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Robert Shiller Discusses Double Dips-New
Old 05-25-2010, 11:42 AM   #1
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Robert Shiller Discusses Double Dips-New

Economic View - Fear of a Double-Dip Recession Could Cause One - NYTimes.com

Just call me Pollyanna.

Ha
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Old 05-25-2010, 12:28 PM   #2
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I use a definition of a double-dip recession that doesn’t emphasize the short term. Instead, I see it as beginning with a recession in which unemployment rises to a high level and then falls at a disappointingly slow rate. Before employment returns to normal, there is a second recession. As long as economic recovery isn’t complete, that’s a double-dip recession, even if there are years between the declines.
I think most folks would consider a double dip when the second dip happens soon after the first recovery. Shiller's definition is so loose he's bound to be right. ECRI has been saying this since the middle of last year.

This was interesting
Quote:
Since 1989, I have been compiling the Buy-on-Dips Stock Market Confidence Index, now produced by the Yale School of Management. It shows that confidence to buy on market dips has been declining steadily for individual investors since 2009. (The measure is holding steady for institutional investors.) Will individuals continue to support the market, which is now highly priced?
Confidence indexes and other measures of public thinking show gradual trends, often over years, that don’t match up precisely with economic events, which are often sudden. We need to look at short-run events, like the market reaction to the Greek bailout, as no more than side effects. Slowly moving changes in our animal spirits represent the real risk of a double-dip recession.
Is he saying the market is expensive but we should still be be buying on the dip.
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Old 05-25-2010, 12:35 PM   #3
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Shiller's double dip:
"A recession in which unemployment rises to a high level and then falls at a disappointingly slow rate. Before employment returns to normal, there is a second recession. As long as economic recovery isn’t complete, that’s a double-dip recession, even if there are years between the declines."

I could see that happening per his definition. We are what, 1 to 1.5 years into the economic expansion? These expansionary cycles typically last 4-5 years. There is a potential that in 2.5 years we might see the start of another recession, and I believe the economic forecasts are saying the labor market will still be weak in 2012.

The labor market isn't nearly as bad as it was in 1933-1937, the last period of economic expansion sandwiched between two recessions (aka the Great Depression).
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Old 05-25-2010, 12:45 PM   #4
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Originally Posted by MichaelB View Post
I think most folks would consider a double dip when the second dip happens soon after the first recovery. Shiller's definition is so loose he's bound to be right. ECRI has been saying this since the middle of last year.

This was interesting
Is he saying the market is expensive but we should still be be buying on the dip.
I think Shiller's definition is more likely right than yours. Otherwise the double dip of the Great D wouldn't be one, since they were 4+ years apart. And I think "most folks" would call that the perfect example of a double dip. I don't think that his definition is loose at all. Tying it to unemployment levels gives a very tight requirement that shows the impact of the economy on people. When unemployment hasn't recovered, a bull market doesn't help much.

That said, I'm with Ha. Hap, hap hap hap hap hap happy thoughts...
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Old 05-25-2010, 01:45 PM   #5
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I recall some discussion on other boards about this around 8-12 years ago- those discussions centered around more the tech bubble bursting starting a 20 year bear with some many mini bulls in between (which appears to be accurate depending on how you define things).

Quote:
In fact, there is still a real risk of a double-dip recession, though it can’t be quantified by the statistical models that economists use for forecasts. Instead, the danger stems from the weakness and vulnerability of confidence — whose decline could bring markets down, further stress balance sheets and cause cuts in consumption, investment and local government expenditures.
I would use this to suggest confidence pre-2000 and confidence since then have not recovered.

Quote:
Many negative factors persisted between those dips. High among them was a widespread sense then that something was amiss with the economy. There was a feeling of uncertainty that discouraged entrepreneurship, lending and spending, and most important, hiring.

We have to deal with a similar — though less extreme — problem today. Many of us are unsettled by images that are preventing a return to normal confidence — images of rioting in Athens, or of baffled American traders during the nearly 10 percent drop in the stock market on May 6. And if the BP oil spill is not soon contained, and eventually wreaks havoc on the gulf economy, we may need to add it to the list, too.
1997-1999 was when I began investing... so I am not too sure how long the bull was going prior to March of 2000. What appears to be true (to me) is that the market has not sustained too much "year over year" since 2000, or one pure 5 year upswing is too short a time period to think of sustained success (was 2002-2007 a bull, or part of a bigger bear in which stocks performed well for a short period of time).
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Old 05-25-2010, 01:55 PM   #6
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Quote:
Originally Posted by MichaelB View Post
I think most folks would consider a double dip when the second dip happens soon after the first recovery. Shiller's definition is so loose he's bound to be right. ECRI has been saying this since the middle of last year.

This was interesting
Is he saying the market is expensive but we should still be be buying on the dip.
ECRI has been specifically saying NO double dip. Or at least as far out as they can model.
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Old 05-25-2010, 01:58 PM   #7
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Originally Posted by MichaelB View Post
I think most folks would consider a double dip when the second dip happens soon after the first recovery. Shiller's definition is so loose he's bound to be right. ECRI has been saying this since the middle of last year.

This was interesting
Is he saying the market is expensive but we should still be be buying on the dip.
I don't think so. He is referring to a survey which asks people
Quote:
If the Dow dropped 3% tomorrow, I would guess that the day after tomorrow the Dow would:
1. Increase. Give percent:___________
2. Decrease. Give percent:___________
3. Stay the same.
4. No opinion.

The Buy-On-Dips Confidence Index is the number of respondents who choose 1 (increase) as a percent of those who chose 1, 2 or 3. This question was never changed over the twelve years.
This is one measure of "investor confidence in the long-term health of the economy".

Shiller is saying that investor confidence is weak, and the lack of confidence itself is a factor arguing for some future downturn.

The International Center for Finance at the Yale School of Management
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Old 05-25-2010, 02:20 PM   #8
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Originally Posted by MichaelB View Post
I think most folks would consider a double dip when the second dip happens soon after the first recovery. Shiller's definition is so loose he's bound to be right.

I agree.

That's a pretty unconventional definition. Considering that most economists think it could take 7 years or more to reach full employment from current levels, the chances of another recession hitting before that point is pretty close to a certainty.

So he's almost certainly right, but not in a way that the headline suggests.
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Old 05-25-2010, 04:01 PM   #9
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The labor market isn't nearly as bad as it was in 1933-1937, the last period of economic expansion sandwiched between two recessions (aka the Great Depression).
Perhaps not. But if you remove social insurance from the equation and look at the "real" unemployment and underemployment rate instead of the ones quoted by the government, I suspect we're a fair bit closer to that 1933-37 labor market than many realize.
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Old 05-25-2010, 04:12 PM   #10
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Originally Posted by MichaelB View Post
I think most folks would consider a double dip when the second dip happens soon after the first recovery. Shiller's definition is so loose he's bound to be right. ECRI has been saying this since the middle of last year.
It may be that in postwar times the US has never had a recovery without an employment recovery. He does give the precendent in the 1930s. To me the situation and the history is important, not the name. I am not enough of a historian to know, but this would make it different from all prior recoveries. I suppose you could call this situation wahtever you wanted, but Shiller has decided to call it a coulble dip and he explains why.

Quote:
Is he saying the market is expensive but we should still be be buying on the dip.
I don't read it that way. His writing is desriptive, not prescriptive.

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Old 05-25-2010, 04:29 PM   #11
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Perhaps not. But if you remove social insurance from the equation and look at the "real" unemployment and underemployment rate instead of the ones quoted by the government, I suspect we're a fair bit closer to that 1933-37 labor market than many realize.
The intervening 75 years have also seen all of us grow much wealthier in general in real terms. So we have more wealth now (on average) and hence more to live off of during rough times. It is easier to downsize when you have upsized for 75 years!

I wish I had a better grasp for how bad it really was in the 1930's economically. I get the feeling that with the deflation and severe unemployment and underemployment of the time it was significantly worse than it is today. But the presence of so many social safety nets today blunt the force of the economic downturn. My buddy the engineer who is in his ninth month of unemployment isn't hurting much. He pays his mortgage and just has to drink crappier beer. Otherwise is getting along just fine. Once his dole checks run out in another year or so, he may start panicking and at that point take any job that comes his way.
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Old 05-25-2010, 08:39 PM   #12
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I think Shiller's definition is more likely right than yours. Otherwise the double dip of the Great D wouldn't be one, since they were 4+ years apart. And I think "most folks" would call that the perfect example of a double dip. I don't think that his definition is loose at all. Tying it to unemployment levels gives a very tight requirement that shows the impact of the economy on people. When unemployment hasn't recovered, a bull market doesn't help much.
A recession, then a recovery with economic growth and growth in employment but where employment does not “return to normal” (Shiller’s term) followed by a recession years later – for me that is a growth – recession – growth – recession business cycle. (IMHO)

His use of the term “return to normal” is too loose for me.

Quote:
ECRI has been specifically saying NO double dip. Or at least as far out as they can model
I know. You and I have discussed ECRI before and we share similar views regarding the value of their data and projections. They have been saying the economy recovers strongly, employment shows two distinct trends with one group recovering strongly to previous levels and another large group of long-term unemployed. ECRI is clear that the business cycle turned positive (i.e. the economy recovered) and someday it will turn down again and employment will not rise to previous levels before that happens. That would be a new change in the business cycle and is definition I share.

Quote:
It may be that in postwar times the US has never had a recovery without an employment recovery. He does give the precedent in the 1930s. To me the situation and the history is important, not the name. I am not enough of a historian to know, but this would make it different from all prior recoveries. I suppose you could call this situation whatever you wanted, but Shiller has decided to call it a double dip and he explains why.
Not semantics. There are apparently two separate and distinct employment trends underway in the US. One is very positive and one is quite negative.

Quote:
Perhaps not. But if you remove social insurance from the equation and look at the "real" unemployment and underemployment rate instead of the ones quoted by the government, I suspect we're a fair bit closer to that 1933-37 labor market than many realize
Agree. Many in this group of “long term unemployed” may never see a decent job again unless our public representatives take a different approach. I’m not holding my breath.

My original post was cause for misunderstanding. This one is probably too long. This time it’s different is probably an appropriate description of our economic recovery. Shiller may be trying to name it but I feel the term “double dip” already means something (which is not this) and “new normal” is already taken – and seems to have taken hold as well. I am not being critical of any of the posters in this thread - all of whom I hold in high regard.
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Old 05-26-2010, 10:13 AM   #13
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His use of the term “return to normal” is too loose for me.
And if you read "normal" as "full", which is how I read it the first time and again on a second read, then the definition is kind of absurd. Here is the unemployment rate according to the BLS.



If we assume 5% "full" employment, then we didn't really recover from the early 70's recession until around 1989, and then only very briefly. So was this period a "quadruple dip recession"? And we also see during this period a stretch of successively higher unemployment peaks and higher troughs. So something similar isn't at all unprecedented and you don't have to go back to the Great Depression to find it.

I don't doubt that Shiller is right and that unemployment will still be elevated when the next downturn occurs. But I agree with MichaelB that the name "double dip" is already taken, and what Shiller describes ain't it.
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Old 05-26-2010, 10:36 AM   #14
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Interesting graph. I'm paying attention to the slope of the line. Very steep (= high rate of job loss) entering the economic downturn. Less steep on the recovery (= lower rate of job growth).

Shiller's definition of double dip seems very loose. Unless we see 7-8 years of solid continuous economic growth along with employment gains, it is doubtful we WON'T see a double dip per his definition. But in the meantime, the roughly 90+% of folks that are employed (and this pool changes all the time) will be earning, and producing, and spending, and corporate profits will be made.
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Old 05-26-2010, 10:56 AM   #15
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Very steep (= high rate of job loss) entering the economic downturn. Less steep on the recovery (= lower rate of job growth).
The first part of that is absolutely clear. The second part a bit less so (but maybe only because it is still early days and the data series is long). But if you chart the current jobs recovery against that from the 1981 recession (where unemployment peaked a bit higher) you see pretty clearly that we're not adding jobs as fast.

I'm somewhat surprised at the slow pace of job gains. I was a bit of a contrarian on this issue. It looked to me that corporate America cut jobs too aggressively, preparing for a more severe downturn than we actually got. With the surprising "V" shaped recovery in GDP, it seemed that employers would need to rehire those folks more aggressively. But it hasn't happened that way. At least not yet. Productivity shot through the roof. Which typically isn't a bad thing. Unless of course you're out of work and your employer has found a way to make the same number of widgets without you.
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Old 05-26-2010, 01:09 PM   #16
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Where did the graph go??
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Old 05-26-2010, 01:19 PM   #17
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Where did the graph go??
*Poof* Gone . . .

I linked directly to the BLS sight, but their graph must time out at some point. So here's an image . . .
Attached Images
File Type: gif Unemployment.gif (6.4 KB, 4 views)
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Old 05-26-2010, 07:23 PM   #18
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I know. You and I have discussed ECRI before and we share similar views regarding the value of their data and projections. They have been saying the economy recovers strongly, employment shows two distinct trends with one group recovering strongly to previous levels and another large group of long-term unemployed. ECRI is clear that the business cycle turned positive (i.e. the economy recovered) and someday it will turn down again and employment will not rise to previous levels before that happens. That would be a new change in the business cycle and is definition I share.
Yes, reading the OP and your reply again I see where I got confused. Shiller calling such a thing a "double dip" seems silly to me. ECRI sees shortening of the business cycle/more frequent recessions. To me this just seems like things returning to the way they were before the 80s and 90s.

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