jin writes:
Well. The other puzzle is where the unemployment goes?
jin | 05.16.08 - 10:57 am | #

john writes:
If governmental stats were kept the way way as they were in the 80's we would have worst inflation and double digit unemployment. I guess the saying about fooling some of the people some of the time but not all the people all the time is true.
john | 05.16.08 - 10:58 am | #

blackhat writes:
These numbers are so retro. I wonder if old-school punk (Ramons/Bad Religion) will be back in style as well. Grab your biker boots, torn jeans, spike belts, mowhakws and lead pipes...
blackhat | Homepage | 05.16.08 - 10:58 am | #

suecris writes:
Every time CR mentions that there was a recession in 80 or 81/82, I flash back to those times in my personal history. My husband graduated college in 1980 and was hired by AT&T Bell Labs in New Jersey. To interview him, they paid his plane fare and chauffered him to and from the airport in a limno. For our move, they sent the big van line, all pre-paid. An AT&T-paid realtor chauffered me around New Jersey to help us find a place to stay. All this for a 21 year old fresh out of college!

That was a recession? These days those seem like good times.
suecris | 05.16.08 - 10:59 am | #

Phil writes:
Those troughs in consumer confidence coincided with the best investing opportunities in the past 30 years.
Phil | 05.16.08 - 11:01 am | #

Anonymouse writes:
Graph looks like a head-and-shoulders top projecting confidence down to -10.
Anonymouse | 05.16.08 - 11:02 am | #

Joe Klein's conscience writes:
blackhat:
I wonder what Johnny Lydon is up to these days.
Joe Klein's conscience | Homepage | 05.16.08 - 11:04 am | #

Anonymous writes:
Will someone just send these consumers a bunch of Wright Model Bs for crying out loud!!
Anonymous | 05.16.08 - 11:06 am | #

Average Joe writes:
CR,

It seems things a basackwards these days.

Is it possible that things that used to be a coincident or lagging indicator could be a LEADING indicator this time.

I mean everyone always used to say that the housing bubble couldn't be one because it was so predictable and blogged about.

Also, many used to say that housing prices couldn't drop before people started losing their jobs. Many economists would look to unemployment as proof that prices wouldn't drop and cited San Diego's 90's forclosure problem to the RESULT of the General Dynamics mass layoffs.

Now we have consumer confidence that seems to be leading the crisis. We all see it coming even though none of us have to deal with it yet.

I think people who see things that have traditionally signaled the beggining of the end may have to rethink things.

This time, just like the housing bubble, people are pessimistic not about where things are, but about where they KNOW things are headed.


Perhaps it's the credit aspect of this whole problem, pulling future earnings to the present means that NOW is O.K., it's TOMORROW that's the problem. People know what debts they have to pay off even if they can afford their bills now.

Kinda like the teaser rates. "I'm not depressed because I can't afford today's payment, it's the future payments that I'm worried about."
Thoughts?
Average Joe | 05.16.08 - 11:07 am | #

JS writes:
Maybe they can use their stimulus checks to upgrade to the Wright Model C.
JS | 05.16.08 - 11:07 am | #

Peripheral Visionary writes:
I would be interested to see what the graph for the Market Pundits and Federal Officials Confidence Index would look like.
Peripheral Visionary | 05.16.08 - 11:09 am | #

Anonymous writes:
"Those troughs in consumer confidence coincided with the best investing opportunities in the past 30 years."

Boomer will be selling not buying, they are getting older and poorer then dirt, having blown their wealth on hummers, houses, tattoos and boob jobs. Opportunities will be in funeral home, walkers and electric wheelchairs. The they will get the pleasure of either getting screwed out of SS and Medicare or paying 15 bucks for a happy meal. Printing presses is going to be the most likely scenario.
Anonymous | 05.16.08 - 11:10 am | #

anon writes:
CR,
Your graph shows the recession ending in 4Q08. Is that a guarantee?
anon | 05.16.08 - 11:13 am | #

wally writes:
"Opportunities will be in funeral home, walkers and electric wheelchairs."

Ever priced a walker or electric wheelchair? You would not believe the profit margins in those things!
wally | 05.16.08 - 11:16 am | #

12th Percentile writes:
The stock market has decoupled from the american consumer. I'm not sure why they bother to report on what the "consumer" thinks. Perhaps as some sort of amusement?
12th Percentile | 05.16.08 - 11:16 am | #

MarkS writes:
It would be interesting to impose the S&P 500 on top of that graph.
MarkS | 05.16.08 - 11:17 am | #

tj & the bear writes:
Average Joe,

Yes, IMO that's definitely a large part of it. What's happening just doesn't fit the usual models.

Given the constant barrage of goldilocks propaganda emanating from Wall Street & DC, it's interesting that people are getting ever more pessimistic. Gotta be a direct reflection of their own circumstances and observations.

Psychology is the economic lynchpin. If people feel it's going to bad times, it'll be bad times.
tj & the bear | 05.16.08 - 11:18 am | #

Outsider writes:
CR - I posted in late Dec/early Jan that our business, which has always correlated pretty well with recessions, indicated we were in recession.

Things are turning around this month. Maybe it's just a bounce, I'm keeping alert, but right now our business says: economy is picking back up. (Also, customer income levels are not associated with rebate checks, so that is not a factor.)
Outsider | 05.16.08 - 11:18 am | #

Shnaps writes:
More ponies on their way.
Shnaps | Homepage | 05.16.08 - 11:18 am | #

bluestatedon writes:
"Well. The other puzzle is where the unemployment goes?"

BP today had an interesting article by Rosenberg at Merrill Lynch about the reality behind the employment numbers, which is (greatly simplified) that so many workers have had their hours reduced that the cumulative total is equivalent is 400,000 full-time jobs lost in the last three months. These workers have not been laid off outright, and naturally the unemployment statistics don't reflect the reduction in hours. Their paychecks do, though, and that will inevitably trickle down through the retail economy.

The rebound in jobs from the last recession has been extremely weak from a historical perspective, and that partially explains why the unemployment figures don't seem to match historical norms for recession.
bluestatedon | 05.16.08 - 11:18 am | #

Detroit Dan writes:
Big stock crash a-comin'? No Fed bailout for the next panic?

Seems likely to me. This economy is in bad shape, and getting worse. No sign of a bottom as real wages are seriously down...
Detroit Dan | 05.16.08 - 11:19 am | #

David Pearson writes:
I agree with Average Joe. Consumer confidence is normally a coincident indicator, and therefore can normally be ignored. I'm sure we could get 100 econ PHd's to run a regression to prove that.

However, this is not a typical recession. For one thing, foreclosures and house prices have not been correlated with unemployment; for another, the savings rate and debt service ratios are at abnormal levels going into a slowdown. Lastly, a high level of inflation (compared to other slowdowns) is squeezing real wages.

How is the above affecting the consumer? Well, sentiment is at rock-bottom recession levels, and yet we are not in a deep recession. What consumers are saying, in effect, is that this "feels" like a deep recession -- and its the effect of the three factors (low savings, high debt, falling house prices and real wages) alone has produced this feeling.

To expect consumers to keep spending when they are feeling this much angst is to expect underwater borrowers to keep paying their mortgage just because they have a job. It just won't happen the way the regressions say it will.
David Pearson | 05.16.08 - 11:19 am | #

Anonymous writes:
"Ever priced a walker or electric wheelchair?"

No and hopefully I'll die of a massive heart attack before the medical community sucks the life blood out of my heirs inheritance.
Anonymous | 05.16.08 - 11:19 am | #

eh writes:
They'd feel better were they to go out and buy a cheap house at a low interest rate. Maybe.
eh | 05.16.08 - 11:19 am | #

Elvis writes:
I use the Elvis Model. Basically it involves the price of gas, steak, and beer. When those prices go up and employment goes down, I call it a recession. It seems that many people use this same model.
Elvis | 05.16.08 - 11:20 am | #

Donny writes:
HEY ... HEY ... HEY (Stomp Stomp)!

Come on Calculated Risk, everyone knows this is the time to buy equities. The bottom is once again here!

Until next week!
Donny | 05.16.08 - 11:20 am | #

tj & the bear writes:
bluestatedon,

Can't ignore the huge drops in workforce participation, either.
tj & the bear | 05.16.08 - 11:20 am | #

Ross writes:
Rick Santelli for Prez!!! The ONLY bright spot on talking head TV.
Ross | Homepage | 05.16.08 - 11:21 am | #

TM writes:
The consumer rightly recognizes that the economy is going to hit a wall not unlike a 1 sheet ACME Triple Strength BATTLESHIP STEEL ARMOR PLATE, of RoadRunner fame.

$4+ for 87 octane is nothing. We're headed to $5+ by the end of the summer, bank it. And that's assuming no natural interruptions of refining/drilling.

The lesson we've learned over the past year is that:

1) People will initially curtail demand in the face of higher prices, and

2) Consumers will then adjust their spending elsewhere and resume previous demand, even at higher prices, because people will not give up their freedom to drive around as desired.

$3 gas was supposed to be the deal-killer. We saw a big dropoff in demand the first time around, and then the consumer realized he needs to keep driving, and so demand shot back up. The same will happen here at $4. The same at $5. The allowance will get sucked away from discretionary spending elsewhere.
TM | 05.16.08 - 11:21 am | #

tj & the bear writes:
They'd feel better were they to go out and buy a cheap house at a low interest rate. Maybe.

Here in L.A. there hasn't been such a thing as a cheap house in at least 25 years.
tj & the bear | 05.16.08 - 11:22 am | #

Son of Seb writes:
Consumers say one thing but do another.
There is no recession. Wright Model B tells us that. It is simply too early in the business cycle for a recession. Consumer confidence will rebound in the coming months as the consumer becomes aware of the Wright Model B.
Also, this is just another perfect contrarian indicator. Clearly with consumers so negative the economy is obviously very strong. Once again bearish sentiment simply means bullish behavior.
This is so simple and logical that I pity the bears on this blog for not understanding it.
Son of Seb | 05.16.08 - 11:22 am | #

bluestatedon writes:
"Can't ignore the huge drops in workforce participation, either."

I don't, but Kudlow & Co. seem to. But we're all entering the golden era of self-employment, are we not?
bluestatedon | 05.16.08 - 11:22 am | #

5 Foot 3 Pablo Picasso writes:
suecris writes:

"Every time CR mentions that there was a recession in 80 or 81/82, I flash back to those times in my personal history. My husband graduated college in 1980 and was hired by AT&T Bell Labs in New Jersey. . . . That was a recession? These days those seem like good times."

Gawd! Usually I just pass by drivel like this, but is it possible for you, suecris, to see past your own personal experience? Is it possible to generate, you know, an empathetic response?

For many folks not in the 99.9 percentile, the early 80's recessions were tough. You and your husband were fortunate -- good for you. But can you possibly envision a scenario where hardship hits even you? You know, where you lose your job or illness strikes?

Good times? Yeah, your self-absorbed cocoon sounds like a magical place.
5 Foot 3 Pablo Picasso | 05.16.08 - 11:23 am | #

Wade writes:
One factor that is at play moreso now than in the early 80's is much more of a media impact. In 1980 there wasn't near the barrage of bad news available at any and all times. The ability of the media to affect "consumer confidence" negatively has increased greatly over the last 25+ years.
Wade | Homepage | 05.16.08 - 11:23 am | #

Tim writes:
To The US Consumer:

Your good enough, your smart enough and gosh darn it, foreigners like you.
Tim | 05.16.08 - 11:24 am | #

Tim writes:
your=you're
Tim | 05.16.08 - 11:24 am | #

tj & the bear writes:
TM,

I'd read something a decade or so ago that stated people wouldn't change driving habits until gas went over $5. Don't know what it would be now, but not $5 anymore.
tj & the bear | 05.16.08 - 11:25 am | #

tj & the bear writes:
Wade,

So you're saying that everything would be peachy-keen if everyone simply watched CNBC? ;-)
tj & the bear | 05.16.08 - 11:27 am | #

donna writes:
I think suecris' point was that companies still had quite a bit of money and jobs available then, and people tended to still have personal savings. I see very few available jobs right now and most people have little or no savings.

We've been living off asset bubbles instead of real growth, and there's little left of those assets.

How will we even re-start this economy when there are so few resources available? What asset bubble do we re-inflate this time, or what new course for growth are we going to take?
donna | Homepage | 05.16.08 - 11:30 am | #

suecris writes:
5 foot 3 Pablo Picasso - you misunderstood me. I was trying to say that workers entered that recession much stronger and they are entering this one.
You know nothing of my life and its hardships - you assume there have been none?
suecris | 05.16.08 - 11:31 am | #

bluestatedon writes:
Pablo, I think you're a little hard on suecris, who I'd wager fully understands how fortunate she and her husband were. I think one of her (perhaps unstated) points was that as bad as the early '80s recession was for many of us (including me), it was in many ways an easier time for those who were in deep shit. I was getting out of school then too, and my student loans were miniscule in comparison to what my daughter has to pay now. Medical care costs were also dramatically lower. Many more people had intact pension plans, and it was far more feasible for a family to survive on a single wage-earner. True, we didn't have "American Idol" but I'd take "Barney Miller" any day.
bluestatedon | 05.16.08 - 11:31 am | #

interested writes:
Interesting research paper.

Maybe sentiment is low because people read press accounts and blog postings.
* * * * *
http://www.frbsf.org/publication.../el2004- 29.html
* * * * *

As significant as this measure is, there is still little understanding of how consumers form their impressions about the economy. One would expect that it would depend primarily on economic fundamentals, such as employment growth, the unemployment rate, the stock market, and gasoline prices. This Economic Letter reports on new research by Doms and Morin (2004) that explores this question. Their research finds that, in addition to moving in line with these economic fundamentals, consumer sentiment also swings in response to the tone and volume of economic reporting by the media. Over the past 25 years, there have been several periods when the tone and volume of economic reporting pushed consumer sentiment significantly away from what economic fundamentals would suggest.



What is surprising is how sentiment varies over time relative to economic conditions. For instance, the expected conditions index fell in the early 1990s, during a relatively mild recession, to levels close to those seen in the early 1980s, when the recessions were much more severe. Also, during the most recent downturn, expected conditions fell some, but not as much as they did during the downturn in the early 1990s, which was similar in magnitude and length. Understanding why sentiment, especially the expected conditions index, behaved this way is one of the issues that Doms and Morin address.

Doms and Morin show that while consumer sentiment is affected by economic fundamentals, media reporting also plays a role. Specifically, they find that deviations in sentiment from economic fundamentals are partially explained by constructed indexes of the tone and volume of news reporting, which may or may not align with what is happening in the economy. In fact, there are several periods when reporting on the economy appears to be extreme relative to economic fundamentals. Consequently, people's views about the economy deviate for short periods of time from what economic fundamentals would suggest.
interested | 05.16.08 - 11:32 am | #

Fast Eddie writes:
Buying opportunity? I'm waiting for the IRAs and 401k's to cashed out.
Fast Eddie | 05.16.08 - 11:33 am | #

Anonymous writes:
get ready for another round of that favorite family funtime known as:

B.F.F.

Bank Failure Friday

Over/under on how many today after the close??? I say 4....

What say you? Winner gets the now infamous "pony"

Ciao
MS
Anonymous | 05.16.08 - 11:33 am | #

tj & the bear writes:
5'3",

Lighten up -- suecris was relating an interesting personal anecdote that reiterates the point that recessions don't affect everyone. Even throughout the Great Depression most people remained employed.

It's partly the idea that recessions are bad and somehow must be prevented at all costs that got us here.
tj & the bear | 05.16.08 - 11:33 am | #

TM writes:
"Once again bearish sentiment simply means bullish behavior.
This is so simple and logical that I pity the bears on this blog for not understanding it.
"

The public is a contrarian indicator, historically, because it is historically a reactionary body, not a forward-looking one. Without a declared recession, however, what is the public "reacting" to in its bearishness? Why is it so negative if there's no recession?

Here's the corner you paint yourself into: if there's no recession, then clearly the public can't be reacting, but pro-acting. If it's pro-acting, then public sentiment is becoming a leading indicator, not a lagging one. You've discounted the massive increase in exposure the public has to financial data, the blogs, the business media, etc., and on a real-time basis. In the past, the public couldn't really understand what was happening until it happened. Today, the public knows before it's happened. Thus, the consumer is reacting to expected economic behavior. The contrarian nature of public opinion is not manifest by stupidity. It's manifest by not realizing there's trouble until the turnaround has begun. Since, as you say, there's no recession, there can't be a turnaround for the public to be late to recognizing. Therefore, public sentiment can't be a contrarian indicator at this time.
TM | 05.16.08 - 11:35 am | #

Sebastian writes:
The "recession" so far:

http://www.macroadvisers.com/ con...y_GDP_Index.xls

Latest forecast is for +2.6% GDP growth in Q2.


Sebastian
Sebastian | 05.16.08 - 11:35 am | #

tj & the bear writes:
TM,

Son of Seb was being totally sarcastic, mocking his namesake.

Of course, that doesn't invalidate anything you just stated.
tj & the bear | 05.16.08 - 11:38 am | #

dryfly writes:
That was a recession? These days those seem like good times.
suecris | 05.16.08 - 10:59 am | #

I graduated in 1981 in chem engineering though should have graduated in 1980 (I went back for one more year to load up on grad level biochem classes).

Anyway - everyone I knew was getting the same gold platter treatment - especially in the oil patch. I had six friends that went down to Houston & got offers a full 50% higher than the rest of the class. I also had friends (a couple) that went out to Bell Labs - similar experience to what you describe.

By mid-1983 all of the chem engineers I knew in Houston were UE - some lost homes, others didn't work for 2-3 years & when they did it was for Reagans mil build up (Los Alamos & Rocky Flats & Hanford). It got ugly so fast it made many a head spin.

I actually didn't do so bad - I went into the ag processing biz (ethanol & fructose) and even though the farm crisis was on going the price of our feedstock (corn) was so low we made money even without the subsidies (contrary to farm state senators).

I don't know what happened to my classmates at Bell (except that they got a divorce). Too many hours in the lab and not enough in the bed maybe?

Anyway - I don't sense we are at 80s levels of distress yet... BUT I think the fundamentals suggest we are at risk of blowing past the 80s BIG TIME. I believe it will be especially rough on white collar middle & upper managers. Many are about as useful as tits on a boar pig - recessions sort of expose that. NYTimes had a good read on that this morning:

For Wall Street Workers, Ax Falls Quietly

Money line: And gallows humor is rampant. One joke: A banker calls a colleague and asks, “Are you busy? Or are you lying?”

So look busy.

dryfly | 05.16.08 - 11:40 am | #

FFDIC writes:
FDIC Chairman Sheila Bair at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another; Washington, DC
May 16, 2008
http://www.fdic.gov/news/news/sp.../ spmay1608.html
FFDIC | 05.16.08 - 11:44 am | #

Mike_in_Fl writes:
Meanwhile, since the Fed claims you can't have inflation unless consumers expect inflation, there must be alarm bells going off in Washington right now. In fact, I fully expect an "emergency rate hike meeting" and a 50-bp increase in the funds rate by the end of the day.

Okay, I'm kidding about that. The Fed is all hat, no cattle, when it comes to raising rates and worrying about inflation. But the inflation expectations figures embedded in the UMich data are atrocious nonetheless. A brief recap:

* An index that measures inflation expectations for the next year jumped. Consumers now expect inflation to run at a 5.2% page over the coming 12 months. That's up from 4.8% in April and the highest reading going all the way back to February 1982 (a tie).

* Five-year forward inflation expectations climbed to 3.3% from 3.2%. That's the highest reading since August 1996 (a tie).
Mike_in_Fl | Homepage | 05.16.08 - 11:45 am | #

Calculated Risk writes:
anon, it's just the way the graph came out ... don't read too much into it!


Best to all.
Calculated Risk | Homepage | 05.16.08 - 11:48 am | #

TM writes:
Sebastian -

I understand why you believe there is and will not be a recession. You firmly believe that the government provides truthful data.

The bears, however, do NOT believe that the government provides truthful data, because the cultural climate of the financial industry is one of obfuscation, sleight-of-hand, and outright fraud. If the gov't can publicly tolerate, nay endorse, overt balance sheet fraud on the part of the banks, there's no reason to assume it doesn't engage in the same fraud. The bears are looking at screaming neon, real-life indicators, and saying, "government data does NOT compute, therefore, either our own eyes and our own wallets deceive us, or the government is not reporting the truth."

Given the behavior of the WH and the Fed, there's no reason to assume they're right and we're wrong.
TM | 05.16.08 - 11:48 am | #

SeattleSun writes:
bluestatedon writes:
"Well. The other puzzle is where the unemployment goes?"

BP today had an interesting article by Rosenberg at Merrill Lynch about the reality behind the employment numbers, which is (greatly simplified) that so many workers have had their hours reduced that the cumulative total is equivalent is 400,000 full-time jobs lost in the last three months. These workers have not been laid off outright, and naturally the unemployment statistics don't reflect the reduction in hours. Their paychecks do, though, and that will inevitably trickle down through the retail economy.

-------------------------------------

One of the four macro trends (Energy, Food, Metals and WorkerBees) I have been interested in and following is the shortage of skilled workers in the developed world or OECD. The only country in OECD with positive birth rate is the USA and that is only because of the Hispani monthers.

Q. So are employers not lying off workers but putting them on part time because are they afraid that when the economy turns up again they will be unable to find qualified workers?

SeattleSun


WORKERS

The fourth shortage story – WORKER BEES – will be the most powerful contributor to Asia’s rise to global economic dominance is actually homebred in the OECD; the multi decade collapse in reproduction. Before the industrial world began outsourcing jobs to China, it had begun a process that would ultimately ensure that outsourcing and soaring trade deficits would NOT lead to widespread unemployment. The worker never born is the worker never unemployed.
SeattleSun | 05.16.08 - 11:48 am | #

TM writes:
TJ,

Thanks for clarifying.
TM | 05.16.08 - 11:49 am | #

tj & the bear writes:
People know what debts they have to pay off even if they can afford their bills now.

Average Joe nailed this early on. IOW, "It's the Debt, Stupid!"

Consumer debt is at historic highs and the assets securing those debts (e.g., houses, cars, etc.) are declining, all in the face of stagnant wages and job prospects. People know that their credit-fueled spending frenzy of these past years will be a drag on their future spending for many years into the future.

In a consumer-driven economy, that's the recipe for disaster.
tj & the bear | 05.16.08 - 11:50 am | #

Anonymous writes:
By mid-1983 all of the chem engineers I knew in Houston were UE - some lost homes, others didn't work for 2-3 years

I Started with one of the majors in 81, By 83 they were spending money like no tomorrow, they hired 10 people and in less the a year all were laid off. It was the money in the bank not the oil in the tank. These ass-hats blew billions on projects that were completed and have never been fired to this day. Most were stripped for parts over the last 25 years but the shells remain.
The worm always turns.
Anonymous | 05.16.08 - 11:51 am | #

suecris writes:
5'3" - I should have noted that that was the last fully paid move we ever had - only other paid move was reimbursement for a U-Haul. My husband died at age 44 leaving me with two children ages 8 and 10. Never assume that others are arrogant - it's usually shyness or ineptitude you're seeing.
suecris | 05.16.08 - 11:52 am | #

cjc writes:
I have spent a lot of time on this blog over the last few months and I think I am giving up on understanding the stock market in a way that helps me make money. I have gotten some good information and understand now that the Gov't puts out a bunch of drivel as official statistics. I get that a massive credit unwind is likely coming and lvl 3 assets are a huge problem. I also understand that the market does not price in these factors --to the dismay of many but not quite all on the comments.

I looked at the 50 day moving average for the funds I own. Yes, I own funds. I try to have 4 and 5 star funds only and have been pretty successful at that. So anyway, the understanding provided by the articles and commentary here has not helped me make money. My new strategy is that the 50 day moving average indicates short term up and down market. If I had bought and sold on the price passing through the average over the last year, I would have been in the right spot each time. I understand challenging times are coming, but I need a shorter, easier way to guage where to put my monies. I know it is not anything like full understanding, but I need something that does not pull me away from my job and still leave me confounded.

going with the herd....

This is just a long way of saying "if the market participants don't see what CR sees, does it matter if CR is right and market participants are wrong? (short term)"

cjc
cjc | 05.16.08 - 11:52 am | #

Average Joe writes:
Those who say the consumer is REACTING to negative press are wrong.

Several of you have agreed with my post about sentiment being more of a leading indicator this time.

Think back people!

In 2004, and 05 the SMARTEST economic minds never saw the housing bubble. There was NO evidence of it in the economic world or historical data. NONE.

From my local financial guy on the radio George Chamberlin, to Greespan who called the bottom in housing in OCT of 06, to major companies who were BUYING lenders in 06 and 07 leaving us bloggers scrathing our heads, to Bernanke who saw no spillover last Summer....

The experts have been wrong, embarrassingly wrong.

When a cop in San Diego, with no formal financial education sees a huge housing bubble, and has to go to blogs to even see it being discussed, while the entire financial world is in denial and the DOW hits 14,000 as CEO's drive the best companies to the brink of failure.....

People out there know what loans they and their neighbors can't pay back. They see the house next door selling for $200,000 less than it did ! YEAR AGO!!!!!

This was simply unthinkable a few short years ago.

Trust me....the LAST people to know if they are going to get paid back is the banks.

In this case the consumer is a LEADING indicator.....

It's a logical explaination.

How many of you see financial ruin coming for individuals...who repeatedly put off the day of reckoning because they were able to get one more loan.

Don't trust the experts.

As I have said....a EVERY, not most, not almost every, BUT EVERY hijacking expert would have told you to cooperate with the hijackers BEFORE 911.

EVERY cop would have told you to put a perimeter around Columbine and wait for SWAT.

Both were exactly opposite and it would have been IMPOSSIBLE to get the right answer from the experts.

You HAD to go to amatures. The average citizen did end up doing the right thing on flight 93. Columbine completely changed the way we think and train for ACTIVE SHOOTERS.

Experts and historical is the worst to go to when things are different.
Average Joe | 05.16.08 - 11:53 am | #

Outsider writes:
dryfly - I've known chem engineers who either had highly allergic reactions to the elements they worked with, or came down with strange immune/lung disorders. Not saying it was cause/effect, but IMO you made a wise choice to go ag.
Outsider | 05.16.08 - 11:54 am | #

Son of Seb writes:
Seb -
Exactly.
As these numbers show there is also absolutely now inlfation as evidenced by March nominal GDP growth being up only 0.08% more than March real GDP growth. We both know that inlfation is lower now than it has been in the past 30+ years as these prelim GDP numbers show.
Block out the baseless cries from the bears because these numbers are gospel and will not be restated despite the fact that GDP was restated to show the start of the last 2 recessions several quarters afterward. This time is different as the Wright Model B tells us.
These consumers are simply just lemming bears and like all of the bears they will be proven wrong.
Finally, thanks for strongly recommending stocks when the Dow was above 14,000 on some of your prior posts. I've managed to stave off a few margin calls but by the end of this year I'll look like the genius you've proven to be.
Son of Seb | 05.16.08 - 11:56 am | #

Outsider writes:
Avg Joe - You must get lonely at the police station, with no one to talk to about these things. :) No formal education? Still you are sharper than most.
Outsider | 05.16.08 - 11:56 am | #

k harris writes:
Average J,

I think you are probably right about the difference in timing between this cycle and some others. Not every recession is a consumer recession. If we have a consumer recession, which a housing-led recession is, more or less by definition, then consumer moods may be more leading than at other times. The fact that gasoline and food prices seem to be having a big impact on consumer moods may not mess up the analysis, to the extent that rising commodity prices lead to reduced real spending.

Oh, and note that Sebastian has cited a single forecast, one which agrees with his own views. The median estimate among the 79 contributors to the Bloomberg survey is for no growth in Q2. The high estimate is 2.4%, just 0.1% above the estimate that Sebastian thinks we should pay attention to. Let's just be clear. Pointing only to stuff that suits your view and ignoring everything else isn't analysis.
k harris | 05.16.08 - 11:57 am | #

Gamma writes:
I use the Elvis Model. Basically it involves the price of gas, steak, and beer. When those prices go up and employment goes down, I call it a recession. It seems that many people use this same model.
Elvis

Thanks - loved this.
Gamma | 05.16.08 - 12:02 pm | #

Anonymous writes:
"Pointing only to stuff that suits your view and ignoring everything else isn't analysis."


But that is waht pump monkeys do. It's their job.
Anonymous | 05.16.08 - 12:03 pm | #

BrantW writes:
Sebastian,

So when the Federal government and BLS legislate away the recognition of inflation forever, we will never again have a recession....right?

That you take inflation and GDP deflator numbers as gospel is a joke. You NEVER NEVER respond to this point do you?

In the early 90s, the BLS, with the encouragement of the FED and Federal government cooked the way inflation is calculated mainly to save the federal government money on COLA indexed expenditures.

There is a REASON that consumer confidence is so low while the Federal Government claims no recession. It all relates back to the lies about inflation. They and you are counting price increases as growth.

There has been a long standing saying that you can't fool the average guy in the street...he may not understand markets and finance...but he knows what is going on in his world. In his world, it is costing more and more to live, and his earnings are falling behind.
BrantW | 05.16.08 - 12:07 pm | #

Detroit Dan writes:
Thanks k harris.

Does anybody think the Fed will rescue the stock market again? I think not; that we have moved past that phase and are now in for the real bear market.

The Fed's last move was to save the financial system from collapse. They will not move to save other sectors from recession, as there is no easy way to do this and they've already stretched their authority and won't be anxious to do that again. They may even realize that a downturn is necessary and will be able to live with one that is short of another great depression...
Detroit Dan | 05.16.08 - 12:10 pm | #

Uncle Ar writes:
Outsider writes:
Avg Joe - You must get lonely at the police station, with no one to talk to about these things. :) No formal education? Still you are sharper than most.
-----------------------------
I believe he said no formal financial education. Big difference.
Uncle Ar | 05.16.08 - 12:12 pm | #

Pondering the Mess writes:
"Impossible! There is no recession and of the recession, there is none! We are beating the recession now, and indeed, the bears are fleeing from us, and we throw our shoes at them!"

Baghdad Bob would be right at home in the current scam system, but the consumer sentiment tells the real facts: the Recession is here and has been for some time AND it is NOT going anyway anytime soon.

Gas continues to climb, jobs vanish, food prices spike, housing stagnants - stubbornly refusing to either drop to affordable levels nor return to the Bubble years - and all the while the stock market goes up. Unreal!
Pondering the Mess | 05.16.08 - 12:15 pm | #

barely writes:
pfffft - 28 years? Tis a mere flesh wound.

Sebastian, is this a bullish contrarian indicator?
barely | 05.16.08 - 12:16 pm | #

w writes:
suecris, I was a kid in the early eighties and the company my Dad worked for would fly the employees with their families to Europe for the summer for a month. Every Year!
w | 05.16.08 - 12:17 pm | #

TH writes:
Fareed Zakaria on consumer sentiment is worth reading in a recent Newsweek. He sees the negativity as a dawning recognition that America is not the biggest or the best any longer

"Look around. The world's tallest building is in Taipei, and will soon be in Dubai. Its largest publicly traded company is in Beijing. Its biggest refinery is being constructed in India. Its largest passenger airplane is built in Europe. The largest investment fund on the planet is in Abu Dhabi; the biggest movie industry is Bollywood, not Hollywood. Once quintessentially American icons have been usurped by the natives. The largest Ferris wheel is in Singapore. The largest casino is in Macao, which overtook Las Vegas in gambling revenues last year. America no longer dominates even its favorite sport, shopping. The Mall of America in Minnesota once boasted that it was the largest shopping mall in the world. Today it wouldn't make the top ten. In the most recent rankings, only two of the world's ten richest people are American. These lists are arbitrary and a bit silly, but consider that only ten years ago, the United States would have serenely topped almost every one of these categories."

I don't think consumer sentiment is down necessarily because things are bad economically, they've been much worse. I think Zakaria has it right: the rest of the world is catching up with us and we Americans aren't used to that.
TH | 05.16.08 - 12:22 pm | #

picosec writes:
Regarding consumer confidence related to media reporting ...

What's the most visible reminder of the price of something? - Gas prices posted in 1-ft high numbers on most street corners.

What item has experienced extremely high price increases over the last year or so? - Gasoline.

Our noses are rubbed in it all day every day. It's not surprising that we notice.
picosec | 05.16.08 - 12:27 pm | #

Gamma writes:
Seb-

I'd like to get your opinion on what constitutes a "higher" market going forward. If the DOW goes to 15,000 and the dollar index goes to 40 (currently around 72ish), have you "won"? This is a serious question. I'd like to know where your head is at.

In the above scneraio, let's also assume the GDP never goes negative.
Gamma | 05.16.08 - 12:28 pm | #

TH writes:
Fareed Zakaria: Rise of the Rest:
http://www.newsweek.com/id/135380
TH | 05.16.08 - 12:29 pm | #

Rally Monkey writes:
Rick Santelli for Prez!!! The ONLY bright spot on talking head TV.


what did he say !

tia
Rally Monkey | 05.16.08 - 12:29 pm | #

blackhat writes:
TH,

Good points but, it is that bad, especially for those of us who prefer R&D, infrastructure and educational investments to tax cuts, open-ended wars, and spend-your-way out of stupidity philosophies...my two euros...
blackhat | Homepage | 05.16.08 - 12:30 pm | #

KnotRP writes:
suecris - going to work for a regulated monopoly (AT&T) is nothing like the real world.

Know anyone who disconnected their phone during the 1980s recession?

Didn't think so...
KnotRP | 05.16.08 - 12:31 pm | #

Rally Monkey writes:
Rick Santelli for Prez!!! The ONLY bright spot on talking head TV.


what did he say !

tia
Rally Monkey | 05.16.08 - 12:32 pm | #

Currently Smoking Cannabis writes:
5'3"
That's kinda small.
Currently Smoking Cannabis | 05.16.08 - 12:33 pm | #

Sebastian writes:
BrantW said: "That you take inflation and GDP deflator numbers as gospel is a joke. You NEVER NEVER respond to this point do you?"

Okay, a response.:)

First of all, I accept *all* the significant pieces of government economic data at face-value. Note the distinction between accepting the data and approving of government statements or policy.

No, of course it's not Gospel. However, flawed as it is, it's the best we have, it's what policy-makers and key-influencers here and around the world are using, and it works *very* well for my purpose (recession/not recession forecasting).

As the year goes on with recession remaining a spectre and inflation easing, I expect my view on this will be...well, no I guess it won't be accepted.:)


Sebastian
Sebastian | 05.16.08 - 12:35 pm | #

Bob Dobbs writes:
Gold back to 900. Not exactly a vote of confidence.
Bob Dobbs | Homepage | 05.16.08 - 12:35 pm | #

rich writes:
>Does anybody think the Fed will rescue the stock market again? I think not; that we have moved past that phase and are now in for the real bear market.


The Fed now has to focus its resources on shoring up the "American safety net." These are the things that must stay intact for people not to panic. I've thought about what they are and I'll list them, in some semblance of priority order. But feel free to add or reorder.

1. FDIC
2. Medicaid
3. Medicare
4. Social Security
5. Freddie, Fannie and FHLBs
6. PBGC and private pensions
7. Public pensions
8. The municipal finance market
9. The credit default swaps market
10. The IRS (against tax revolt)
11. Life insurance companies and state guarantee funds that backstop them
rich | 05.16.08 - 12:36 pm | #

Son of Seb writes:
Seb -
I would only add to your spot on observations that the govt statistics will clearly be wrong if they get restated down.
Son of Seb | 05.16.08 - 12:38 pm | #

Anonymous writes:
Don't understand why. Bernankie is ass raping these people threw inflation and currency devaluation to bailout a bunch of insolvent banks, and enrich his buddies on Wall Street and a bunch of thieving politicians are doing their best to help him. Just can't see why they wouldn't be confident.
Anonymous | 05.16.08 - 12:40 pm | #

blackhat writes:
rich,

great list. Somewhere very basic infrastructure like bridges, tunnels, dams, electrical grid, etc...needs to be included...
blackhat | Homepage | 05.16.08 - 12:40 pm | #

Sue writes:
Fareed Zakaria should talk! He was a big hawk on Iraq and a neocon proponent of the US throwing its weight around. Thanks a lot, Fareed ... you and the Bush legion of chest-pounders have weakened the US permanently.

All that money that was dumped onto the ground in Iraq was money that could have gone into infrastructure. But, Bush supporters had their way. Hey Fareed - make that 8 years ago rather than 10 - don't try to tell me the big dividing line was 1998.
Sue | 05.16.08 - 12:41 pm | #

cm writes:
I'll offer this potentially irrelevant analogy -- over the past 5+ years local tech companies, and quite likely others, have become good in "managing" their workforce without highly visible periodic layoffs, by what looks like a combination of selective hiring, continuous small and local (not across the board) "prunings", and encouraging attrition by cutting perks/benefits and pay advancement (probably selectively to the extent it's not certifiably illegal). And in the job descriptions amenable to it, converting from an all-employee force to all-or-partially contractors. Annual separations appear to remain in the 5%+ range.

Now to the point of the analogy -- the phenomena that the indicators sample/measure are subject to secular trends, which the indicators may not capture.

Especially with the IT infrastructure in place certain aspects affecting corporate finance can be "managed" much better -- e.g. supply chains, inventory levels, and visibility into staff requirements. Also general information flows much faster, and often instantly. When something newsworthy happens somewhere, most people know within hours. Otherwise there are the internet rumor mills of various degrees of credibility.
cm | 05.16.08 - 12:43 pm | #

dryfly writes:
Outsider writes:
dryfly - I've known chem engineers who either had highly allergic reactions to the elements they worked with, or came down with strange immune/lung disorders. Not saying it was cause/effect, but IMO you made a wise choice to go ag.
Outsider | 05.16.08 - 11:54 am | #

I dealt with nasty chemicals too - benzene (to crack the water-ethanol azeotrope), very highly concentrated hydrochloric acid, sulfuric acid, ammonia and 'caustic soda' (NaOH).

And I developed asthma in later life though not severe. HOWEVER my doc attributes that to a nasty and extended bout with influenza - not chemicals... my asthma set in after the viral infection & never left. That was twenty years after leaving the chem biz.

However I generally agree with you - operations people whether engineers or operators too close to 'the process' for 'too long' tend to develop all kinds of weird ailments. It isn't the best environment.

dryfly | 05.16.08 - 12:46 pm | #

Gamma writes:
Just to be clear about the cost of the Iraq war - it currently stands at $500 billion. It's taken 4.5 years to spend that much money.

The Fed has "spent" that much via swaps (TAF, TLSF, open window) in as many MONTHS.
Gamma | 05.16.08 - 12:46 pm | #

KnotRP writes:
As for stealth layoffs -- the laws changed recently, such that layoffs of large numbers have become harder. I think 10% is the threshold I heard about.

As usually, the new rules are worked around...
KnotRP | 05.16.08 - 12:47 pm | #

Anonymous writes:
Let the beating continue.
Anonymous | 05.16.08 - 12:49 pm | #

Gamma writes:
Does my question get a response SEBass, or are you feeling confused?

It's pretty simple - the hypothetical scenario gives you everything you want to be "right" and "win" your argument with the "bears". One caveat - dollar index goes to 40. Do you consider yourself a master of economics and markets at that point?
Yeah or nay?
Gamma | 05.16.08 - 12:50 pm | #

Jas Jain writes:
--
"As the year goes on with recession remaining a spectre and inflation easing, I expect my view on this will be...well, no I guess it won't be accepted.:)"

You have been right all along, Sebastian, and CR is right about “no severe recession.” Hell, how can we have a severe recession if we don’t even have a recession?

Bears are in trouble and would have to eat lot of bull poop, especially, Seb’s.

I vote for Seb being the true genius on this blog.

Jas
Jas Jain | 05.16.08 - 12:50 pm | #

Sebastian writes:
Gamma asked: "I'd like to get your opinion on what constitutes a "higher" market going forward. If the DOW goes to 15,000 and the dollar index goes to 40 (currently around 72ish), have you "won"? This is a serious question. I'd like to know where your head is at.

In the above scenario, let's also assume the GDP never goes negative."

My focus is domestic.:) For example, if the DJIA goes from 13,000 to 15,000 that's a +15% return. Subtracting out even a high 5% inflation rate, that's a +10% real return.

The dollar index, specifically, is not my concern. (JMO, but there's far too much focus on minutiae like this, and not enough on the big picture data.) Whatever happens with it will affect the domestic economic inputs I watch (or it won't), which is good enough for me.


Sebastian
Sebastian | 05.16.08 - 12:50 pm | #

BB writes:
Paulson : End of crisis is nearer!

What do you think?
BB | 05.16.08 - 12:51 pm | #

dryfly writes:
KnotRP writes:
As for stealth layoffs -- the laws changed recently, such that layoffs of large numbers have become harder. I think 10% is the threshold I heard about.

As usually, the new rules are worked around...
KnotRP | 05.16.08 - 12:47 pm | #

Its easier for the HR Depts too - think of it as head count reduction backlog - can only process so many at once and keep the place orderly... so trickle them out.

Now if you plan to shut down a division or whole company - blast away. I think we'll see a lot more of that but not until way later in the cycle (the desperate end - the capitulation phase). Mortgage boiler rooms have experienced that - some of the rest of us will get to experience it too but later.

dryfly | 05.16.08 - 12:52 pm | #

jin writes:
cjc ,

Big money, usually the Wall street decides and interprets economic news and events. CR just does not wield the power. So if you are looking for a short term investment guidance, this blog is not a good place for you.
jin | 05.16.08 - 12:53 pm | #

Anonymous writes:
"The dollar index, specifically, is not my concern."

Spoken like a true Keynsian. Fire up the presses boys we can have unlimited growth.
Anonymous | 05.16.08 - 12:55 pm | #

Average Joe writes:
Next GDP release will likely show negative growth with a revision to the first quarter GDP putting it into negative growth.

We will go from being two quarters away from a recession to being in a recession in one day.

Stocks will rally since this will be proof that the recession that never was is now about over.

Stocks are based upon hope.

The only ones buying stocks are hopeful.
Average Joe | 05.16.08 - 12:56 pm | #

Dr. N writes:
I appreciate the personal stories from suecris and dryfly and others. I think that one's personal experiences during periods of economic hardship such as recessions can colour behaviour long after the conditions for that experience have passed.

I remember the early 1980's as not such a good time. That recession bankrupted my parents from which they never recovered. The 1991-92 recession was not so good either; after the Berlin wall came down a newly-minted math PhD was worth shit. By always guarding against the next calamity I have missed many opportunities. I know intellectually that my behaviour is irrational, just as I regarded as irrational the practice of my grandparents, who almost starved during the Stalinist era, of keeping a larger stockpile of food in their basement than they could possibly eat in 100 years.

Just today I turned down an offer from the University of Southern California that most people would kill for, because of perceived risks that most people would consider inconsequential. It makes me sad.
Dr. N | 05.16.08 - 12:57 pm | #

Jas Jain writes:
--
"The dollar index, specifically, is not my concern."

Falling dollar is the best thing going for you, Seb. More exports and higher corporate profits for multinationals. Great for the Scam Market. Your target for Dow 15,000 is too low. 19,000 is by the end of 2009.

Seb for President! (Can't be worse than Obama or McCain or Clintons).

Jas
Jas Jain | 05.16.08 - 12:58 pm | #

Sebastian writes:
Son of Seb said: "Seb -
I would only add to your spot on observations that the govt statistics will clearly be wrong if they get restated down."

Do you know *why* government statistics get revised? The simplest, non-criminal reason in the world: The sources didn't get their data in on time.

So when we get advance GDP numbers, it based on data that was available to the government *at the time of the release*. When preliminary GDP comes up, it incorporates *additional* data, and so on.

Of course, the conspiracy theorists *hate* reasonable explanations like that.:)


S.
Sebastian | 05.16.08 - 12:59 pm | #

Detroit Dan writes:
I read the Fareed Zakaria article, and it was somewhat ironic. He claims that America needs to adjust and accept the fact that the rest of the world is pretty damn smart and nimble. At the same time, he presents the same kind of pandering treacle that we hear from our presidential candidates every 4 years -- about how superior America is and has always been.

Overall, I came away less than convinced that he has a good grasp of the national psyche. My perspective is more that developed nations such as the U.S. are necessarily less nimble because we have more protection for the environment and workers and human rights, etc...
Detroit Dan | 05.16.08 - 1:00 pm | #

Jas Jain writes:
--
"So if you are looking for a short term investment guidance, this blog is not a good place for you."

For that you need to watch Faux Business Noose. But, I would rather watch some good tennis on Tennis Channel.

Jas
Jas Jain | 05.16.08 - 1:02 pm | #

Charles J Gervasi writes:
Kinda like the teaser rates. "I'm not depressed because I can't afford today's payment, it's the future payments that I'm worried about."--Average Joe

I wonder how many people are in the position you describe, in which they know for certain something bad is coming in their lives. It's certainly true in the teaser rate example. It's certainly true for people who work in real estate related industries who didn't plan for volatility in their income. But how many people are in that situation?

There are fears expressed on blogs like this one that the few people in these bad situations will cut their spending and cause the problems to spread. It seems to me, though, that the Fed and Congress can pump money into the economy to counteract this.

I suspect this hurts long-term growth, but the policy works in the short-run.

Let me ask this question: When people say the economy will be bad or when consumers report low confidence, what exactly are they afraid will happen? Are they afraid GDP will fall 10%? Are they afraid the stock market will fall 30%? Unemployement will exceed 10%? What exactly is "bad" to a reasonable person?

It's normal for GDP bob up and down through the economic cycle. There are a lot of people living as if life's economic hiccups never happen. My gut feeling, though, is there are not enough of them to cause major economic problems.
Charles J Gervasi | Homepage | 05.16.08 - 1:04 pm | #

barely writes:
"Do you know *why* government statistics get revised?"

Yes! Because revisions are always ignored, looking too far back and the market *looks forward* LOL!

It's also quite convenient to revise prev numbers DOWN because m/m comparisons look much better, on the MSM headlines. If Q1 GDP gets revised DOWN to -2% and Q2 are only DOWN -1.9% we avoid that nasty recession print.
barely | 05.16.08 - 1:05 pm | #

Average Joe writes:
Seb,

It's not the statisticians that are at fault.

It's those who present the numbers as factual knowing that there are revisions comming and different ways to look at them.

Remember the average person has only one breast. But how many people have only one breast in reality?

When HMO's cite this statistic to only provide mamograms for one breast per person, that's where we have a problem with the integrity of the data collectors.

It's not the data, it's what they chose to do with it that many have a problem.

The only reason we did not get a negative GDP number last month is due to a 2.8% inflation number.

Nuff said.
Average Joe | 05.16.08 - 1:05 pm | #

Charles J Gervasi writes:
Consumers will then adjust their spending elsewhere and resume previous demand, even at higher prices, because people will not give up their freedom to drive around as desired.--TM

At some point, people will choose a bicycle. I get around fine on my bike. Learning to pack work clothes, ride in bad weather, haul groceries, etc are no more difficult than learning to operate a car for the first time.
Charles J Gervasi | Homepage | 05.16.08 - 1:15 pm | #

Son of Seb writes:
Seb -
Yes, exactly. You're spot on once again.
All I would add is that if the *additional* data received on historical quarters in future quarters pulls down Q1 gdp (or even your estimate of 2+% for Q2 or God forbid Q4 2007) then that *additional* data would clearly be wrong.
Otherwise there's 2 things that make no sense to me:
1. how could the Wright Model B be wrong
2. how could you be wrong
You've made it very clear that there is no recession so far in 2008 so what happens if the future restatements show negative GDP? I'm a little confused because that is exactly what happened in the past 2 recessions but you say that wont happen this time and, well, aren't you always right?
Please dont tell me you now think its actually possible for these GDP numbers to be restated and that we may see exactly what we saw in the last 2 recessions.
Son of Seb | 05.16.08 - 1:17 pm | #

Average Joe writes:
Charles said: "there are not enough of them to cause major economic problems"


O.K.

House prices have collapsed.

Bush is sending out checks.

Bear Stearns collapsed.

Hank Paulson just encouraged people who can afford their payment to continue to do so i.e. not to walk away.

He also felt the need to tell us that our economy is sound.

Consumer confidence is at all time lows when unemployment can only get worse.

Gas/Oil is at an all time inflation adjusted high.

The dollar is at an all time low.


I guess these aren't economic problems.

Look, just because people have money and things doesn't mean it's all hunky dory.

The unique thing about a Ponzi scheme is that everyone is richer. As long as it's going everyone is happy.

If I borrowed 10 thousand dollars and went to vegas and lost half of it, I would still have $5000 in my pocket and the lender would still have a performing loan. No one would be worse off AT THAT MOMENT. But the guy with $5000 in his pocket would be screwed and he would KNOW IT. Everyone else would else would see a guy with cash in his pocket who for some reason was depressed, concerned, and had low consumer sentiment. It would be a mystery to everyone but him.

The consumer knows what's up.
Average Joe | 05.16.08 - 1:19 pm | #

Sebastian'sWorld writes:
Subtracting out even a high 5% inflation rate, that's a +10% real return

it is'nt real until you sell.

only if you sell, seb.

and pump monkey that you are, that does'nt exist in your vocabulary.
Sebastian'sWorld | 05.16.08 - 1:20 pm | #

Clyde writes:
Rich, I would move muni finance up to #6, ahead of the pension complex but below the mortgage GSEs. If muni stimulus and maintenance ceased, a lot of collateral damage would ensue.
Clyde | 05.16.08 - 1:26 pm | #

Sebastian writes:
Son of Seb said: "You've made it very clear that there is no recession so far in 2008 so what happens if the future restatements show negative GDP?"

Well, in the 2001 recession the economic numbers were subsequently revised from being positive to negative...but the yield-curve *inverted* in 2000, indicating a recession was coming *regardless* of what the economic numbers said.

We've got just the opposite going on now. The Model B yield-curve never did invert. That means recession isn't coming, and also that the economic numbers won't be subsequently revised to show recession, either.

The relationship between short-term interest rates, long-term interest rates, and the Fed funds rate is not a random one, but captures a basic behavior in the business cycle and credit expansion: As long as it's favorable for money to be loaned out, it will be loaned out. When that comes to an end, recession is coming, *but not before*.


Sebastian
Sebastian | 05.16.08 - 1:32 pm | #

Average Joe writes:
Sebastian said: "As long as it's favorable for money to be loaned out, it will be loaned out. When that comes to an end, recession is coming, *but not before*.

Totally totally rediculous.

Since when has it been FAVORABLE to loan out money?

Talk to Countrywide...that's all they did.

Rates are affected by a flight to quality and a lack of alternatives and have nothing to do with a low risk environment.

Fannie and Freddie are handling 80% of all home loans and you think that it's a favorable environment?

They are losing money on every loan and are the only ones willing to do it.


LENDING is the cause of this problem.
Average Joe | 05.16.08 - 1:38 pm | #

BrantW writes:
"First of all, I accept *all* the significant pieces of government economic data at face-value. Note the distinction between accepting the data and approving of government statements or policy."

And how do you square this with the changes in the way the government calculates the data? The fact is, if they simply went back to the way CPI etc was calcualted prior to the changes in the mid 90's....then growth would be -2%+ for last two quarters.
What would have been called a recession then is not one now. It is semantics and nothing else.

John Williams has documented this clearly at ShadowStats. John uses the pre-change BLS methodology to calc inflation. In other words, when prices go up, and people switch from steak to hamburger....John does not assume that we have no inflation because hamburger costs what steak used to.

You are right that inflation will abate...and when it does, you will see just how wrong you are, because inflation mis-counted as growth drops away...so GDP will drop away in a shocking manner. I guess we just wait and see.
BrantW | 05.16.08 - 1:42 pm | #

sdtfs writes:

The consumer knows what's up.


Last year we were arguing whether the savings rate was positive, negative, or zero. Just the fact the argument could be made was not good. So now do you think that there's any argument?
People who might have fooled themselves by not looking too closely at their finances use the Elvis Method and are getting slapped in the face, especially since gas prices are posted so prominently. The only ones that are getting a spending boost are those getting raises (are there many?) and those fortunate enough to be foreclosed on (they get to use the money they were otherwise throwing into a declining asset.)
sdtfs | 05.16.08 - 1:50 pm | #

Sebastian writes:
Average Joe asked: "Since when has it been FAVORABLE to loan out money?"

I meant "favorable" for the U.S. economy as a whole.

A few days ago Dryfly had an excellent post about credit, wherein he explained that it's one thing for consumers to have their credit dry-up (paygo), but if it happens with industry that's when the lights go out and the water stops coming out of the tap.

Credit for housing is of the consumer type, and not of overwhelming significance in the overall scheme, IMO.


Sebastian
Sebastian | 05.16.08 - 1:55 pm | #

MICHAEL L` writes:
suecris writes:

"Every time CR mentions that there was a recession in 80 or 81/82, I flash back to those times in my personal history. My husband graduated college in 1980 and was hired by AT&T Bell Labs in New Jersey. . . . That was a recession? These days those seem like good times."

Good for you. I was in the houston/oil patch area. Things were near death. Really, really, bad...There is nothing I can say to make you understand.
MICHAEL L` | 05.16.08 - 1:57 pm | #

cd writes:
Average Joe,

You seem to be above average on your prose and thinking.

I only disagree with the hope, stocks are not based on hope but expectations.

I'm only saying this because I'm losing money on hope, like hoping the fed, govt. and paulson crews just let a free market work as intended..

It's like surfing solana beach, I hope that great white is gone but I expect it's around somewhere.
cd | 05.16.08 - 1:59 pm | #

Son of Seb writes:
Seb -
You made this very shrewd statement:
"Well, in the 2001 recession the economic numbers were subsequently revised from being positive to negative...but the yield-curve *inverted* in 2000, indicating a recession was coming *regardless* of what the economic numbers said."

Let me just add a couple things. First, in the 1991/1992 recession the economic numbers were *also* subsequently revised from being positive to being negative.
Second, the yield curve inverted in very end of 2006 which as you say indicated a recession was coming *regardless* of what the numbers say.

Again, for the first time your logic is starting to confuse me. Are you now saying that the GDP numbers could actually get revised downward for Q1 and Q2 (and Q4 2007)? And even more troubling, are you saying that the inverted yield curve in end of 2006 was actually a sign that a recession was coming soon no matter what the data said?

It seems like you're now arguing that we may be in a recession or on the cusp of one when all the restatements are done. I must be confused.
I just need to remember that Wright Model B rules.
Son of Seb | 05.16.08 - 2:02 pm | #

spike66 writes:
"Don't trust the experts."

great post, average joe.
spike66 | 05.16.08 - 2:08 pm | #

Sebastian writes:
Son of Seb said: "Let me just add a couple things. First, in the 1991/1992 recession the economic numbers were *also* subsequently revised from being positive to being negative.
Second, the yield curve inverted in very end of 2006 which as you say indicated a recession was coming *regardless* of what the numbers say."

The *simple* yield-curve inverted, not the Model B curve which is adjusted for the level of Fed funds.

The simple yield-curve actually *missed* the 1990-91 recession, in addition to falsely signalling a recession in the 1966-67 period. The yield-curve adjusted for the Fed funds level has a better record, it never inverted this go-around, and I don't expect to see a recession this year, last year or next year.


Sebastian
Sebastian | 05.16.08 - 2:12 pm | #

Gamma writes:
SEBass-

So consumers not having credit doesn't matter? It does matter, but it changes how the game unfolds. When it happens to businesses they (not having emotion) quickly cut costs and slash employment (or hours worked) and the economic impact is obvious and immediate (see 2001 business-led recession).

When it happens to consumers they fight it tooth and nail becuase they are emotinoal beasts and their ego is involved. Consumer-led declines are very slow moving, but they can be equally, if not more, devestating.

I know you're a lazy Boomer, but try studying history prior to 1982. Also try thinking about extremes. I'm not saying the dollar will go to "zero", but evaluating things on extremes provides wonderful insights. If it did go to "zero" (hypothetically), would you still only care about the domestic economy? How would that economy look with a dollar that is worthless? Ask anyone who has lived through a currency crisis how their "domestic" economy felt. Nice cop out though.

Newsflash... the dollar is the purest representation of the domestic economy. The decline didn't just start, it's been happening for 5 years. What does that tell you? Nevermind... Wright Model B!!!!
Gamma | 05.16.08 - 2:16 pm | #

Sebastian writes:
Gamma said: "I know you're a lazy Boomer, but try studying history prior to 1982."

If I'm a Boomer, wouldn't I have *first-hand* knowledge of history prior to 1982?

Nice chatting with you.:)


S.
Sebastian | 05.16.08 - 2:21 pm | #

me writes:
Hey,suecris, is there any more AT&T Bell Labs in New Jersey today?
me | 05.16.08 - 3:04 pm | #

Keep It Simple, I'm Stupid writes:
Can anyone explain how the BLS calculates the increase in the price of gasoline? The latest CPI number was based upon a 2.0% decline in the price of gas. They got this by seasonally adjusting a raw increase of 5.6%.

First, I'd like to see a justification for a 7.6% seasonal adjustment. My bigger problem, though, I that I seemed to remember the price of gas going up more than that. Sure enough, when I went to the Energy Information Administration's web site, they showed the average price of a gallon of gas on 3/31 as $3.290. The average price in 4/28 was $3.603. Running that through my calculator, I come up with a 9.5% increase, not 5.6%. What's up?

At least I finally had a job interview today. It's for about half what I made at my last job, but it's the first interview I've landed in two months.
Keep It Simple, I'm Stupid | Homepage | 05.16.08 - 4:45 pm | #

Group W Bench writes:
suecris writes:

Every time CR mentions that there was a recession in 80 or 81/82, I flash back to those times in my personal history. My husband graduated college in 1980 and was hired by AT&T Bell Labs in New Jersey. To interview him, they paid his plane fare and chauffered him to and from the airport in a limno. For our move, they sent the big van line, all pre-paid. An AT&T-paid realtor chauffered me around New Jersey to help us find a place to stay. All this for a 21 year old fresh out of college!

I got the same treatment @ HP (back when it was still Bill & Dave's Excellent Adventure) but that was in the pre-Chindian Global Wage Arbitrage era. Now, when I respond to people looking for senior engineers, one is lucky if they pick up the tab for travel to the interview ... much less relocation.
Group W Bench | 05.16.08 - 5:06 pm | #

BG writes:
"The they will get the pleasure of either getting screwed out of SS and Medicare or paying 15 bucks for a happy meal. Printing presses is going to be the most likely scenario."

I sure hope so.
BG | 05.16.08 - 6:59 pm | #

Chris writes:
People may have jobs but they pay so little that people can't afford to buy what they want or need. If there were any kind of unemployment insurance that amounted to anything, lots would quit and go on the dole, but since the US doesn't take care of its poor they have to work for whatever wage they can get.
Chris | 05.16.08 - 7:22 pm | #

Brian R writes:
As the graph shows, consumer confidence can turn on a dime. In other words, let's not worry about such "confidence," given the fickle nature of the consumer.
Brian R | 05.16.08 - 8:55 pm | #

Son of Seb writes:
Seb -
I'm with you. Quite frankly, I wouldnt be surprised if there was never another recession - clearly if the Wright B Model is the indicator and seems to be heavily influenced by the fed funds rate, the Fed can simply keep an eye on the model and keep the fed funds rate at a level to avoid a recession. Sheer genius! This Wright B Model is the economic Holy Grail.
Although you said something I dont understand:
"The *simple* yield-curve inverted, not the Model B curve which is adjusted for the level of Fed funds."
Ah, last time I checked the Wright B Model wasn't a yield curve - it's a recession probability model. Also, it crossed the magic threshold of 50% probability at the end of 2006. You must have missed school that day.
Please dont tell me you've bastardized Model B by inventing your own synthetic yield curve off of it. You may lose me and the rest of your loyal following if thats the case....
From your post everything seems to come down to the Wright Model B which predicted a 50%+ probability of a recession at the end of 2006 so I dont get how that jives with your statement "I don't expect to see a recession this year, last year or next year". Also, I'm not sure how the Wright Model B can invert since its not a yield curve or even a *curve*.
Nice chatting with you.;-)
Son of Seb | 05.16.08 - 8:59 pm | #

Blitzer writes:
Is this chart adjusted for population growth, i.e, what was the population in 1980, versus today and thus how does that impact the sample rate? Huh, huh?
Blitzer | 05.16.08 - 10:35 pm | #

John S writes:
"My husband graduated college in 1980 and was hired by AT&T Bell Labs in New Jersey. To interview him, they paid his plane fare and chauffered him to and from the airport in a limno... "

Those were the days. Of course back then AT&T still enjoyed its 100-year monopoly of the entire U.S. (and most of the world's) communications systems.

Fast forward to 2008. AT&T doesn't even exist, except as a brand name of SBC. The remains of Bell Labs is owned by Alcatel -- a French company. How would you like to be graduating from college today, with $70,000 in outstanding student loans ?
John S | 05.16.08 - 10:39 pm | #

Jim writes:
"My husband graduated college in 1980 and was hired by AT&T Bell Labs in New Jersey. To interview him, they paid his plane fare and chauffered him to and from the airport in a limno... "

In 1980, the average ratio of the compensation of the CEO of a large American company to that of a worker for that company was 45 to 1. Today, the ratio is 500 to 1.

That money had to come from somewhere, didn't it?

Don't you think we all have to sacrifice a bit so that our country can be a great one?
Jim | 05.17.08 - 4:14 am | #