Tuesday, November 8, 2011

ECRI: Follow up to a "famous" post

This is a long overdue post following up on my "famous" post on ECRI from July 2009. This post was quite widely read, including a mention from Mish and Barry Ritholz.


Everyone makes mistakes. I have made many (ex. I thought that a double dip recession would start in 2010 and I did not think the market would ever hit 1300 again back in 2009). I just wish that ECRI would have admitted that they were a little late in calling the last recession. I don’t agree that there was a unique opportunity to avoid recession and Lehman in early 2008. I wish they would admit that they blew the housing market call in 2007. I wish they would stop using selective passages to market their past track record (as Mish has chronicled well a few times).

That being said, I admit that I was wrong back in July 2009 and ECRI was right (their call was made on April 30, 2009), when they were among the biggest bulls on the economy and they correctly stated that  "We'll definitely see the end of this recession this summer."

According to NBER, the recession ended in June 2009. I issue a full apology to ECRI for that particular criticism.


Now that past issues are out of the way, let’s focus on 2010. ECRI was once again right in their call that the economy would not double dip, despite a huge drop in the publicly disclosed WLI Index.  (Once again, I thought we would double dip, but I was wrong).


Now, as of September 2011, ECRI has come out with their “recession is inevitable” call. Now that the stock market has rallied big time since early October, people are getting a little nasty with ECRI as this recent CNBC interview demonstrates. The fact that ECRI's call is coming in the face of a sharp stock market rally (as was also the case in 2001 and 2008) and is being attacked by many, gives me further confidence that they are right.


It is possible that their call is one again late, as GDP was very slow in Q1 and Q2 2011, and with further revisions, it is possible that a recession has already started.

It is also possible that the recession will start soon (the best case scenario for ECRI). I agree with Lakshman that the stock market is nowcasting and likely responding to coincident indicators.

I greatly respect ECRI’s opinion, since they have no false calls and they were way ahead of the consensus on their 2001 and 2008 recession calls. They are back in my good book after their excellent calls of 2009 and 2010.


As far as I know, the consensus has never once predicted a recession. The Steve Liesmans and mainstream economists of the world will never tell you about one until it is well established.

My personal view, outside of the information from ECRI, is that we are going back to recession. John Hussman has laid out a compelling argument. Nothing is 100%, as he correctly states, but a recession is quite likely. 

Monday, August 8, 2011

Blogging

I haven't blogged for a long time. I just can't find the time given that family and work seem to take up nearly all of my time. Unfortunately, blogging also doesn't pay well for me, so as much as I would like to continue blogging and I have appreciated all the valuable comments, I don't think it will be possible, beyond an occasional comment.

The markets seem to finally waking up to the fact that there is just too much damn debt out there. Another recession is likely looming and with it, a bear market as well. A QE3 announcement from the Fed is more and more likely (although it will be interesting to see if the Tea Party is able to defeat it) and maybe another rally, but it appears that the markets are coming to the conclusion that you can not solve a credit problem with more credit.

Italy with $2 trillion of debt (about as much as Germany) can only be bailed out if it decides to give its sovereignty to Germany. Ditto for Spain. It can't be that easy as wars were fought over this type of thing in the past.

I still have all my long term bearish views from the past. However, I have learned from my mistake of being too bearish, on a cyclical basis, that when the sun is out, you need to go out and play. I was very bullish on certain stocks such as CMG and LULU but my bearishness prevented me from buying them once the market set a low in March 2009 (likely not THE low in my opinion). I subscribe to the Investor's Business Daily (William O'Neil) approach and if the market does give buy signals again, I will look for stocks.

For now, cash is king.  Preferably US cash, in my humble opinion.

Disclosure: long US cash, short Euro and the loonie




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