Econ-Pundits & Recession Calls

• Posted by Robert Sinn
• on June 25th, 2012

There are literally droves of economic and macro pundits who revel in deciding whether or not the US and/or global economies are in recession. They often use dozens of data points, they discuss “leading and coincident data points/indicators” – It can get rather wonkish, and is quite frankly….boring.

Portfolio Manager John Hussman is one of the few guys whom I will read regarding recession calls and parsing economic data – in his most recent weekly missive he delivered the following quote:

“Very often, the first real-time negative GDP print occurs about two quarters after the recession actually begins. It is only later that the data are revised to show an earlier downturn.” Hussman

I have always found the obsession with all the “stale” and lagging economic data markets receive on a weekly basis to be curious. It is natural that this data will have some market impact because it is often the only thing that market participants have to go on. However, if one were to base ones investment decisions on confirmed economic recession/expansion calls I would be petrified to see the results.

If you think back to the December 2007 – June 2009 US recession we didn’t “know” that we were in recession until May/June 2008 at which time most were proclaiming that the recession would be “mild”. Moreover, the stock market had topped in early October and by early 2008 had begun to seriously roll over – this meshes with the idea that markets are generally 6-9 months ahead of the economy, or at least, the conventional wisdom regarding the economy.

A similar pattern emerged in 2009 when the stock market bottomed in early March and began to turn aggressively higher, meanwhile, by August-September the conventional wisdom regarding the economy began to proclaim that the recession had ended in June 2009. Just like you would have been fried listening to the “mild recession” calls in 2008, if you had waited for the econ-pundits to give you the all clear in 2009 you missed out on a 50% move off the March bottom.

So it seems that there is broadly growing evidence that a global recession may be at hand, we are either in it or about to fall into a new recession. China’s demand for oil and other commodities has been dramatically slowing for months, Europe is a quagmire, and US data has been lackluster at best for the last several weeks. Whether or not the US or the globe are in recession is academic to me, what matters is the depth  and duration of any such recession. The charts below told us at least six weeks ago that global demand was severely compromised:

 

 

 

The same way that these markets told us that the risks of global recession had greatly increased over the last few months, they will tell us when conditions begin to firm up a bit and turn up from a bottom. Recession calls are for macroecon-pundits, not for market participants or anyone with a life outside of parsing through data which is ultimately revised over and over again months later.

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus