Market Sentiment - Recession Length

[Koolau]

But the stock market is not the economy.

Duh You got my point!

 

[SecondCor521]

Interesting article in NYT on the 2 consecutive quarter definition. I hope that the link works: https://www.nytimes.com/2022/07/26/...te=1&user_id=b685681543a24c3adaf2b160d24a744d

Paywalled for me.

 

[Koolau]

Paywalled for me.

They lost me before I got stated. That picture says it all (and not the composite of columns and containers.) A couple dozen paragraphs to explain why everything we always accepted as true is actually - not reality. Flat Earth society, anyone?

 

[HarryHawk]

IOW: "Blah, blah, blah, blah, blah. We'll let you know if you are in a recession. Trust us! We're very important and have all the answers. You don't know anything. Don't trust your lyin' eyes."

But, of course, YMMV

In their infinite wisdom, sounds like over the course of the next several days they intend to approve an additional 800 billion of spending. It's not like it's a trillion dollars or anything.

Of course, taxes will be raised not necessarily to pay for this spending, but to fund additional future spending.

Sounds like just the ticket to Whip Inflation Now.

 

[Chuckanut]

Here's a graphic from the WSJ on the various sectors of the economy and their contribution to the latest GDP figures. Note the change in private inventories.

 

[Katsmeow]

I have no idea if we are in a recession. And, ever since I can remember the definition of a recession has been two straight quarters of negative economic growth. I don't recall anybody questioning this definition in the public. There were times when the statistical work to get the growth rate has been questioned - "Let's wait until we have the final numbers on widget production for June." Or the seriousness of the recession was very mild. Like many other things in life, the dosage dictates how poisoness something is.

Here is a good article by an economist that talks about the different definitions of a recession and why that really isn't the most important thing.

https://noahpinion.substack.com/p/yes-were-probably-in-a-recession

 

[perez99]

Never heard of them. Are you sure you got the right end of the horse, there?

IOW: "Blah, blah, blah, blah, blah. We'll let you know if you are in a recession. Trust us! We're very important and have all the answers. You don't know anything. Don't trust your lyin' eyes."

But, of course, YMMV

I'm no economist, so cant say if the NBER is a good thing or not. But I guess there must be some benefit to someone actually declaring it officially.

While many countries define an economic downturn as two consecutive quarters of negative growth for gross domestic product, the US defers this assessment to elite academics at the National Bureau of Economic Research, based in Cambridge, Massachusetts, whose leaders scoff at the two-quarter benchmark as simplistic and misleading.

Eggeheads get to call the recession

 

[Koolau]

I just watched a set of 3 or 4 talking heads saying there was no recession 'cause the definition is NOT 2 quarters of declining GDP. This was followed by a retrospective of these same talking heads (recorded during previous recessions) when each said the definition of a recession was "Definitely" two consecutive quarters of declining GDP. Cha CHING!

 

[pb4uski]

Paywalled for me.

Sorry, I wasn't sure if it would work since I'm a subscriber. Try this one... I'm suppose to be able to share 10 articles a month and I "think" this link will work:

https://www.nytimes.com/2022/07/26/...bFqB3k29PabXorLdTKEcuWB703UPfK&smid=url-share

 

[Time2]

If the stock market is a leading economic indicator, the 3 major indices are up 10% to 13% in the last 2 weeks! And at least opening on the upside today.

 

[pb4uski]

but, the stock market is not an economic indicator.

 

[USGrant1962]

If the stock market is a leading economic indicator, the 3 major indices are up 10% to 13% in the last 2 weeks! And at least opening on the upside today.

I forgot about the Conference Board's leading economic index. It used to get more press than I've seen recently. Anyway, it does include the S&P500 and it is (was) declining, at least through June.

https://www.conference-board.org/topics/us-leading-indicators

 

[Phroig]

but, the stock market is not an economic indicator.

However, is it a leading economic indicator in the sense that market prices equal discounted expected future cash flows, so an increase in prices implies that investors see improved cash flows (that is, better future economic conditions) relative to prior expectations? OTOH, improving market prices may reflect a lower discount rate, which is consistent with the recent decline in longer-term treasury yields.

Regarding the notion that two quarters of declining GDP indicate a recession, an op-ed in the WSJ earlier this week contended that this definition was made up during the LBJ administration to argue the economy wasn’t then in a recession.

 

[pb4uski]

However, is it a leading economic indicator in the sense that market prices equal discounted expected future cash flows, so an increase in prices implies that investors see improved cash flows (that is, better future economic conditions) relative to prior expectations? OTOH, improving market prices may reflect a lower discount rate, which is consistent with the recent decline in longer-term treasury yields. ...

In high theory perhaps, but not in reality. Stock prices are more supply and demand. Do you seriously think that Gamestop stock price is based on discounted cash flows? Or any of the other crazy high P/E stocks.. nah.. supply and demand and greater foolstuff.

 

[Koolau]

In high theory perhaps, but not in reality. Stock prices are more supply and demand. Do you seriously think that Gamestop stock price is based on discounted cash flows? Or any of the other crazy high P/E stocks.. nah.. supply and demand and greater foolstuff.

Yeah, there is still so much cash sloshing around and folks have figured out the only chance they have to keep it from being inflated away is the stock market. I don't think they really WANT to be in the markets because they are still volatile. BUT, it's really the only game in town due to inflation. (Bit Coin bit the dust, PMs pay no interest, Bonds - fugidaboutit, RE is set up to crash due to int. hikes, on and on.) Not a traditional dead-cat bounce either. There's just not much else to do with money if you're not gonna spend it on inflated toys. YMMV

 

[Magus]

I just watched a set of 3 or 4 talking heads saying there was no recession 'cause the definition is NOT 2 quarters of declining GDP. This was followed by a retrospective of these same talking heads (recorded during previous recessions) when each said the definition of a recession was "Definitely" two consecutive quarters of declining GDP. Cha CHING!

All of these pundits are largely saying the reason for no recession now is job market is still good. However, inflation is running 3%+ higher than income growth is currently, which is the equivalent of unemployment rate jumping quite a bit (~3% to 6.5%) and incomes growing in line with inflation, which is more typical of a normal recession. To me, this is the same effect. This is one of the reasons why I didn't go after a PHD in Econ after graduating Summa Cum Laude in Economics in undergrad because its obviously easy to distort things to fit your own narrative.

 

[Magus]

In high theory perhaps, but not in reality. Stock prices are more supply and demand. Do you seriously think that Gamestop stock price is based on discounted cash flows? Or any of the other crazy high P/E stocks.. nah.. supply and demand and greater foolstuff.

Gamestop is a good example where its not based on DCF but stupidity, but plenty of firms are based on DCF, at least to a large degree.

 

[SecondCor521]

Sorry, I wasn't sure if it would work since I'm a subscriber. Try this one... I'm suppose to be able to share 10 articles a month and I "think" this link will work:

https://www.nytimes.com/2022/07/26/...bFqB3k29PabXorLdTKEcuWB703UPfK&smid=url-share

Thank you, that worked.

Mr. Krugman and I don't see eye to eye on a number of things, but I think he's very smart and articulate and interesting to read.

 

[pb4uski]

Thank you, that worked.

Mr. Krugman and I don't see eye to eye on a number of things, but I think he's very smart and articulate and interesting to read.

Good to know that sharing a link that way works... I get 10 a month with my NYT subscription. I wish that WSJ did the same thing.

 

[GenXguy]

All of these pundits are largely saying the reason for no recession now is job market is still good. However, inflation is running 3%+ higher than income growth is currently, which is the equivalent of unemployment rate jumping quite a bit (~3% to 6.5%) and incomes growing in line with inflation, which is more typical of a normal recession.

And it's even worse when you look at real world inflation vs. the lower government figures. I hear that income is up, yet it's actually down when factoring in inflation, and that's even using the government inflation figures, which make it seem better than reality.

 

[pb4uski]

And just what is the authoratitive source for your "real world inflation"? Or is "real world inflation" anecdotal based on GenXguy's experience and view of the world?

I'm pretty sure that wherever it was reported that income was up that it was also indicated that it was nominal income and not real income.

 

[MichaelB]

I'm pretty sure that wherever it was reported that income was up that it was also indicated that it was nominal income and not real income.

BEA released income and expenditures data this morning for June, here https://www.bea.gov/news/2022/personal-income-and-outlays-june-2022

Income increased, real disposable personal income fell slightly, real consumer spending rose. Like other economic data, a mix of positive and negative.

Personal income increased $133.5 billion (0.6 percent) in June, according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) increased $120.4 billion (0.7 percent) and personal consumption expenditures (PCE) increased $181.1 billion (1.1 percent).

The PCE price index increased 1.0 percent. Excluding food and energy, the PCE price index increased 0.6 percent (table 9). Real DPI decreased 0.3 percent in June and real PCE increased 0.1 percent; goods increased 0.1 percent and services increased 0.1 percent (tables 5 and 7).

 

[milford]

In high theory perhaps, but not in reality. Stock prices are more supply and demand. Do you seriously think that Gamestop stock price is based on discounted cash flows? Or any of the other crazy high P/E stocks.. nah.. supply and demand and greater foolstuff.

The theory has been decoupled due to the Fed's loose monetary polices for the past two decades. As the easy money dries up for these companies and the general public, stock fundamentals like DCF, PE, will come back into play.

 

[GenXguy]

And just what is the authoratitive source for your "real world inflation"? Or is "real world inflation" anecdotal based on GenXguy's experience and view of the world?

I'm pretty sure that wherever it was reported that income was up that it was also indicated that it was nominal income and not real income.

Wrong, that is absolutely NOT the case.

 

[pb4uski]

The theory has been decoupled due to the Fed's loose monetary polices for the past two decades. As the easy money dries up for these companies and the general public, stock fundamentals like DCF, PE, will come back into play.

Totally agree... One can only hope.