Another indicator shows recession

[perinova]

http://agonist.org/bonddad/20070106/is_copper_signaling_a_recession

Comodities in bear territory, new car sales off more than 2%...
Does anyone think that are recession won't come in 2007?
Any other indicator signaling or contradicting?

 

[audreyh1]

I follow the Economic Cycle Research Institute (ECRI) which does excellent recession prediction, and they already show us pulling out of this current slowdown. You can read their stuff on www.businesscycle.com.

That doesn't mean the stock market won't see a good correction in 2007 though! There wasn't much of a sell off in 2006 even though there was a definite economic slowdown late in the year, the market seemed to have a party instead. So a market correction somehow seems "due".

I have noticed that the economic cycles and the stock market cycles often seem to be out of step with each other, so that even if you can predict what the economy will do, it won't predict how the stock market will behave!

Audrey

P.S. IMO this drop in commodities such as copper is simply a correction from the wild run up of that past two years. It's significant IMO that it occurs right after the new year - an indication that investors waited to take profits when the tax bill wouldn't be due until 2008 and/or to keep the good YTD results of 2006 intact. You see this new year phenomenon occasionally - sometimes the stock market has a major Jan correction after a big run up.

 

[d]

I am not informed enough to say one way or the other

how about another option: I am not informed enough to not say one way or the other

ps: i agree with audreyh1's comments

 

[rs0460a]

Any other indicator signaling or contradicting?

Well, just went out this morning to look at new cars. I'm about to "retire" my "daily drive" (my 18-yr old Olds Ciera). Is that an "indicator" of anything (other than I'm cheap frugal) ?

- Ron

 

[Gone4Good]

Comodities in bear territory, new car sales off more than 2%...
Does anyone think that are recession won't come in 2007?
Any other indicator signaling or contradicting?

Gee, it wasn't that long ago that higher oil and other commodity prices were going to push the US into recession. Now that they've come off their speculative binge (a bit) that signals recession too??

Timing of a depression triggered by high oil prices

Oil-shocked into recession?

Rising oil prices could cause global recession

It's actually kind of funny to read how everything (in this case both higher and lower commodity prices) spells doom for the US and world economy. I guess fear sells magazines.

Does anyone think that a recession won't come in 2007?

Yes. Me. (and most of the world's professional economists including those guys at the Fed)

Any other indicator signaling or contradicting?

Employment is strong, incomes are rising, consumer spending has proven resilient, household wealth is at an all-time high notwithstanding the weak housing market, corporate profits are at an all-time high, corporate balance sheets are flush with cash . . .

 

[2B]

Gee, it wasn't that long ago that higher oil and other commodity prices were going to push the US into recession. Now that they've come off their speculative binge (a bit) that signals recession too??

I agree. I thought the Friday stock market was funny. Stocks fell sharply (definitely not a "plunge" as I heard on one of the market reports) due to "fear" that the economy (as indicated by rising employment) was stronger than expected so the Federal Reserve won't have to cut interest rates which would indicate we're going into a recession. However, commodities also fell fearing a recession may be on the horizen. Oh no, double secret probation for our economy.

I also think the Fed has their cumulative heads where the "sun don't shine." Short term rates were raised a bit too much but the new boy had to show he "had what it took to control inflation."

Most of what is happening now is unwinding irrational speculation. I don't have any personal insight into the copper markets but there is and has been an abundance of oil. A few foggy days on the Gulf Coast slowing down unloading is not a crisis worth a $5/barrel increase. Refining capacity is a bigger issue especially in diesel. If the NE was cold, the demand for fuel oil would be hit hard that would put more pressure on diesel (the same stuff with a different sulfur spec).

 

[dex]

I follow the Economic Cycle Research Institute (ECRI) which does excellent recession prediction, and they already show us pulling out of this current slowdown. You can read their stuff on www.businesscycle.com.

That doesn't mean the stock market won't see a good correction in 2007 though! There wasn't much of a sell off in 2006 even though there was a definite economic slowdown late in the year, the market seemed to have a party instead. So a market correction somehow seems "due".

I have noticed that the economic cycles and the stock market cycles often seem to be out of step with each other, so that even if you can predict what the economy will do, it won't predict how the stock market will behave!

Audrey

P.S. IMO this drop in commodities such as copper is simply a correction from the wild run up of that past two years. It's significant IMO that it occurs right after the new year - an indication that investors waited to take profits when the tax bill wouldn't be due until 2008 and/or to keep the good YTD results of 2006 intact. You see this new year phenomenon occasionally - sometimes the stock market has a major Jan correction after a big run up.

RE: Stock Market - When did the stock market take a hit and the slow down occur? I think the stock market is thought of as a predictor of a recession but, I don't have the data.

RE: Commodities - I agree this is a crorrection of the run up (caused by new investment vehicles ETFs, MF?) A decline before the new investment vehiles would be viewed as portending a slowdown since manufactures are buying fewer raw materials. This could be a financial correction. Also, lower coomdities prices could soften a recession in the same vain as a Fed rate cut would.

 

[jazz4cash]

Well let's see if we're even on the same page:

Recession............2 consecutive quarters of negative GDP?
Correction............Stock market decline 10-20%?


..........or is everyone using alternate definitions of these terms?

 

[audreyh1]

RE: Stock Market - When did the stock market take a hit and the slow down occur? I think the stock market is thought of as a predictor of a recession but, I don't have the data.

We had an economic slowdown in late 2006, but the stock market did not take a hit. In fact it had a big party instead, because the slow down put the Fed interest rate hikes on hold.

Audrey

 

[Delawaredave]

Recession............2 consecutive quarters of negative GDP?
Correction............Stock market decline 10-20%?

Correct !

http://en.wikipedia.org/wiki/Bull_market

"A market correction is a sometimes defined as a drop of at least 10%, but not more than 20% (25% on intraday trading)"

 

[Nords]

I agree. I thought the Friday stock market was funny. Stocks fell sharply (definitely not a "plunge" as I heard on one of the market reports) due to "fear" that the economy (as indicated by rising employment) was stronger than expected so the Federal Reserve won't have to cut interest rates which would indicate we're going into a recession. However, commodities also fell fearing a recession may be on the horizen. Oh no, double secret probation for our economy.

Brewer, Saluki, & FinanceDude can correct my media impression, but I think a typical brokerage executive's workweek went something like this:
1 January: Recover from last night after two weeks' vacation in the Hamptons.
2 Jan: Recover from night before last night.
3 Jan: "Oh, goodie, back at work. Wonder what everyone did over the weekend?"
4 Jan: "Geez that was a lot of voice mail & e-mail. Let's do lunch."
5 Jan: "OK, time to do some real work before I check the bonus pool. Holy $%^&, you guys were buying that crap while I was gone?!? Sell it now!!!"

 

[CCdaCE]

The approach to economic and market assessment favored here focuses not on headlines but on factual relationships that have mattered in the past. Recession risk is critical to investors and the major cause behind recessions has been restrictive Federal Reserve policies. The Fed’s policies have been restrictive when the real or inflation-adjusted federal funds interest rate was above 425 basis points. Until and unless the real fed funds rate was above 425 basis points, no recession occurred and Real GDP (Gross Domestic Product) tended to rise faster than its historical trend.

The causes behind bear markets in common stocks have been restrictive Federal Reserve policies and extreme market overvaluation. Until and unless the real fed funds surpassed 425 basis points, or the stock market became overvalued in the extreme relative to interest rates, corrections occurred but no bear market erupted.

The real federal funds interest rate is now about 283 basis points – well below the 425 basis points that preceded recessions and bear markets in the past. And the stock market remains quite undervalued relative to interest rates – not overvalued in the extreme like it was around past bull market peaks.

There is much concern about weakness in residential real estate markets and the potential for new policies from Washington. The former, some fear, could lead to a recession, but there has never been a recession when the real fed funds rate has been so far below 425 basis points. The latter, some fret, could include tax increases or other new policies that could undercut the stock market, but there has never been a bear market when the real fed funds rate was so low and the market so undervalued.

Based on a e-mail notification from an insurance salesman, but I've read similar analysis elsewhere. Just can't find a link.

 

[Texas Proud]

I follow the Economic Cycle Research Institute (ECRI) which does excellent recession prediction, and they already show us pulling out of this current slowdown. You can read their stuff on www.businesscycle.com.

That doesn't mean the stock market won't see a good correction in 2007 though! There wasn't much of a sell off in 2006 even though there was a definite economic slowdown late in the year, the market seemed to have a party instead. So a market correction somehow seems "due".

I have noticed that the economic cycles and the stock market cycles often seem to be out of step with each other, so that even if you can predict what the economy will do, it won't predict how the stock market will behave!

Audrey

P.S. IMO this drop in commodities such as copper is simply a correction from the wild run up of that past two years. It's significant IMO that it occurs right after the new year - an indication that investors waited to take profits when the tax bill wouldn't be due until 2008 and/or to keep the good YTD results of 2006 intact. You see this new year phenomenon occasionally - sometimes the stock market has a major Jan correction after a big run up.

From what I remember in my classes... the stock market is off step by 6 to 12 months of the economy... but tracks well when adjusted... anybody up for the look??

 

[perinova]

Here is some indication that the stock market may precede economic activity by a couple of quarters:
http://www.econ.ilstu.edu/uauje/PDF's/issue1996/Granger_Causality.pdf

Another interesting link is this one:
http://www.atimes.com/atimes/Global_Economy/HH24Dj01.html
It would actually be very scary if the S&P would keep trailing the NAHB Housing Index by 12 months on the same curve.
Since housing leads the economy a drop in the market is possible but by that much? Hopefully not....

 

[audreyh1]

From what I remember in my classes... the stock market is off step by 6 to 12 months of the economy... but tracks well when adjusted... anybody up for the look??

Well, that's certainly the conventional wisdom, and it may prove to be true for outright recessions. But I have also seen stock market corrections that were precipitated by political events or some global economic event that didn't ultimately impact the US economy very much. Things like simple slowdowns don't seem to correlate as easily either. I have seen the market act predict a lot of things that never actually materialized.

There are jokes like "the stock market has predicted 9 of the last 3 recessions" (or something like that).

Audrey

 

[wstu32]

no way!

 

[Nords]

It would actually be very scary if the S&P would keep trailing the NAHB HOusing Index by 12 months. Since housing leads the economy a drop in the market is possible but by thta much? Hopefully not....

The S&P500 returns are also very highly correlated to Pakistan's butter production, but I don't pay any attention to that any more than I pay any attention to a small sector of the total market.

It's easy to crunch a bunch of numbers and mistake correlation for causality...

 

[brewer12345]

The S&P500 returns are also very highly correlated to Pakistan's butter production, but I don't pay any attention to that any more than I pay any attention to a small sector of the total market.

It's easy to crunch a bunch of numbers and mistake correlation for causality...

And don't get us started on Beev3r Czheeze production correlations with the British stock market...

 

[Running_Man]

Copper is a metal with more limited speculative appeal than the other metal. It is very much a industrial metal influenced greatly by industrial consumption. A long term chart of the metal is a very intesting study and one tool to use in gauging economic activity.

The drop in copper was one of the contributors to my prediction of a -29% drop in stock market for 2006. It is correlating well with the drop on housing activity. The next step would be a drop in the stock market before the drop in economic activity would become apparent inthe large context and my very possibly flawed thinking. If the market holds up or advances in the following 3 months then I would think there will not be a recession.

I sincerely hope that I turn out to be incorrect, nothing good happens in recessions.

 

[brewer12345]

RM, the real question in my mind is how closely the rest of the world will follow the US economy in the next slowdown (whenever it arrives). Hard to tell if the BRIC countries are better insulated this time around or not.

 

[camberiu]

RM, the real question in my mind is how closely the rest of the world will follow the US economy in the next slowdown (whenever it arrives). Hard to tell if the BRIC countries are better insulated this time around or not.

Brazil (the B on BRIC) certainly is not. A massive outflux of capital would be quite crippling, since the government uses foreign investment to finace its MASSIVE budget overruns. Brazil already has some of the highest interest rates int he world, and a massive capital flight would force interest rates even higher.

 

[brewer12345]

Brazil (the B on BRIC) certainly is not. A massive outflux of capital would be quite crippling, since the government uses foreign investment to finace its MASSIVE budget overruns. Brazil already has some of the highest interest rates int he world, and a massive capital flight would force interest rates even higher.

Uhuh, but where is most of the external capital coming from? Private citizens within Brazil? US (unlikely)? China? Makes a big difference in what a US economic slowdown woud mean.

 

[camberiu]

Uhuh, but where is most of the external capital coming from? Private citizens within Brazil? US (unlikely)? China? Makes a big difference in what a US economic slowdown woud mean.

Mostly US. Lots of money from US investors to capitalize on the very high interests (17% APR) on the MM accounts.

 

[camberiu]

Mostly US. Lots of money from US investors to capitalize on the very high interests (17% APR) on the MM accounts. That is why the Real (Brazilian currency) is so over appreciated right now.

 

[brewer12345]

Mostly US. Lots of money from US investors to capitalize on the very high interests (17% APR) on the MM accounts.

Link?

Not being a pedant, just genuinely curious.