it is 'short covering' or that would provide support.
Hard to say for sure with my limited access to into. Somethin's up, that's for sure.
The irony is that if the dollar gets weak enough - it forces all the other Asian Tigers to buy USD or let their currencies rise vis-a-vis China (which is all but pegged). So if nothing else - that will provide some support.
And btw pegging to a falling currency can be expensive - China has to pay much more for imported resources when the dollar skids.
There is more to why the dollar moves up or down than whether or not we have a 'recession'.
BR, yes, I mentioned that my company had an informal policy of never letting people go between Thanksgiving and New Years. I think this is fairly common.
BTW, January is always the largest net job loss month of the year (averaging about 2.7 million net jobs lost over the last ten years). About a fourth of this is retail (after the holiday shopping season), but much of this is companies waiting until after the holidays to adjust headcount.
This is true even in good years, and of course the seasonal adjustment accounts for this large net job loss when reported.
Kasriel's charts confirm that the home ATMs are shutting down.
Also: "Firstly, households already have borrowed so much that their leverage ratio is at a post-WWII high (see Chart 13). Secondly, households have already borrowed so much that their debt service burden is at a 25-year record high (see Chart 14). And thirdly, residential real estate, which accounts for 30.5% of the total market value of household assets (see Chart 15), is the single largest asset in households portfolios compared with deposits, credit market instruments, corporate equities (about 44% of which are held on their behalf in pension funds and insurance companies) and other tangible assets. Of these other asset categories, residential real estate probably is the least liquid, aside from used refrigerators (other tangible assets). In sum, households have never been as highly levered as they are now or as illiquid as they are now, and their single largest asset is in danger of actually falling in value. If the Fed had to resume raising interest rates in this environment, it would be Katy, bar the door for household finances!"
Should we assume that inflation is now a second order concern for the Fed given the precariousness of US households?
Also with regard to the US dollar, US-based investors have been buying foreign equities at a record clip this year, which is further pressuring the USD, and there does seem to be a correlation between renewed USD weakness in the second half of this year and the global equities rally. I suspect this will continue into next year, but a lot of these investments will eventually be repatriated back into USD, so it's possible we're getting closer the end game for USD weakness. A portion of the Asian CB flows are mopping up direct and indirect capital flows, as well as trade surpluses.
Looking around Detroit, I'd say we're already in recession. And the housing market here is at depression levels, from my amateur perspective.
Joseph Ellis, author of "Ahead of the Curve, a Commonsense Guide to Forecasting Business and Market Cycles", claims that focusing on whether on not there will be a "recession" is misplaced. "Businesses and investors seemed to feel that, if there were no recession, then everything was basically OK. But, repeatedly, business conditions, corporate profits, and the stock market appeared to suffer badly before recession every came into view."
Where will the income come from to keep the consumer healthy? Until ECRI or the bulls can answer that convincingly, I'll stay on the sidelines...
"In the third quarter, residential construction reduced real GDP growth by 1.2 percentage points, meaning that excluding housing real GDP grew at a 3.4% annual rate."
The demise of the U.S. has been predicted on and off for most of my life. As a kid there was the Cuban missle crisis and personal bomb shelters. In the 70's stagflation was going to sink us. In the 80's everyone predicted we'd turned into a banana republic by Japan in just a couple years. Just before it's breakup in the early 90's a good many people (including the CIA) thought the USSR might actually be winning the cold war. Now the doomssayers say Islamofascism is on the rise and we have no answer. And Iraq has destroyed our credibility and sapped our will. And China is on the rise and will soon overtake us.
The doomfreaks always have and always will speak with the certainty of the righteous that one and only one outcome is possible. And betting against the US will continue to be a sucker bet.
Iâm sorry America isnât working for you, I hear the weather is nice in Havana this time of year.
Contrary to the customary downbeat drumbeat of economic decline, as once again illustrated by David Wesselâs piece in todayâs Wall Street Journal (this guy is the paperâs pessimist-in-chiefâwhen heâs not waging class warfare, he is prayerfully forecasting economic gloom) the most recent numbers actually show a pickup in manufacturing and a bottoming in the housing slump
Simply put, there ainât gonna be any recession.
Ain't gonna happen.
Bear Stearns chief U.S. economist, John Ryding, is now predicting 2.75 percent real GDP growth in Q4. I would label that âGoldilocks plus.â
Goldilocks Plus indeed.
And there ainât no inflation either, as revealed by the recent consumer price reports which showed declining inflation trends.
Bond rates have increased about 30 basis points this month, but the inflation adjusted bond spreads show that itâs a gain in real interest rates that corroborates the better tone in real GDP. Of course, the absolutely phenomenal Goldilocks stock market has been telling us this all along over the past six months.
As economist Arthur Laffer has noted, prosperity-inducing government policies remain in place: low tax rates, steady money, no re-regulation of business, and free trade.
I am ever grateful that this great country of ours provides so many incredible blessings and so many wonderful opportunities.
As a long term bull on America, I think you are lumping alot of us into some category of anti-American, perma-bears. The truth is, at least for me, and I presume from the entries I have read, many others don't see the pending doom of America. I only see a financial situation that looks tenuous. Looking "ahead of the curve" I just don't see where the future growth will come from.
I look in the past and present and see people buying houses they can't afford, using loans that get more expensive, only able to get these loans by lying about how much they make. I see rising forclosures which many predicted a many months ago. I see prices of homes coming down all around me and still not selling. These are things I see and came to this blog and others to see what it means. I have been fully in the market for years and only now have stepped aside because I truly don't know where it's going in the short run but feel down hard is much more likely than up. I don't want to get whacked like I did in 2001 only to take years to get back to where I am.
I am looking forward making an educated guess where its going based upon history, what I see, and logic.
What are you using to look forward? A rising market? Why do you assume the future priced in? What info do you have other than to call us chicken littles?
I think those who buy assetts just because they are going up, and laugh at others who question the fundamentals, are the very people that create bubbles. As Warren Buffet how he feels about missing the "tech boom" of the late 90's. Was the future priced in at Nasdaq 5000?
Perhaps you can respond with some evidence or reasons why anyone should by stocks or a house right now. What do you see in the future (other than the DOW at 12600).
If your answers to whether or not to buy stocks or a house is anything like "stocks have averaged 11% over the last 90 years".....or "a house has always been a great long term investment"......Remember...in your world....past aint prolouge, no looking back to history to gauge the future.....otherwise I'll pull out my Nasdaq 5000 example again.
My belief is that the losses in construction employment are large quite a few areas now, but concentrated among illegals. Thus they don't show in the figures, but they do show up in the sales tax figures, etc.
I think the market is relatively efficient in compensating, but I also believe that we have passed the point of no return regarding household debt loads. Sooner or later, this stuff has to be paid off or written down, and I think we have reached that point.
I am seeing this from the bottom up; I work with smaller and community banks. I see it happening. I expect quite a few more of my clients to be sold within two years, and five already have been or have sales pending. Not that, unfortunately, my business isn't booming, because I am basically part of the banking EMT crew.
In December, I drove past a Chevy dealership with a sign of the times up "Buy a car, get a free condo".
It is interesting that no one mentions that we are at war and the impact of government spending on the war in Iraq and defense contractors on the overall economy.
Clearly if the war was not going on we would see lower manufacturing, less capacity utilization and higher unemployment.
Employment is the key issue going forward in 2007. As long as people have jobs they will spend and borrow.
Should the construction industry lay off the 400,000-600,000 workers (as CR notes) and they not be able to find replacement jobs that will impact growth.
A recession is technically defined as two quarters back to back of negative growth. Anemic +/-1% growth for 4 quarters can be just as devastating.
I beleive the two biggest issues of 2007 will be the dramatic increase in notices of defaults in the first three months of 2007. This will put a rest to the talk of the RE market bottoming and will create significant downward pressure on prices.
The wild card for 2007 is South Dakota Senator Johnson. Should he remain in a coma, this may put a wrench in government in DC. The Republicans are stuck with the Schiavo argument and can not gracefully ask for the Republican governor of South Dakota to appoint a new Senator. The Democrats will take the position that he is still elected and in office even if he is unable to speak. This conundrum may paralyze the country as well.
(I beleive the media has done a terrible job of reporting on this and do not beleive that he is justed sedated 16 days after surgery.)
We should all pray for his speedy recovery. However, it does not appear that the markets have factored this into 2007.
I kept many of the houses that I had built. I didn't even try to sell them. I figured that, because I owned them free and clear, if worse came to worse, I could rent them for less than other investors who had to make payments.
Well, my doomsday scenaro is playing out, and I'm renting $600,000 homes for $1100 per month. My plan is proof, that I'm an idiot. I should have sold as many as I could and just paid the taxes. The market here could easily stay in the toilet for the next five years. By the time it comes back, capital gains taxes will probably be at least 25%. I should have learned from Bush I (Global Crossing) and Bush II (Harkin Oil), to do the old pump and dump. CDs are looking pretty good right now.
By the way, over 50% of the construction workers here are the kind of Mexicans that may not change the unemployment stats.
The American Trucking Associations advanced seasonally adjusted for-hire Truck Tonnage Index plunged 3.6 percent in November after falling 1.9 percent in October.
On a seasonally adjusted basis, the tonnage index fell to 106.8 (2000=100) from 110.8 in October, which is the lowest level since late 2003. The index decreased 8.8 percent compared with a year earlier, marking the largest year-over-year decrease since December 2000. Year-to-date, the truck tonnage index was down 2.8 percent, compared with the same period in 2005. The not seasonally adjusted index decreased 9.5 percent from October to 106.5.
November 2006 marked the single worst month for for-hire truck tonnage since the last recession, said ATA Chief Economist Bob Costello. Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8 percent contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesnt make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.
Trucking serves as a barometer of the U.S. economy because it represents nearly 70 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods.
mp, the tea leaves for retail are hard to read. I'm sure someone is good at it - just not me - so I like to wait for the Census Bureau Advance Monthly Sales numbers. December '06 will be released on January 12, 2007.
An excellent leading indicator. So much of the US economy nowadays is distributional (think WalMart) that this indicator to some extent replaces manufacturing orders, etc.
Detroit Dan
My understanding is that Detroit area has never really pulled out of the last recession. There are analogies to Ohio: what you are seeing is structural (the decline to irrelevance of the US domestic car manufacturers).
As the big 2 (3) go down, they take with them their autoparts manufacturers (already in restructuring) and ancillary industries.
Detroit is toast, as a car making centre and indeed, from what I gather, as an industry, a process that has been ongoing since at least the 1960s.
It is possible that 'new industries' such as biotech especially those springing up around U of M (one of the top universities in the world) may in time, pick up the slack. But US manufacturers with legacy healthcare and pension costs, and unionisation issues cannot compete with manufacturers who don't have these issues.
I should add that if the likes of Steve Ross (I forget the name of his firm: just sold to Amvescap, but he restructured the steel industry) are able to cut those legacy costs, there could be healthy US car companies but the management attitudes are so entrenched, and the competitors so good, that I am not hopeful. And in any case it will be a much smaller industry (with productivity that matches the Japanese, and lower market share, it will employ a lot less people).
is a great website to track the '(mis) fortunes' of Detroit. We used to have a GM dealer who posted on Econbrowser, it was fascinating to see him 'sell' the corporate line.
are also insightful re some of the issues with Detroit (the industry).
The US is not alone in this, but the 'cluster' effect in Detroit (the city and region) is particularly strong, and the associated sociological problems (union v. management, dysfunctional city government etc.). And US ('rust belt') companies have their own particular dysfunctions: in other countries, health care is a government responsibility, not a corporate one.
)
Similar effects are being seen at Wolfsburg (VW) but there you have state and Federal governments trying to mitigate the pain. But the jobs are flowing inexorably to Slovakia and Poland, where wage costs are as little as 1/10th as much.
Detroit might have a future as a kind of service industry centre and a centre of high tech industry. Other midwestern cities are trying to go that way (thinking St. Louis, for example). Certainly Michigan as a whole has that chance. But Detroit seems to start with some particular challenges: long history of people working with their hands, not their brains, high levels of unionisation in those kinds of industries, high urban crime rate (makes creating 'creative clusters' harder).
It has (perhaps undermarketed?) resources. Some great Art Deco buildings (but many, like the train station, in ruins). Motown (here in the UK, I would say 20% of radio tracks are Motown, that is an incredible historic asset). Apparently some real artist colonies (cheap housing). Strong Arab-American (and other ethnic) communities (Dearborn).
Clearly if the war was not going on we would see lower manufacturing, less capacity utilization and higher unemployment.
Disagree. I (and a lot of other people) think that the Iraq war is responsible to a large extent for the present high oil prices, which are sucking money and jobs out of the US.
Remember that during WWII the US was the world's biggest oil exporter.
Is the US occupation of Iraq reducing oil output? About static at 2m b/d, or about what it was pre 2003.
Or do you see it that the US is increasing demand for oil by occupying Iraq?
Or is there some other effect (political nerves?) which is leading other producers to hoard oil, or conversely financial speculators to increase the price of oil?
What in your view is the chain of logic linking occupation of Iraq to a higher oil price?
What is the relevance of US WWII oil production to this debate? (hint: it was much lower than US oil production now).
I think the printing industry's performance is a good near-leading indicator. As much as we'd like to believe technology has replaced paper, it hasn't. Invoices, promotional pieces, brochures are purchased in anticipation of near future business activity.
My contact described the industry as slow-steady.
Those few other economists stamped out like they were incubating bird flu...
There is the view that forecasting is a democratic affair and that the consensus is not only fair and balanced but more accurate...just ask any lemming.
You figure that if I spend all day here, each post will register as a grain of sand that will eventually turn the tide of opinion so that it flows my way...I'm counting on you lemmings to consider this.
Anybody else see this?
2006's Bottom 10:
Crawford Perspectives, -12.5%
Wealthcast Stock Market Letter, -13.0%
Wall Street Digest, -13.8%
Corcoran's Chronicle, -16.6%
Value Line Special Situations Service, -17.9%
Equities Special Situation, -19.8%
Fredhager.com, -22.6%
Spear Report, -23.6%
Charlie Buck's Win Before You Buy, -23.9%
Richard Schmidt's Homerun Stock Alert, -33.3%
Ritholz's Rockets, -54.3%
Roubini's Revelations, -61.5%
Shilling's Selections, (did not hold equities, zero weighting)
Through Nov. 30. Dividend-reinvested Dow Jones Wilshire 5000 up 16.54%.
The pursuit of Truth about the future is always a self-fulfilling prophesy provided I have the microphone and not some band of gypsies that think their globes are the only ones...
The ACRI model seems to be a well modeled black box. Given its producers background, I would take them more seriously then the grab-bag of economic experts that the seem to partake in all those surveys.
Using the two quarters of negative growth definition of a recession, makes for a rather high hurdle, and makes the "official" recession a lagging indicator of the general business downturn.
I take ACRI's pronouncement as a positive sign. But the future data for the real estate sector obviously does not exist, and current data is not very reliable.
Gee, now I will have to go over to Mish's blog to get my daily dose of depression.
But remember the good folks changed the defination of a recession.
From a number of factors that point to recession, including rising unemployment, and slumping industrial production and manufacturing.
To something that predicted the last one when it was over if I remember correctly.
there is NO pick up whatsoever in jobless claims. need those for a recession. i have to second the ECRI on their call right now.
Of course, the conference board also prematurely declared a soft landing in 1990, too. You never know.
The yield curve also seems to agree - it's rapidly flattening out.
Soft landing scare!
Well - I for one - can't argue with the analysis. Until the liquidity spigot is turned off & credit/debt growth is restrained I see no way an 'official recession' happens... RE may go down but something else will bubble up and spill over.
If you 'believe' in markets & capitalism you might be glad we continue to experience growth... but would also have to be keenly aware of the risks posed by the ongoing aggressive credit/debt expansion.
And if you tend toward conservative Friedman & Mise-Austrian style economics (extremely pro-market forces) your view pf this expansion becomes a complete nightmare scenario.
Maybe you aren't so worried if you are more a more liberal Keynesian type...
I'm not a strict follower of either actually... I certainly don't follow the conservative economic dogma so am not completely obsessed with the inevitability of the credit/debt cycle like 'the Austrians'... but I believe they accurately understand what leads to these boom/bust cycles and we are clearly well along that path.
While I don't believe the 'Keynesian Solutions' to an eventual 'credit crisis' will completely moderate the mess - it is better than doing nothing - at least from a political perspective. Think of it as Mise on morphine.
But as long as the CBs continue to expand credit and consumers continue to take on the debt... this can go on.
there is NO pick up whatsoever in jobless claims. need those for a recession.
Well, having seen some recession related layoffs up close and personal (in the dot com bust) my obeservation is that they seem to come fast and hard all at once.
Companies I was working for/with with literally went from rapid hiring to laying off half their staff in the period of a month. In fact it got to the point where these companies were laying off employees that were just hired after they had quit their old job and before they started their new job - signing bonus to severance pay all in one exciting week.
I don't think we'd see a gradual runup in jobless claims leading to recession. I'd expect it to catch most people out of the blue.
Just my experience.
Well - I for one - can't argue with the analysis. Until the liquidity spigot is turned off & credit/debt growth is restrained I see no way an 'official recession' happens... RE may go down but something else will bubble up and spill over.
I agree too, except I think real estate is largely the end of the road. I think the rapid increase in foreclosures is the beginning of the liquidity drying up - at least for the consumer economy.
Where else can the consumer go to borrow $250,000 more than they can pay back? And I think (perhaps optimistically) that the Fed knows what's going on and won't allow any other outlets to materialize (i.e. no buying stocks with 10% margins).
CR, shame on you! You're putting out bait!
The Liquidity spigot is still going very strong- When that stops- Armageddon begins-when? Hard to say, but social and economic cycles change- nothing goes on forever.
"Well - I for one - can't argue with the analysis. Until the liquidity spigot is turned off & credit/debt growth is restrained I see no way an 'official recession' happens... RE may go down but something else will bubble up and spill over."
To me, the question is whether the liquidity spigot can flow as fast as credit contracts when the forclosures start to hit. Lots of people who bought from mid-2005 to mid-2006 are underwater. People with low or negative CLTV can't refi their way out of their problems. Somebody will have to eat those loans.
I don't think we'd see a gradual runup in jobless claims leading to recession. I'd expect it to catch most people out of the blue.
I agree - everything happens faster today... communication is the reason.
Execs don't have to wait for the pony express & the bean counters to manually count the beans... now their ERP systems give 'em pop up windows every morning telling them to 'buy hog belly futures' or 'lay off' as soon as they log in.
An exaggeration but not by much.
To me, the question is whether the liquidity spigot can flow as fast as credit contracts when the forclosures start to hit.
Well so far the markets are betting the 'financial pipefitters' at the respective CBs around the world can keep up.
I'm not sure how long it will continue but am reluctant to doubt them until I'm shown hard evidence it is over (as opposed to just 'reason' & 'logic').
I hate to sound like a 'polite' version of patrick... but the reality is so far the supply of liquidity has MORE THAN kept up with demand.
Key terms: so far.
Shew! That was a close one!
Questions for soft landing crowd:
Have we, as an economy, found a way of abolishing recessions ( using one crude tool, i.e. short term fed funds rate)? No more overcapacity, inventory overhang, change in consumer behaviour?
When was the last time the consensus of economist/strategist forecasted a recession.
Answer (inho): NO and NEVER
In my view, as soft landing is wishful thinking. If we get a soft landing with housing in a recession, manufactring in recession our domestic car manufacturing in real slowdown our external deficits in record territory, a very tired consumer etc etc....I guess we will never have a recession again, (because all the fed has to do is lower rates).......dream on!!!
I would hate like hell to believe that those who predict a soft landing (not those on this site, but outside this site) have a hidden agenda.
Is there any constituency in the United States that needs a soft landing? Needs it badly?
I would look first at the Bush administration. Dead last on the list of things it needs is a hard landing. Dead last. It would be a complete killer for them.
And definitely, very definitely, Mr. Bernanke is in the bulls eye. Boy, is he ever! I wonder if the phone has already rung?
I agree that there is no recession in the next 3-4 months.
Is that how long they care about?
Here is what I'm waiting for:
Bush, probably through his surrogates, starts saying that it is all right to lower interest rates, because we're going to have a soft landing.
They're not going to get a tax cut. Door has closed on that one.
So, they need lower interest rates to keep things going.
And watch the dollar. If you have a very, very strong stomach.
coming to a neighborhood near you?
All Things Considered, December 8, 2006 · A move from the city to the suburbs used to signal prosperity for American families. But last year, the number of poor suburbanites outnumbered poor people in cities by 1 million for the first time. That startling statistic is part of a new report that examines poverty trends in the first part of the decade.
"Is there any constituency in the United States that needs a soft landing? Needs it badly?"
American workers?
"I hate to sound like a 'polite' version of patrick... but the reality is so far the supply of liquidity has MORE THAN kept up with demand."
But demand is not keeping up with supply.
Paul L. Kasriel
Director of
Economic Research
312.444.4145
312.557.2675 fax
plk1@ntrs.com
I love the Feds quarterly flow-of-funds report. It usually is the mother lode of enlightening
economic nuggets of information. And the Feds latest release on
December 7 of third-quarter data was rich with these nuggets. For starters, the decline in U.S.
bond yields in recent months is less of a mystery when you take into consideration the sharp
slowdown in the rate of domestic nonfinancial borrowing. Chart 1 illustrates the point.
Relative to nominal GDP, nonfinancial domestic borrowing (i.e., the annualized dollar change
in debt outstanding) peaked at 19.7% in Q4:2005, moving down to 13.9% in Q3:2006 the
lowest percentage since Q4:2003.
Chart 1
Domestic Nonfinancial SectorsCredit Mkt. Borrowing / Nominal GDP
%
Although not the only nonfinancial sector accounting for this slowdown in borrowing, the
household sector was the principal one. Chart 2 shows that after hitting a post-WWII high of
14.6% in Q3:2005, household borrowing relative to disposable personal income (DPI)
dropped to 8.8% in Q3:2006 the lowest since 7.6% in Q3:2001, when the economy was in a
recession. Notice in Chart 2 that precipitous declines in this percentage tend to be followed by
the onset of economic recessions (indicated by the shaded areas in the chart).
The cave-renting windbags say that in a typical housing cycle, the decline is more like 50%...they then conclude that since everyone is calling for a bottom, then they all must be wrong.
I know of NO ONE who says we put the bottom in yet. I know of NO ONE who says its over...When you are desperate and wrong, as the phony windbags have been, your last line of defense is to put words in the other guy's mouth and set up some phony straw man. Every snake-oil salesman does just that.
Housing will continue to be the weakest link in the economy, but will not drag other sectors down into a recession. In past business cycles, weakness in housing was due to tight monetary policy, which influenced not only housing but all other sectors. This time, an extremely loose monetary policy led to over-investment in housing. Now, housing is undergoing its inevitable adjustment to reflect underlying trends in income growth, demographics, and tax policy. In the third quarter, residential construction reduced real GDP growth by 1.2 percentage points, meaning that excluding housing real GDP grew at a 3.4% annual rate. Given the lag between housing starts and the measure of residential construction in the GDP accounts, expect housing to exert similar downward pressure on real GDP growth in the fourth quarter. HOWEVER, expect this downward pressure on real GDP growth to abate in 2007.
Bottom Line: This is not a traditional housing cycle as the scared bears would have you believe. This cycle and downturn has not been caused by a credit crunch. In very sharp contrast, it was produced by a credit bubble and oversupply of money (remember the 1% FF rate?) and resulting housing overbuild. We now have an inventory correction as we return to more normal levels, not a traditional credit crunch correction that is doomed to go lower by yet another 25% to 50%.
The usual segment of the food chain wont be participating the coming fun. DARWINISM at its BEST!
i bet in 1981-82 as they cranked rates up to one million % there was consensus that there would be a recession.
This all seems a little premature to me. Like thinking that a plane crash is survivable before the plane even hits the ground.
The fact is, until the economy and the banking system can absorb the comming wave of forclosures, which is just now beginning, we have no idea what the end result will be and no one else does either.
The forclosures are rising fast and no one argues won't continue to rise. However, banks can still afford to ask market price for houses (that aren't selling in my neighborhood), so the holding costs have not begun to hurt. The actual numbers of forclosures is relatively low so no pain yet. What happens when they aren't so low?
When forclosures are at or near record highs and their growth in numbers seems to be stable and banks are able to withstand the pain....that's when I'll believe we are in for a soft landing.
But to take the pulse of the guy sitting next you, while the plane, plunging toward earth with a wing on fire, is still 2000 feet above the ground and declare that the burning wing is not a fatal problem, seems a little premature.
We may in fact walk away from this, but we won't know till it hits ground.
Foreclosures are the ending of it.
I have seen, blogging in the last couple of days, folks offering evidence of payments to folks that are foreclosed to leave immediately to prevent damange to house. Evidence that folks that are foreclosed on can get a new mortgage.
If true, then the cycle can just keep on keeping on.
Another thing to keep in mind is that soverign nations are playing with this with resources available that can fight world wars.
If national security is keeping leadership elites alive and well, you can bet that measures to the same full measure as war can be deployed before the ending.
"I see Debt People." -- HARM.
Osama,
The jury is still out on a recession, that's because there hasn't been a credit crunch... yet.
The 2006 vintage subprime MBS are revealing the true credit quality of current home buyers. A handful of mortgage originators have folded in recent months because they had to buy back poorly performing loans.
Some might see that as noise, while others might see that as an indication of greater structural issues.
Another question is who remains to buy up all this inventory? Home ownership has expanded from 65% to 69% of the population in the past few years, and many of those are losing their home, not buying one.
Food for thought.
Why is the dollar tanking?
Vader,
True, many of those individuals may just keep on keepin on....but now the bank has a house that has sitting costs and is in a market competing with others. And those buyers may just add another log to the fire down the way.
We haven't seen how the banks and the resale market deals with this in large numbers. I don't think the pain comes from people getting out and staying out of the market. The crash will be when the credit crunch (or pinch) starts to show up, or fails to show up, in the return the MBS investor demands.
IF the money stays easy and cheap even with high forclosure rates....then it may be goldilocks....but I see too much stuff "pending" to think it's over.
Average Joe
SWAG- back a ways, the government paid farmers not to grow food to keep prices up.
Nothing to prevent the government from buying up all those homes and demolishing them.
Not likely, but what has come to past was not likely either.
Like no one thought that what China is doing by buying $ for Yuan, forcing the Yang holder to buy bonds, and then buying US securities with the $ would ever be done.
A little reality check: ECRI did not call a recession until March 2001, that is after when the Fed had cut rates a couple of 100 basis points, after Nasdaq had cratered, after corporate profits had plunged. Essentially after the party was over. Not very useful from an investment perspective.
So, nothing prevents the ECRI from coming around and calling a recession in March if their indicators then show that the economy is indeed already in one. In other words, they are coincident. Not forecasters.
ITS BEGINNING TO DAWN ON ME WHY SCARED BEARS CAN'T GET IT RIGHT.
BEARS tend to spend all of their time analyzing historical or coincidental data that has long ago been discounted by a forward looking stock market. Its already in the price. The market always looks forward but BEARS continues to navigate the investment highway while looking out the rear view mirror. They are totally preoccupied with yesterday's newspaper. This is a profound fundamental analytical flaw that deploys a methodology that will never let the player get out in front of the curve.
BEARS play a backward looking game, while the market always plays a forward looking game. And right now, the market is focused on the 2H of '07 while BEARS are still flogging and analyzing old and irrelevant trucking, housing and retail data.
The BEAR persona is best described as the "ARTICULATE INCOMPETENT."
Wrong.
The answer is ALWAYS. Whenever consensus of economist/strategist is saying "there is no recession in sight" the recession ALWAYS hits very soon after that.
The reason is, the times right before the recession are usually the best ones.
Idaho Spud: and it's my understanding that they went tango uniform because of extreeme "delinquent within the first three payments" loans. Wait until lots of FBs with merely bad loans get foreclosed upon.
The trend in the economy right now is one of deceleration, so to me it's more of a reach to assume we'll level off here and have a soft landing than continuing on the current tragectory towards a hard landing. For now though, the Eternal Sunshine of the Uncritical Mind is winning the day.
I'm a pilot, and I loved the plane crash analogy, but pilots spend a lot of their training learning to handle even the most extreme and unlikely of emergency situations. In the current situation, aircraft technology is assumed to be so good that crashes are assumed to be a thing of the past and the pilot is assuming the flashing red lights in the cockpit are strobe lights for the New Year's party.
And CapitalistPig, you sound exactly like so many of the traders I've watched implode over my career. It's the forward looking indicators that are flashing yellow right now, and the lagging indicators that are flashing green still. Hubris and a strong trend are the leading causes of premature career death among arrogant young traders.
I'm following ECRI's projections closely since I believe they are independent. However articles such as these give me pause:
Recession over. ECRI says so! - MarketThoughts.com
Since jobless claims and corporate bond yields are not showing significant signs of stress yet, I don't believe the recession call can be made yet. This can change if CR's construction job losses trigger some changes or if layoffs increase in the New Year since i heard it said (was it CR?) that employers are loath to lay off employees around Christmas.
This is a profound fundamental analytical flaw that deploys a methodology that will never let the player get out in front of the curve.
The flaw in the perma-bull scenario is they read those same papers and project into the future nothing will ever change - that it is all rosy going forward. So miss the big drops.
Miss the run up is no better than enjoying the run up to lose it in the end.
The truth is somewhere in between and 'the market' as a whole misses the 'truth' or there would never be a speculative run up nor would their ever be resultant crashes - the '29s and '87s would never have happened.
That is not to say a few very shrewd or lucky individuals can't nail it both ways... some do. They get in early on the ride up and get out before the big dip down.
But those drops are fast and most folks get trapped if they wait too long. So if not out now, when?
BTW - I've been heavily in the market since about '89. Started in about '83. So while I am pessimistic about long term economic trends (debt & loss of domestic productive capacity)... I'm still in the game - tentatively.
But it is becoming more apparent, at least to me, this continued liquidity, foreign & domestic, is going to float both trash and treasure for a while longer.
I'll probably get trapped like all the rest.
Why is the dollar tanking?
The foreign CBs are rebalancing to a more neutral mix between USD & euros - and selling USD assets - that is the story I read.
However it could also be that maybe the hedgies are involved too & dumping long positions in the USD simultaneously - or selling on options before it gets worse. I doubt it is 'short covering' or that would provide support.
Hard to say for sure with my limited access to into. Somethin's up, that's for sure.
The irony is that if the dollar gets weak enough - it forces all the other Asian Tigers to buy USD or let their currencies rise vis-a-vis China (which is all but pegged). So if nothing else - that will provide some support.
And btw pegging to a falling currency can be expensive - China has to pay much more for imported resources when the dollar skids.
There is more to why the dollar moves up or down than whether or not we have a 'recession'.
BR, yes, I mentioned that my company had an informal policy of never letting people go between Thanksgiving and New Years. I think this is fairly common.
BTW, January is always the largest net job loss month of the year (averaging about 2.7 million net jobs lost over the last ten years). About a fourth of this is retail (after the holiday shopping season), but much of this is companies waiting until after the holidays to adjust headcount.
This is true even in good years, and of course the seasonal adjustment accounts for this large net job loss when reported.
Best Wishes.
Kasriel's charts confirm that the home ATMs are shutting down.
Also: "Firstly, households already have borrowed so much that their leverage ratio is at a post-WWII high (see Chart 13). Secondly, households have already borrowed so much that their debt service burden is at a 25-year record high (see Chart 14). And thirdly, residential real estate, which accounts for 30.5% of the total market value of household assets (see Chart 15), is the single largest asset in households portfolios compared with deposits, credit market instruments, corporate equities (about 44% of which are held on their behalf in pension funds and insurance companies) and other tangible assets. Of these other asset categories, residential real estate probably is the least liquid, aside from used refrigerators (other tangible assets). In sum, households have never been as highly levered as they are now or as illiquid as they are now, and their single largest asset is in danger of actually falling in value. If the Fed had to resume raising interest rates in this environment, it would be Katy, bar the door for household finances!"
Should we assume that inflation is now a second order concern for the Fed given the precariousness of US households?
Also with regard to the US dollar, US-based investors have been buying foreign equities at a record clip this year, which is further pressuring the USD, and there does seem to be a correlation between renewed USD weakness in the second half of this year and the global equities rally. I suspect this will continue into next year, but a lot of these investments will eventually be repatriated back into USD, so it's possible we're getting closer the end game for USD weakness. A portion of the Asian CB flows are mopping up direct and indirect capital flows, as well as trade surpluses.
Looking around Detroit, I'd say we're already in recession. And the housing market here is at depression levels, from my amateur perspective.
Joseph Ellis, author of "Ahead of the Curve, a Commonsense Guide to Forecasting Business and Market Cycles", claims that focusing on whether on not there will be a "recession" is misplaced. "Businesses and investors seemed to feel that, if there were no recession, then everything was basically OK. But, repeatedly, business conditions, corporate profits, and the stock market appeared to suffer badly before recession every came into view."
Where will the income come from to keep the consumer healthy? Until ECRI or the bulls can answer that convincingly, I'll stay on the sidelines...
"I would look first at the Bush administration. "
I don't understand people's obsession with this guy. He is not a top forty president. He'll be gone in a while.
There are other sources of woe in the universe.
Patrick wrote:
"In the third quarter, residential construction reduced real GDP growth by 1.2 percentage points, meaning that excluding housing real GDP grew at a 3.4% annual rate."
3.2%. Please try to keep up with current events.
The demise of the U.S. has been predicted on and off for most of my life. As a kid there was the Cuban missle crisis and personal bomb shelters. In the 70's stagflation was going to sink us. In the 80's everyone predicted we'd turned into a banana republic by Japan in just a couple years. Just before it's breakup in the early 90's a good many people (including the CIA) thought the USSR might actually be winning the cold war. Now the doomssayers say Islamofascism is on the rise and we have no answer. And Iraq has destroyed our credibility and sapped our will. And China is on the rise and will soon overtake us.
The doomfreaks always have and always will speak with the certainty of the righteous that one and only one outcome is possible. And betting against the US will continue to be a sucker bet.
Iâm sorry America isnât working for you, I hear the weather is nice in Havana this time of year.
Contrary to the customary downbeat drumbeat of economic decline, as once again illustrated by David Wesselâs piece in todayâs Wall Street Journal (this guy is the paperâs pessimist-in-chiefâwhen heâs not waging class warfare, he is prayerfully forecasting economic gloom) the most recent numbers actually show a pickup in manufacturing and a bottoming in the housing slump
Simply put, there ainât gonna be any recession.
Ain't gonna happen.
Bear Stearns chief U.S. economist, John Ryding, is now predicting 2.75 percent real GDP growth in Q4. I would label that âGoldilocks plus.â
Goldilocks Plus indeed.
And there ainât no inflation either, as revealed by the recent consumer price reports which showed declining inflation trends.
Bond rates have increased about 30 basis points this month, but the inflation adjusted bond spreads show that itâs a gain in real interest rates that corroborates the better tone in real GDP. Of course, the absolutely phenomenal Goldilocks stock market has been telling us this all along over the past six months.
As economist Arthur Laffer has noted, prosperity-inducing government policies remain in place: low tax rates, steady money, no re-regulation of business, and free trade.
I am ever grateful that this great country of ours provides so many incredible blessings and so many wonderful opportunities.
CapitalistPig and Market Surfer,
As a long term bull on America, I think you are lumping alot of us into some category of anti-American, perma-bears. The truth is, at least for me, and I presume from the entries I have read, many others don't see the pending doom of America. I only see a financial situation that looks tenuous. Looking "ahead of the curve" I just don't see where the future growth will come from.
I look in the past and present and see people buying houses they can't afford, using loans that get more expensive, only able to get these loans by lying about how much they make. I see rising forclosures which many predicted a many months ago. I see prices of homes coming down all around me and still not selling. These are things I see and came to this blog and others to see what it means. I have been fully in the market for years and only now have stepped aside because I truly don't know where it's going in the short run but feel down hard is much more likely than up. I don't want to get whacked like I did in 2001 only to take years to get back to where I am.
I am looking forward making an educated guess where its going based upon history, what I see, and logic.
What are you using to look forward? A rising market? Why do you assume the future priced in? What info do you have other than to call us chicken littles?
I think those who buy assetts just because they are going up, and laugh at others who question the fundamentals, are the very people that create bubbles. As Warren Buffet how he feels about missing the "tech boom" of the late 90's. Was the future priced in at Nasdaq 5000?
Perhaps you can respond with some evidence or reasons why anyone should by stocks or a house right now. What do you see in the future (other than the DOW at 12600).
P.S.
If your answers to whether or not to buy stocks or a house is anything like "stocks have averaged 11% over the last 90 years".....or "a house has always been a great long term investment"......Remember...in your world....past aint prolouge, no looking back to history to gauge the future.....otherwise I'll pull out my Nasdaq 5000 example again.
My belief is that the losses in construction employment are large quite a few areas now, but concentrated among illegals. Thus they don't show in the figures, but they do show up in the sales tax figures, etc.
I think the market is relatively efficient in compensating, but I also believe that we have passed the point of no return regarding household debt loads. Sooner or later, this stuff has to be paid off or written down, and I think we have reached that point.
I am seeing this from the bottom up; I work with smaller and community banks. I see it happening. I expect quite a few more of my clients to be sold within two years, and five already have been or have sales pending. Not that, unfortunately, my business isn't booming, because I am basically part of the banking EMT crew.
In December, I drove past a Chevy dealership with a sign of the times up "Buy a car, get a free condo".
It is interesting that no one mentions that we are at war and the impact of government spending on the war in Iraq and defense contractors on the overall economy.
Clearly if the war was not going on we would see lower manufacturing, less capacity utilization and higher unemployment.
Employment is the key issue going forward in 2007. As long as people have jobs they will spend and borrow.
Should the construction industry lay off the 400,000-600,000 workers (as CR notes) and they not be able to find replacement jobs that will impact growth.
A recession is technically defined as two quarters back to back of negative growth. Anemic +/-1% growth for 4 quarters can be just as devastating.
I beleive the two biggest issues of 2007 will be the dramatic increase in notices of defaults in the first three months of 2007. This will put a rest to the talk of the RE market bottoming and will create significant downward pressure on prices.
The wild card for 2007 is South Dakota Senator Johnson. Should he remain in a coma, this may put a wrench in government in DC. The Republicans are stuck with the Schiavo argument and can not gracefully ask for the Republican governor of South Dakota to appoint a new Senator. The Democrats will take the position that he is still elected and in office even if he is unable to speak. This conundrum may paralyze the country as well.
(I beleive the media has done a terrible job of reporting on this and do not beleive that he is justed sedated 16 days after surgery.)
We should all pray for his speedy recovery. However, it does not appear that the markets have factored this into 2007.
Happy New Years and Good Health to all.
I kept many of the houses that I had built. I didn't even try to sell them. I figured that, because I owned them free and clear, if worse came to worse, I could rent them for less than other investors who had to make payments.
Well, my doomsday scenaro is playing out, and I'm renting $600,000 homes for $1100 per month. My plan is proof, that I'm an idiot. I should have sold as many as I could and just paid the taxes. The market here could easily stay in the toilet for the next five years. By the time it comes back, capital gains taxes will probably be at least 25%. I should have learned from Bush I (Global Crossing) and Bush II (Harkin Oil), to do the old pump and dump. CDs are looking pretty good right now.
By the way, over 50% of the construction workers here are the kind of Mexicans that may not change the unemployment stats.
Anyone have any thoughts on the ATA Tonnage Index?
From what I hear, trucking numbers are the worst in six years.
Anyone read anything about post-Christmas gift card redemptions?
mp and BR, here is the trucking release:
ATA Truck Tonnage Index Plummeted 3.6 percent in November
The American Trucking Associations advanced seasonally adjusted for-hire Truck Tonnage Index plunged 3.6 percent in November after falling 1.9 percent in October.
On a seasonally adjusted basis, the tonnage index fell to 106.8 (2000=100) from 110.8 in October, which is the lowest level since late 2003. The index decreased 8.8 percent compared with a year earlier, marking the largest year-over-year decrease since December 2000. Year-to-date, the truck tonnage index was down 2.8 percent, compared with the same period in 2005. The not seasonally adjusted index decreased 9.5 percent from October to 106.5.
November 2006 marked the single worst month for for-hire truck tonnage since the last recession, said ATA Chief Economist Bob Costello. Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8 percent contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesnt make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.
Trucking serves as a barometer of the U.S. economy because it represents nearly 70 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods.
Best to all.
Supposedly, retailers are counting on gift cards big time, but aren't gift cards usually purchased with credit cards?
I ask because Visa reported Christmas below expectations.
CR, thanks for the trucking update! Now, are there any retail analysts out there?
mp, the tea leaves for retail are hard to read. I'm sure someone is good at it - just not me - so I like to wait for the Census Bureau Advance Monthly Sales numbers. December '06 will be released on January 12, 2007.
Best Wishes.
Just a thought. What happens to all the liquidity entering the system if there are no more bubbles to inflate?
Frank
good analysis especially re politics. Thank you.
CR
An excellent leading indicator. So much of the US economy nowadays is distributional (think WalMart) that this indicator to some extent replaces manufacturing orders, etc.
Detroit Dan
My understanding is that Detroit area has never really pulled out of the last recession. There are analogies to Ohio: what you are seeing is structural (the decline to irrelevance of the US domestic car manufacturers).
As the big 2 (3) go down, they take with them their autoparts manufacturers (already in restructuring) and ancillary industries.
Detroit is toast, as a car making centre and indeed, from what I gather, as an industry, a process that has been ongoing since at least the 1960s.
It is possible that 'new industries' such as biotech especially those springing up around U of M (one of the top universities in the world) may in time, pick up the slack. But US manufacturers with legacy healthcare and pension costs, and unionisation issues cannot compete with manufacturers who don't have these issues.
I should add that if the likes of Steve Ross (I forget the name of his firm: just sold to Amvescap, but he restructured the steel industry) are able to cut those legacy costs, there could be healthy US car companies but the management attitudes are so entrenched, and the competitors so good, that I am not hopeful. And in any case it will be a much smaller industry (with productivity that matches the Japanese, and lower market share, it will employ a lot less people).
General Motors Death Watch 105: Bob Lutz Screws the Pooch | The Truth About Cars
is a great website to track the '(mis) fortunes' of Detroit. We used to have a GM dealer who posted on Econbrowser, it was fascinating to see him 'sell' the corporate line.
gladwell dot com - The Risk Pool
gladwell dot com - big and bad
are also insightful re some of the issues with Detroit (the industry).
The US is not alone in this, but the 'cluster' effect in Detroit (the city and region) is particularly strong, and the associated sociological problems (union v. management, dysfunctional city government etc.). And US ('rust belt') companies have their own particular dysfunctions: in other countries, health care is a government responsibility, not a corporate one.
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Similar effects are being seen at Wolfsburg (VW) but there you have state and Federal governments trying to mitigate the pain. But the jobs are flowing inexorably to Slovakia and Poland, where wage costs are as little as 1/10th as much.
Detroit might have a future as a kind of service industry centre and a centre of high tech industry. Other midwestern cities are trying to go that way (thinking St. Louis, for example). Certainly Michigan as a whole has that chance. But Detroit seems to start with some particular challenges: long history of people working with their hands, not their brains, high levels of unionisation in those kinds of industries, high urban crime rate (makes creating 'creative clusters' harder).
It has (perhaps undermarketed?) resources. Some great Art Deco buildings (but many, like the train station, in ruins). Motown (here in the UK, I would say 20% of radio tracks are Motown, that is an incredible historic asset). Apparently some real artist colonies (cheap housing). Strong Arab-American (and other ethnic) communities (Dearborn).
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Clearly if the war was not going on we would see lower manufacturing, less capacity utilization and higher unemployment.
Disagree. I (and a lot of other people) think that the Iraq war is responsible to a large extent for the present high oil prices, which are sucking money and jobs out of the US.
Remember that during WWII the US was the world's biggest oil exporter.
yogurt
Take us through your model.
Is the US occupation of Iraq reducing oil output? About static at 2m b/d, or about what it was pre 2003.
Or do you see it that the US is increasing demand for oil by occupying Iraq?
Or is there some other effect (political nerves?) which is leading other producers to hoard oil, or conversely financial speculators to increase the price of oil?
What in your view is the chain of logic linking occupation of Iraq to a higher oil price?
What is the relevance of US WWII oil production to this debate? (hint: it was much lower than US oil production now).
I think the printing industry's performance is a good near-leading indicator. As much as we'd like to believe technology has replaced paper, it hasn't. Invoices, promotional pieces, brochures are purchased in anticipation of near future business activity.
My contact described the industry as slow-steady.