Of course, CNBC replayed ad nauseum the interview. Now that we are getting more empiricism supporting what was to some only vague fears of the neurotic hand wringers and their perennial predictions of economic doom, the thought of recession is starting to seep into the market's psyche.
I was cleaning off my desk, and I found an article from Barron's (11.13.06) that I had printed out. It was Sandra Ward's interview with Richard Arvedlund (Cyprus Capital Management). The title of the interview was called, "Recession: The Stage is Set". In the interview, he felt that the preconditions for a recession were set because of the state of the housing market. Specifically, he stated that "Whenever housing starts and permits drop by the rates o decline that have been exhibited--10-20%--it has always preceded a recession." He also notes that when housing leads the downturn (which happened in the late 70's and late 80's), it typically tends to last longer than people dream. He states that the average cycle is 3-4 years.
Personally, I'm having a difficult time imagining any scenario where recession is not in our future. I pay attention to the economic numbers--particularly the job growth numbers. The job growth over the last few years has been tied to housing and finance related stuff. So given the cataclysmic upheaval in housing and financial service area, where is the additional job growth going to come from?
The arguments you will hear about why we will not have recession are these:
- High employment
- Steady jobless claims (no spikes)
- Wage growth
- Consistent albeit slower growth
While I consider WMT a pretty good tell (as does he), I'm finding it particularly perplexing that within the last couple of weeks there has been a parade of TH's on CNBC stating that the WMT shoppers don't matter. Rather, it's the upper income folks that matter as they comprise X% of all consumer purchases. Amazing the shift in perspectives about who matter and who doesn't matter depending on the context.
Anyway, my prediction? Recession. And, I believe that it will be global. Time frame? Within 12 months. My qualifications? Zero. Do I hope to be wrong? Absolutely.
17 comments:
I would say that WMT matters...a lot. AND I would guess that the TH's are trying to shift attention away from it. The electronic retailers would be the other tell I believe of the impending recession.
To comment on your previous post, I would NEVER trust the market action during the last two weeks of August....NEVER. You see how low volume is? What I will trust is the action right after Labor Day.
AND I'll go on record right now...a Fed cut = bear market in equities going forward no matter what happens this Fall.
Keep up the good work Leisa
G
Leisa
Did you by any chance see that Bill Cara did not think we would have a recession thru 2008. If so would you mind giving your opinion why you differ.
Rodney
What are you holding for the next 12 months? I am not asking for your opinion, so there is no need for the usual disclaimers (to paraphrase, "I really don't know what I am doing, so don't listen to me.")
I am assuming that you are in puts, inverse ETF's, shorting, picking up t-bills, and accumulating money market funds.
A couple of weeks ago, you said that we would be in full recession by Spring of 2008. Are you backing away from that prediction by 6-9 months?
Rodney: No I did not see Bill's post. When did he post it? I certainly do not intend to argue against Bill's or any other's opinion. But let's be fair. All of the statements made about recession or no, including my own, are just opinions. Somebody is right, somebody is wrong, and I have yet to see anyone who is right all of the time!
My reasons for thinking that we will be in a recession rests with the following:
A flagging housing market. Housing starts are down 20% yoy. That's significant.
Capital markets/liquidity is drying up. Capital lubricates the economy. This will affect stock buy backs, capital spending.
The consumer is slowing down-and American consumers fuel the world's economy, not just our own. Take a look at the internal demand in some of these Asian countries. It's not there.
Japan, US (outside of today's durable goods orders) and European economies have all reported a slowing down in their economies.
Each of the underpinnings of this "bull market" are slowly eroding. Plus, there's a natural 4-5 year economic cycle.
Anon 3:31: Why would I be in inverse ETF's with the market trending up currently? I closed my short positions last week.
Anon 3:34: I don't recall saying in the last couple of weeks that we would be in a recession by Spring 2008-It's probably an earlier post than May (but I do remember saying by late Spring). But I think that Late Spring 2008 still falls within my time frame of within a year by about 2 months rather than the 6-9.
Having been on the receiving end of a recession in a business cycle for 2 cycles, I know too well that no one really tells you that you are in a recession until you've started to twist in the wind.
Now think about the Fed pumping liquidity? Is that really going to stimulate the economy or is it really going to be saving bacon? I'm thinking the latter.
On 8/11/07 on Bill Cara's website, you said, "...We'll be in a full blown recession by Spring of 2008..."
Thanks for that reference. Time frame and venue was not computing--I was looking through my posts here! Per my earlier comment, the time frame still makes sense--Spring ends 06.22, and we'll see corporate earnings and outlook early/mid July. For us to be in a recession, we'll need to see softening in earnings and outlook not later than December, and preferably beginning 3rd quarter. If we do not see such weakening by then, Spring 08 will be off the table.
Leisa,
What good is a bearish forecast that is made 9 months ago without it being tied to a timeline? The S&P is up more than 6% since this article and as you say, the trend is up. At some point, you have to make the call that this bloke missed with his prediction.
Remember, Bill Cara went bearish around the beginning of '05, and then went bullish in the first week of July '07. So far, he is grossly wrong on both calls, but sooner or later he will be right, I suppose. But without a timeframe, its just talking-head talk. Has Arvedlund continually reinforced his November opinion, or has he conveniently forgotten what he said, as most prognosticators do?
I guess my real question here is, how long do you hang on to an expert's opinion before you realize that in doing so, you are making a mistake?
Apropos to this "recession call" discussion, here is a relevant data point:
ECRI's WLI has been down for 5 weeks in a row, which COULD BE an inflection point. Now is the time to monitor the WLI closely. If it's growth rate goes negative (it's not right now) and stays that way for a few months this Fall, then the R word will come into play for 2008.
IMHO of course!
G
Great discussion here!
I dug up some figures from the Census Bureau website. New home sales peaked in July 2005 at just under 1.4 million units. Today's number came in at 870,000, which is a 38% decline. The 10% decline in starts was hit in October of 2005, the 20 percent number was hit in January of 2006, and we reached the 30% number in January of 2007.
The S&P is up 22% since July 2005.
Thoughts?
Retail sales per the Census Bureau bottomed in September 2006 and were up 0.3% over last month. The last three months showed retail sales growth at 7.7% annualized. This doesn't look like a slowing of consumer spending to me.
Today, Census Bureau data released the Durable Goods Orders ex-Transports increased at 3.7% over last month, which puts us at 9.1% anuualized over the last three months.
If these numbers continue, inflation will increase and the Fed will have to raise rates to curb our robust growth.
http://tinyurl.com/3drp3f
"The Market for Quacks" by Ran Spiegler.
This is a wonky read for marketing types. Not really intended for investors but it summarizes results that suggest that irrational stock market players who cannot discern skillful analysis from random luck end up sustaining the market for ALL quacks (stock gurus). Conversely, if there were only sophisticated investors, these talking heads would all disappear.
Makes a lot of sense.
I got a good laugh this morning when Joe Kernen (CNBC) was slamming Mozillo, saying in effect, "he's not an economist, how can he call for a recession?" When the cheerleaders are getting all wound up over this stuff, it makes me wonder if it's not just "another brick in the wall".
Paul Kazriel of Northern Trust does some pretty thorough work on the economy http://tinyurl.com/3x5xdy. The "econtrarian" link on the left side of the page has some more frequent postings also.
BTW, still waiting for my prize for my "savy" sighting!
P.K.
Somebody needs to take off the rose-colored glasses on those retail sales figures. My goodness that is some data mining. The trend is DOWN.
What is it with all the anon comments? Leisa makes a recession call and "Wham!" we have an explosion here.
The reader is right about Cara's bearishness since late 2005.I don't think he has really flipped bullish-- just for the ST. Someone who HAS flipped bullish is Richard Russell. He may be spectacularly wrong right at the end of his career. That would be a shame. We shall see.
I found it incredible that my model was telling me to trim exposure this morning. Negative leadership continues at max levels. What has happened in the last few days is a drying up of selling pressure.
Speaking of models, it is under evaluation right now by a group that wants to put some money behind it. If this turns out, I will likely have to go completely dark with all market comments (not that I have a grip on this action lately!). This is probably the ultimate confirmation of the Peter Principle. LOL
Anyway, see how effective making bold prognostications is to web traffic? Keep this up and banner ads are not far behind. ( Southern Living maybe?)A subscription service perhaps a la BC? Or a book?("Profiting with the Perplexed Investor?") I see lots of possibilities. :)
M
M--Well, since you have been a long-time reader and commenter here, you can advertise here for free. Congrats on your black box. Congratulations!
While my numbers are small, I consistently get at least 100 visitors a day, sometimes 200 if I post something provocative on a high traffic website like BC's. And those 100 visits are very consistent readers, and that is the most flattering thing of all.
L-
I am thinking about naming the box "The Woodshed". May hurt commercial possibilities though. :)
Oh, I don't get my hopes up. Frankly, it's the last thing I would expect. It has SO MANY fewer moving parts that I expect they will find it "inelegant". LOL
Great posts above. Keep it up.
M
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