ECRI Recession Call Remains Firmly Intact

[bmichaud]

http://pragcap.com/ecris-achuthan-recession-is-still-on

 

I look forward to hearing the counter arguments of....1) WEB says "no chance" we'll double dip, 2) Q3 GDP was 2.5%, 3) employment is improving, 4) ISM is still positive, etcetera, etcetera.

 

Cullen Roche of pragcap even dismisses the double dip call, as he believes it's merely semantics since we never left the balance sheet recession. While I very much admire Roche's work, I will give the nod to ECRI here considering they have A) not made one inaccurate forecast in the last 20 years, B) have accurately called each of the last three recessions (early 90's, early 2000's, and the recent downturn), and most importantly in my mind C) came out and declared we would NOT double dip last year (summer 2010) in the face of widespread negativity and a deeply negative ECRI leading index.

 

We'll see how well Bernanke and his "printing press" is able to ward off this contagion.

[ERICOPOLY]

I will give the nod to ECRI here considering they have A) not made one inaccurate forecast in the last 20 years,

 

Their current forecast is inaccurate.

 

UCLA-Ceridian pulse of commerce index is down 10% annualized -- symptomatic of a recession if you ask their chief economist:

http://ceridianindex.com/multimedia/video/September-PCI-Falls/

 

[bmichaud]

I will give the nod to ECRI here considering they have A) not made one inaccurate forecast in the last 20 years,

 

Their current forecast is inaccurate.

 

UCLA-Ceridian pulse of commerce index is down 10% annualized -- symptomatic of a recession if you ask their chief economist:

http://ceridianindex.com/multimedia/video/September-PCI-Falls/

 

 

Appears quite coincident to me...... http://ceridianindex.com/

[ERICOPOLY]

I will give the nod to ECRI here considering they have A) not made one inaccurate forecast in the last 20 years,

 

Their current forecast is inaccurate.

 

UCLA-Ceridian pulse of commerce index is down 10% annualized -- symptomatic of a recession if you ask their chief economist:

http://ceridianindex.com/multimedia/video/September-PCI-Falls/

 

 

Appears quite coincident to me...... http://ceridianindex.com/

 

Buffett's set of businesses is a better indicator of the whole picture.  That's my view.

 

I put that link to the ECRI in there because it's interesting.  I have more faith in Buffett-vision though -- he's got reports from boots on the ground.  Thus he can see what the ECRI guy is missing -- the actual results and sentiment of the businesses.

[watsa_is_a_randian_hero]

the news of that call basically corresponded to the market low at the end of September. union pacific railroad correction low was $78. today it's $101. this neatly illustrates the insanity of trying to invest based on somebody's "recession call". Unless of course you use it for it's value as a Contrary Indicator.

 

Analogy:

Good companies aren't necessarily good investments.

Bad companies aren't necessarily bad investments.

 

Good economies aren't necessarily good times to invest.

Bad economies aren't necessarily bad times to invest.

[bmichaud]

the news of that call basically corresponded to the market low at the end of September. union pacific railroad correction low was $78. today it's $101. this neatly illustrates the insanity of trying to invest based on somebody's "recession call". Unless of course you use it for it's value as a Contrary Indicator.

 

UNP was trading around below $60 in January 2008 when ECRI came out and said a "self-reinforcing downturn has already begun" (see: http://www.businesscycle.com/aboutecri/trackrecord). UNP then proceeded to climb above $80 per share in August 2008....

[Parsad]

Frankly, forecasts are a waste of time as I've stated.  We have no idea.  Others have no idea.  There are so many variables that are out of our hands.  The only thing you can control is margin of safety, emotions and execution.  Remember, the experts at one time thought the world was flat, Hitler was misunderstood and as recently as two years ago...markets were permanently broken!  Cheers!

[bmichaud]

the news of that call basically corresponded to the market low at the end of September. union pacific railroad correction low was $78. today it's $101. this neatly illustrates the insanity of trying to invest based on somebody's "recession call". Unless of course you use it for it's value as a Contrary Indicator.

 

UNP was trading around below $60 in January 2008 when ECRI came out and said a "self-reinforcing downturn has already begun" (see: http://www.businesscycle.com/aboutecri/trackrecord). UNP then proceeded to climb above $80 per share in August 2008....

 

so what you're saying is that when unp was $60 about 3 1/2 years ago that these charlatans made TWO recession calls since then (scaring the living daylights out of people) and unp is over $40 higher now. A holder of unp should have bought their jan 2008 call just as they should have bought their late sep 2011 call. they are contrary indicators whose sole purpose as far as I can tell is to create buying opportunities for those who can see beyond the fancy forecasts that in the end have absolutely no predictive power over investments. I was certainly buying heavily at the time of their recent recession call.

 

 

I should have finished my thought. UNP subsequently declined to the $40s by the time the recession actually hit.

 

UNP is actually a great example. I don't see the margin of safety buying it even in the $80s back in October. It's near peak earnings and it's heavily tied to the commodity boom. Unless of course you label your purchase in the $80s a "trade", then that's a different story and I applaud your keen timing. But if you consider it an "investment" then I wish you well.

[Josh4580]

regarding the ECONOMY, ECRI has a much better track record than Buffett.  Obviously this doesn't have anything to do with individual stocks. 

[DCG]

I like to do much of my research by talking to people and viewing what's going locally and while traveling. While there have been some local companies going out of business lately, I've talked to people across various industries and everyone says their businesses have been doing better this year than the past few years...not great, but better. I talked to a friend work forks for a company in commercial construction, and even he said their business has finally started to improve.

 

That said, things can obviously get worst in a hurry. What we've seen from overall earnings recently is that business has been average..not getting much better, but not getting much worse either.

[bmichaud]

the news of that call basically corresponded to the market low at the end of September. union pacific railroad correction low was $78. today it's $101. this neatly illustrates the insanity of trying to invest based on somebody's "recession call". Unless of course you use it for it's value as a Contrary Indicator.

 

UNP was trading around below $60 in January 2008 when ECRI came out and said a "self-reinforcing downturn has already begun" (see: http://www.businesscycle.com/aboutecri/trackrecord). UNP then proceeded to climb above $80 per share in August 2008....

 

so what you're saying is that when unp was $60 about 3 1/2 years ago that these charlatans made TWO recession calls since then (scaring the living daylights out of people) and unp is over $40 higher now. A holder of unp should have bought their jan 2008 call just as they should have bought their late sep 2011 call. they are contrary indicators whose sole purpose as far as I can tell is to create buying opportunities for those who can see beyond the fancy forecasts that in the end have absolutely no predictive power over investments. I was certainly buying heavily at the time of their recent recession call.

 

 

I should have finished my thought. UNP subsequently declined to the $40s by the time the recession actually hit.

 

UNP is actually a great example. I don't see the margin of safety buying it even in the $80s back in October. It's near peak earnings and it's heavily tied to the commodity boom. Unless of course you label your purchase in the $80s a "trade", then that's a different story and I applaud your keen timing. But if you consider it an "investment" then I wish you well.

 

oh so you are saying they would have told you exactly when to buy it and when to sell it. I am sure the "helpers" on wall street appreciate the business and US Government appreciates the revenue. As for me, I don't believe they can predict the future any better than anybody else can so I let the business performance and price dictate my buys and sells.

 

Ps: hindsight is 20/20. which is all you have going for you when you tell me that unp went to $40. and I never owned it in my life. it just happens to be, along with brk hathaway, a better predictor of where the economy is going than these guys.

 

Not even remotely actually - just pointing out that stock prices move independently of the economy and saying that the country is OBVIOUSLY not going into a recession b/c a railroad company's stock has rallied is patently absurd. I heard a market pundit say the other day that b/c Wal-Mart's stock is rallying that means we're not going into recession - are you serious?? If anything, you could argue WMT's stock rallying is a sign the economy is going into the tank and consumers are trading down.

 

Burke, back in late 2008/early 2009, were you saying a recovery was not possible b/c stocks continued to decline from the point Buffett declared it a buying opportunity in October 2008 into March 2009??

 

At least come out and give some real world analysis on the situation - how about some quotes from the UNP conference call regarding their outlook on the economy and where they think things are going. At least give us something more than the stock price movement....

[Rabbitisrich]

Does ECRI discuss its methodology? Mish from Mish's Global Economic Trend Analysis tried to figure out some of the components of the WLI, but Acuthan hasn't elaborated on what exactly he looks for or what factors tilted the odds of recession into "definite" category.

 

Mish pointed out some of Acuthan's self-serving statement with respect to ignored type II errors.

[bmichaud]

Does ECRI discuss its methodology? Mish from Mish's Global Economic Trend Analysis tried to figure out some of the components of the WLI, but Acuthan hasn't elaborated on what exactly he looks for or what factors tilted the odds of recession into "definite" category.

 

Mish pointed out some of Acuthan's self-serving statement with respect to ignored type II errors.

 

In the video, Acuthan says it's not any one specific factor but rather a "contagion among the forward looking indicators." IMO that's pretty self explanatory, but obviously they are not going to come out and go into detail about what they're looking at - they don't need to, they have the track record to back it up, including their "non-call" last summer in the face of a hideous WLI.

[bmichaud]

I will give the nod to ECRI here considering they have A) not made one inaccurate forecast in the last 20 years,

 

Their current forecast is inaccurate.

 

UCLA-Ceridian pulse of commerce index is down 10% annualized -- symptomatic of a recession if you ask their chief economist:

http://ceridianindex.com/multimedia/video/September-PCI-Falls/

 

 

Appears quite coincident to me...... http://ceridianindex.com/

 

Buffett's set of businesses is a better indicator of the whole picture.  That's my view.

 

I put that link to the ECRI in there because it's interesting.  I have more faith in Buffett-vision though -- he's got reports from boots on the ground.  Thus he can see what the ECRI guy is missing -- the actual results and sentiment of the businesses.

 

Eric,

 

I went back and looked at what WEB was saying back in late 2007/early 2008 when ECRI came out with their recession call, and WEB was saying that there was a high probability of recession. I will admit it will be extremely interesting to see who wins on the economic assessment over the next year or two - WEB v. ECRI. I would argue that Buffett has the best businesses in the country that would most likely, as a group, tend to lag the economy going into a recession (save for his housing-related businesses, which he has said continue to remain depressed). Perhaps WEB is right.

 

It also may be a matter of time horizon - Prem and Friedberg are very worried about the environment over the near term, whereas WEB is looking out over the next 100 years. I'd be curious to pit Prem/Friedberg against WEB regarding the depression-era environment we're in. I think WEB would say the capitalist nature of our economy is healing our economy slowly over time and that there is a very small chance of a depression-type environment going forward - I think Prem/Friedberg would argue differently.

 

As I've said before, that's the wonderful thing about this business, we can all be right at the same exact time just depending on the time horizon! Perhaps CEO Burke will be right over the next five years with his UNP purchase, but at the same time I'll avoid UNP and like investments over the near term due to the economic risk out there and end up being right over the shorter term by picking UNP and other investments up at 50 cents on the dollar at a later date  8)

[mankap]

ECRI may have had a good success rate , but I am not going to base any of my stock purchasing decision on their forecast.

I saw Lakshman's interview on CNBC in which he made the recession call.He said  that they see a overall drop in demand, sales and other things.He did not elaborate what those things are.I think the call was made on Oct 11 when the employment report were showing horrible nos.

ECRI has lot at stake and will be interesting to watch in coming months.

[bmichaud]

the news of that call basically corresponded to the market low at the end of September. union pacific railroad correction low was $78. today it's $101. this neatly illustrates the insanity of trying to invest based on somebody's "recession call". Unless of course you use it for it's value as a Contrary Indicator.

 

UNP was trading around below $60 in January 2008 when ECRI came out and said a "self-reinforcing downturn has already begun" (see: http://www.businesscycle.com/aboutecri/trackrecord). UNP then proceeded to climb above $80 per share in August 2008....

 

so what you're saying is that when unp was $60 about 3 1/2 years ago that these charlatans made TWO recession calls since then (scaring the living daylights out of people) and unp is over $40 higher now. A holder of unp should have bought their jan 2008 call just as they should have bought their late sep 2011 call. they are contrary indicators whose sole purpose as far as I can tell is to create buying opportunities for those who can see beyond the fancy forecasts that in the end have absolutely no predictive power over investments. I was certainly buying heavily at the time of their recent recession call.

 

 

I should have finished my thought. UNP subsequently declined to the $40s by the time the recession actually hit.

 

UNP is actually a great example. I don't see the margin of safety buying it even in the $80s back in October. It's near peak earnings and it's heavily tied to the commodity boom. Unless of course you label your purchase in the $80s a "trade", then that's a different story and I applaud your keen timing. But if you consider it an "investment" then I wish you well.

 

oh so you are saying they would have told you exactly when to buy it and when to sell it. I am sure the "helpers" on wall street appreciate the business and US Government appreciates the revenue. As for me, I don't believe they can predict the future any better than anybody else can so I let the business performance and price dictate my buys and sells.

 

Ps: hindsight is 20/20. which is all you have going for you when you tell me that unp went to $40. and I never owned it in my life. it just happens to be, along with brk hathaway, a better predictor of where the economy is going than these guys.

 

Not even remotely actually - just pointing out that stock prices move independently of the economy and saying that the country is OBVIOUSLY not going into a recession b/c a railroad company's stock has rallied is patently absurd. I heard a market pundit say the other day that b/c Wal-Mart's stock is rallying that means we're not going into recession - are you serious?? If anything, you could argue WMT's stock rallying is a sign the economy is going into the tank and consumers are trading down.

 

Burke, back in late 2008/early 2009, were you saying a recovery was not possible b/c stocks continued to decline from the point Buffett declared it a buying opportunity in October 2008 into March 2009??

 

At least come out and give some real world analysis on the situation - how about some quotes from the UNP conference call regarding their outlook on the economy and where they think things are going. At least give us something more than the stock price movement....

 

unp has been steadfastly bullish on it's conference calls. they don't understand the recession talk. of course you know Warren Buffett who has data from hundreds of different businesses says we aren't going to have a recession. Black boxes I guess are always "sexy" to people. It pays to have a black box at your disposal.

 

October 20 Two top rail execs are saying the U.S. is in a "slow growth environment" but not a recession. "I don't see a double-dip," Union Pacific's (UNP +4.9%) Jim Young says; with inventory levels "as low as they've ever been," any spurt in consumer demand would pose an opportunity. CSX's (CSX +1%) Michael Ward says the economy even shows signs of life. Earnings: UNP, CSX. 8 Comments [u.S. Economy]

 

 

August 10th, 2011 therecession.org

Warren Buffett doesn?t Expect Double-Dip Recession

 

On Monday the billionaire investor Warren Buffet declared that the economy won’t backslide. He told the Montana Economic Development Summit that he saw “our businesses” coming back almost across the board. In addition, Buffett gave his Montana audience some banking advice.

 

http://www.newsmax.com/InvestingAnalysis/Cooperman-US-Recession-Stocks/2011/10/18/id/414835

 

Leon Cooperman: US Will Avoid Recession, Stocks ‘Appealing’

 

Tuesday, 18 Oct 2011 10:12 AM

 

The U.S. economy will avoid a recession and American equities offer “appealing valuations,” according to Leon Cooperman, the chairman of hedge fund Omega Advisors Inc.

 

“Stocks are cheap relative to history, relative to inflation, relative to interest rates,” he said today during a presentation at the Value Investing Congress in New York. “The recent facts suggest the economy is accelerating moderately.

 

Well there we go, something we can work with. We'll see who is right over the next 24 months.

[ERICOPOLY]

I will give the nod to ECRI here considering they have A) not made one inaccurate forecast in the last 20 years,

 

Their current forecast is inaccurate.

 

UCLA-Ceridian pulse of commerce index is down 10% annualized -- symptomatic of a recession if you ask their chief economist:

http://ceridianindex.com/multimedia/video/September-PCI-Falls/

 

 

Appears quite coincident to me...... http://ceridianindex.com/

 

Buffett's set of businesses is a better indicator of the whole picture.  That's my view.

 

I put that link to the ECRI in there because it's interesting.  I have more faith in Buffett-vision though -- he's got reports from boots on the ground.  Thus he can see what the ECRI guy is missing -- the actual results and sentiment of the businesses.

 

Eric,

 

I went back and looked at what WEB was saying back in late 2007/early 2008 when ECRI came out with their recession call, and WEB was saying that there was a high probability of recession. I will admit it will be extremely interesting to see who wins on the economic assessment over the next year or two - WEB v. ECRI. I would argue that Buffett has the best businesses in the country that would most likely, as a group, tend to lag the economy going into a recession (save for his housing-related businesses, which he has said continue to remain depressed). Perhaps WEB is right.

 

It also may be a matter of time horizon - Prem and Friedberg are very worried about the environment over the near term, whereas WEB is looking out over the next 100 years. I'd be curious to pit Prem/Friedberg against WEB regarding the depression-era environment we're in. I think WEB would say the capitalist nature of our economy is healing our economy slowly over time and that there is a very small chance of a depression-type environment going forward - I think Prem/Friedberg would argue differently.

 

As I've said before, that's the wonderful thing about this business, we can all be right at the same exact time just depending on the time horizon! Perhaps CEO Burke will be right over the next five years with his UNP purchase, but at the same time I'll avoid UNP and like investments over the near term due to the economic risk out there and end up being right over the shorter term by picking UNP and other investments up at 50 cents on the dollar at a later date  8)

 

This is a bit like discussing sports or horse racing.

 

I am very relieved that home construction and autos are already in the toilet.  The recession of 2008/2009 was especially scary because those industries fell off a cliff and they are enormous parts of the economy.  But they didn't climb back up the cliff -- there is only so far it can fall.  You can't have home building fall by another 1.7 million units annually when your base is now only 500k-700k units.

[Buckeye]

Peter Burke, I am with you!  I think one of Buffett's most impressionable statements is "thinking like a business owner."  He has taught me to think about my investments as owning a piece of a business.  If I own shares in Coca Cola, I am a partial owner of the business.  If I think there is going to be a recession should I sell my company because profits may fall?  Hell no! It seems like buying and selling businesses based upon near-term struggles is speculative at best. 

 

As a former small business owner I think back to the idea of selling my business anytime I thought there was going to be a recession, with hopes of buying it back cheaper, and it seems ludicrous.

 

This ECRI guy may be correct in his predictions, but if he is such a phenomenal business person why hasn't he created a 200 Billion dollar company?  He reminds me of the guy who sells the "How to Get Rich Book" that tells the reader the best way to do it is to write a book on how to get rich.

 

I think part of the enjoyable thing with investing in equities is finding companies that you are willing to "ride it out" with, in good times and bad.  Knowing you have selected "business partners" who you trust and admire and are willing to forge through the tough times with makes the end result that more gratifying. 

 

That's my two cents.  Anyone can feel free to send me a nickel and I will send you back your three cents change.

[DCG]

Home construction (and housing in general) is so tough because it's tied to lending. Banks are still extremely hesitant with mortgage loans, and I don't really know what it will take to change that. Obviously you don't want to get back to the point where they're giving everyone loans, but people that actually can afford to pay mortgages are currently being declined.

[Guest misterstockwell]

The NFIB's Bill Dunkelberg was on CNBC this morning with the survey of small businesses. He appears to agree with ECRI. Don't read the headlines which spin it as positive, watch the interview:

 

http://video.cnbc.com/gallery/?video=3000056087

 

I see things like "record 49 million americans living in poverty" and "late payments on mortgages rise in Q3, first time in years" and don't get that warm fuzzy feeling.

[watsa_is_a_randian_hero]

As a former small business owner I think back to the idea of selling my business anytime I thought there was going to be a recession, with hopes of buying it back cheaper, and it seems ludicrous.

 

+1

 

Go Bucks

[ERICOPOLY]

I see things like "record 49 million americans living in poverty" and "late payments on mortgages rise in Q3, first time in years" and don't get that warm fuzzy feeling.

 

This is what BAC reported in Q3 (from CC transcript):

 

If we move from the businesses to credit and the trends that we've seen in credit; as we look at consumer credit trends on Slide 21, we continue to be very pleased with the progress that we're making. If you look at consumer credit trends quarter-over-quarter, you can see continued declines in net charge-offs, 30-plus performing delinquencies as well as our nonperforming loans and foreclosed properties.

[Guest misterstockwell]

...and this is the real world

 

Late mortgage payments up in 3Q, 1st rise in years

Late mortgage payments rise in 3rd qtr for first time since 2009; may show start of new trend

 

NEW YORK (AP) -- While lawmakers in Washington debated the debt ceiling and consumer confidence dropped, more homeowners were having a harder time making their mortgage payments.

 

The rate that mortgage holders were late with their payments by 60 days or more rose in the June-to-September period for the first time since the last three months of 2009, according to TransUnion.

 

The credit reporting agency said 6.44 percent of homeowners missed two or more payments, an early sign of possible foreclosure. That was up from 5.88 percent in the third quarter of 2010, and from 5.82 percent in the 2011 second quarter.

 

The increase surprised TransUnion researchers, who previously forecast late payments, or delinquency, to fall for the quarter.

 

"It's much different than we've been talking about the last few quarters," said Tim Martin, group vice president of U.S. Housing in TransUnion's financial services business unit.

 

The problems were widespread. Between the second and third quarters, all but 10 states and the District of Columbia saw delinquency rates increase.

 

TransUnion's data is culled from 27 million credit reports, representing about 10 percent of all U.S. consumers who actively use some form of credit.

 

Martin could not pinpoint one particular reason for the jump. Normally, for instance, housing prices and unemployment have a big influence on delinquency. "Those are both still important, but neither has noticeably deteriorated," he said. In fact, unemployment was steady during the summer and the Standard & Poor's/Case-Shiller index showed small improvements in housing prices in most major cities during July and August.

 

That leaves wider economic issues having a larger role, Martin said. He pointed to the U.S. credit rating downgrade, the U.S. and European debt crises and the tanking U.S. stock markets during this period. And he noted that two different measures of consumer confidence -- the Conference Board and the University of Michigan -- both showed those issues hurt consumer attitudes.

 

That atmosphere "could make folks question paying their mortgage," he observed.

 

Martin said there's no real way to tell if some of the delinquency increase was driven by people who decided not to make payments because their homes are worth less than they owe on their mortgage. But it is notable that three of the 10 states that saw declines in late payments were among the hardest hit by the foreclosure crisis: Arizona, California and Nevada.

 

In fact, Arizona had the best rate of improvement in the nation, and now has a delinquency rate of 7.46 percent. That still places it fourth worst in the country, but the rate is vastly improved from where it stood. In the fourth quarter of 2009, Arizona's delinquency rate hit 16 percent, the highest for any state since the foreclosure crisis began.

 

Arizona does, however, still have the highest foreclosure rate in the nation -- one in every 44 housing units with a foreclosure filing in the third quarter, according to Realtytrac.

 

Another possibility for the bump in the delinquency rate is that a new crop of adjustable mortgages written toward the end of the housing bubble is resetting. Even if their interest rates remain low after the adjustment, the payments might have increased, said Darren Blomquist, a Realtytrac spokesman. "We still have the bad loans mixed in that are resetting."

 

Although TransUnion still expects the delinquency rate to resume declining in 2012, the company is now forecasting a few quarters of elevated nonpayment rates due to the uncertain economic outlook. The company doesn't predict a return to the national peak rate of 6.9 percent, but said some increase is expected.

 

"More and more homeowners are likely to struggle," Martin said. "I'm not sure this is a one-quarter blip."

 

That echoes predictions from other sources, like RealtyTrac.

 

"This isn't just about bad loans anymore," said Blomquist. "It's about a bad economy that's pushing people into foreclosure."

 

 

[Guest misterstockwell]

"late payments on mortgages rise in Q3, first time in years"

 

Not sure what this means. I am paying my mortgage late ( or not paying it at all if I sign my papers today/tomorrow) right on the 14th as I am going through a refinancing. From a cash flow standpoint, it is going to save me close to 17% per month.

 

The rate that mortgage holders were late with their payments by 60 days or more rose in the June-to-September period for the first time since the last three months of 2009, according to TransUnion.

 

The credit reporting agency said 6.44 percent of homeowners missed two or more payments, an early sign of possible foreclosure. That was up from 5.88 percent in the third quarter of 2010, and from 5.82 percent in the 2011 second quarter.

[Guest misterstockwell]

The NFIB's Bill Dunkelberg was on CNBC this morning with the survey of small businesses. He appears to agree with ECRI. Don't read the headlines which spin it as positive, watch the interview:

 

http://video.cnbc.com/gallery/?video=3000056087

 

I see things like "record 49 million americans living in poverty" and "late payments on mortgages rise in Q3, first time in years" and don't get that warm fuzzy feeling.

 

this is a political organization with a conservative bias. with the democrats controlling the white house, they have an incentive to be negative.

 

Ok. Right. Yea.