By DoctoRx
Aside from the theme propounded on this site that the “Great Recession” never really ended, if we use mainstream terminology, then the recession ended two years ago. It may just be that another one has already begun. Here are some exhibits:
1. “Real PCE decreased 0.1 percent, the same decrease as in April.” (PCE is an abbreviation for personal consumption expenditures.)
- Source: Bureau of Economic Analysis.
Note: My guess is that real PCE was worse than estimated due to underestimation of price inflation. This is recessionary behavior. It has almost nothing to do with the Japanese tsunami. Think back to the Kobe earthquake (1995) during the boom of the ’90s. Did real PCE drop in the US because of that, which also had a major effect on production in Japan?
2. Oil prices tripled from their lows between 2009 and 2011. Ever since, and including, the 1973-5 monster downturn, every recession in the US has been preceded by large increases in oil prices. Triplings of oil prices have always led either to severe recessions and/or severe stock market crashes. You may find extensive data at these two sites: HERE and HERE.
Note: The argument one hears on CNBC that the decline in gasoline prices has been enough to jump-start the economy is both unpersuasive and completely inconsistent with the course of the economic downturns that have followed large jumps in oil prices.
3. Real estate has double-dipped, both residential and commercial. This is a short entry but a major point. Combining that with the jump in oil prices, one may have quite the 1-2 punch.
4. Real people, such as in polling by Gallup and Rasmussen (for Discover), report no improvement in their financial condition. On the Gallup crawl, look at daily discretionary spending. It is unchanged year after year, currently at $68/day. Not shown is the 2008 data. I recall this to have been in the $110-120/day range in spring 2008. Considering that there is no inflation adjustment in these data, this suggests that people have much, much less money to spend now after rent or mortgage and other regular household bills than they did in the early stages of the last recession.
5. Interest rates are continuing to fall far below prior expectations. From a Vanguard bond discussion from Februrary 2010, Fig. 3 demonstrates that standard analysis, short-term rates were expected to be 1% and 2-year rates were expected to be well above 2% by now. Well, late last year, 2-year rate instead dropped to 0.3% and the Fed aggressively introduced QE2. (Low short-term rates indicate paltry demand for credit.) Amazingly, 3- and 6-month rates have dropped to near zero (new lows since the Great Depression) and 2-year rates again fell near 0.3% within the past week or so. (Sorry - the figure from the Vanguard article cannot be copied to this blog post.)
The important point is that expectations as of 16 months ago were that 2-year and cash rates would be zooming upward over the intervening time period till now and steadily rising in the out years. That these rates have gone so low so far out in time is toward the recessionary side of things. If what the Fed were doing were straightforwardly inflationary, we would not also see the 10-year yield averaging about 3% for this month, which is at least half a point lower than that which was expected in Feb. 2010 to be the rate now. The Fed does not control this and longer interest rates (at least, not yet). Thus I stick with my biflation theme. This is manifestly not the “standard” inflationary/stagflationary ’70s.
If I may play economist, what I think has happened is that so much investment went into the wrong things over the past decade that there is just not a lot of demand for expansion from businesspeople, and as for consumers, those who stayed highly solvent mostly want to lend and not borrow, and many of the debtors are poor credit risks. Thus the government has been the sole source of credit growth this entire “recovery”, and that’s diminishing. The government spent the money that the Fed effectively monetized during QE2, people spent the newly-created money, and then someone, such as whoever sells the service the government is paying for (such as a Medicare check), puts the money in a bank to sit there. (See my recent article on the yotai gap for more details on this point.)
Alan Greenspan has an interview today in which he discusses this, I just saw. HERE is the link to the site where I saw his quote, which then links to the entire transcript
6. The mainstream is in a state of denial that things are not good. HERE is a link to a recent interview that CNBC’s Fast Money did with David Rosenberg. There is real anger at his negativity. But even though he’s been too bearish on stocks, he’s been mostly right on the real economy and has been amazingly correct that the Fed would be on hold for a long, long time. Back in 2009, even when the economic trend had finally upward, he was treated much better. This shows me that too many people have already gotten too complacent. I happened to be watching CNBC in 2008, when David Einhorn came on for a riveting hour. The gang that included Joe Kernen was visibly hostile to his assertions that Lehman was a fraudulent enterprise. I am not naive, but I was actually shocked at the behavior of the interviewers. How often does a short-seller come on TV to discuss his short position? Even if he had been proven wrong, they should have given him plaudits for bravery. (Note Lehman was around $33/share when he gave that interview.) So when I see interviewers on CNBC act this way toward Rosie, I think they doth protest far too much.
7. Recessions starting 3 or so years after the onset of a prior recession are not unusual. There were recessions (then called depressions) in that began in 1920, 1923, 1927 and 1920. Then there was one in 1945 and 1948 (1945 was a special case, of course). Then there were recessions in 1958 and 1960. (The 1960 recession undoubtedly got JFK elected.) Then there were the famous 1980 and 1981 recessions, which economists insist on calling two separate downturns. So it would be unsurprising if a recession that began in 2007 was followed by one that began in 2011.
8. By April, ECRI’s long leading indicator for global economic growth fell to 0.1, about the lowest level in 30 years. And in a recent interview, Lakshman Achuthan of ECRI said they have seen no pick-up yet in their leading indices.
9. We have to be careful about what is meant by “recession” right about now. With housing and auto sales so far below their peaks, a downturn in these key industrial areas is somewhat like falling out of a first- or second-floor window rather than falling from a high floor. So the drop from the peak may not be so bad, because things are already bad. Any downturn from here may “feel like” a new recession (if you believe the last one really ended, of course), even if NBER can’t call it one.
10. For what it’s worth, I was early on my recession call in 2007. I called the onset of a recession and exited stocks at Dow 13,000 in August-September 2007. The market didn’t listen and went on to surge 10% upward right after I got out. (Oh well.) So, whatever you may think about the topic of this post, please do not use it to try to time any market for short-term trading purposes. Also please note that I have no economic credentials whatsoever.
No comments:
Post a Comment