Tag Archives: Recession

Forecasting 2009 from 2008 (After Crisis Started): An astonishing record – of complete failure – FT.com

Now Loungani, with a colleague, Hites Ahir, has returned to the topic in the wake of the economic crisis. The record of failure remains impressive. There were 77 countries under consideration, and 49 of them were in recession in 2009. Economists – as reflected in the averages published in a report called Consensus Forecasts – had not called a single one of these recessions by April 2008.

This is extraordinary. Bear in mind that this is not the famous complaint from the Queen that nobody saw the financial crisis coming. The crisis was firmly established when these forecasts were made. The Financial Times had been writing exhaustively about the “credit crunch” since the previous summer. Northern Rock had been nationalised in the UK and Bear Stearns had collapsed in the US. It did not take a genius to see that trouble was on the way for the wider economy.

An astonishing record – of complete failure – FT.com

Below is an article I posted back in December 2007. I had just been studying the method David Rosenberg used in his forecast. What I was reading showed that his method was a better one. Still, it was hard to believe a probability of 100% (of a recession) at the time. Also, back in 2007 I was mostly focused on military matters. I sort of stumbled into the coming financial black swan. Some of my newsletters were talking about a coming disaster, but it was hard to grasp the full meaning at the time. However, I did understand that something big was coming.

100% Probability of U.S. Recession in 2008? | 1913 Intel

We know only two things in life are certain: death and taxes.

Now, along comes Merrill Lynch economist David Rosenberg with the declaration that there is a 100% chance of a recession in 2008.

One hundred percent, as in it’s going to happen beyond the shadow of a doubt.

In a report released Wednesday, Rosenberg referred to a recently unveiled a recession probability indicator that uses the shape of the yield curve (10-year note/3-month LIBOR) and corporate spreads (Baa) to predict the probability of a recession over the next 12 months.

Hmmm. In any case, after crunching some relevant numbers, the model is predicting a 100% likelihood of a recession.

But wait. According to the same report, another model for gauging the probability of a recession, one that uses the shape of the yield curve and the level of the Fed funds rate, is showing a 50% chance of a recession.

Confusing? You bet.

100% Probability of U.S. Recession in 2008? | 1913 Intel

After the financial crisis we were all Keynesians – but not for long enough | Business | theguardian.com

The eurozone may be growing again but, in any meaningful sense, an economy in which most people’s incomes are below their pre-2008 levels is still in recession

Five years later, while some are congratulating themselves on avoiding another depression, no one in Europe or the United States can claim that prosperity has returned. The European Union is just emerging from a double-dip (and in some countries a triple-dip) recession, and some member states are in depression. In many EU countries, GDP remains lower, or insignificantly above, pre-recession levels. Almost 27 million Europeans are unemployed.

After the financial crisis we were all Keynesians – but not for long enough | Business | theguardian.com

Economists fear debt ceiling fight may bring recession – Oct. 3, 2013

About half of the 22 economists surveyed by CNNMoney say a recession will be unavoidable if Congress fails to raise the nation’s debt ceiling before the Treasury runs out of cashlater this month.

A couple more say a recession is possible depending on how far past the deadline Congress goes before acting. And even those who aren’t predicting recession say not raising the debt ceiling would be a very bad idea.

Economists fear debt ceiling fight may bring recession – Oct. 3, 2013

How urban Chinese workers helped cause the great recession – Quartz

Jagannathan, along with Mudit Kapoor of the Indian School of Business and Ernst Schaumburg of the Federal Reserve Bank of New York, argues that the financial crisis that gripped the US was primarily a symptom of ongoing major changes afoot in the world. Globalization has created massive shifts in the labor supply in developing countries—and the inadequate responses to these shifts are the real culprits behind the recession.

The reasoning goes like this: Technological advances and globalization sparked “a huge and rapid increase” in the labor supply from workers in the developing world, especially in China. But without any domestic financial markets capable of absorbing the new wealth these workers generated, large amounts of money flowed into the US. For its part, the US had no controls in place to prevent financial institutions from finding creative new ways to accommodate the influx of cash.

How urban Chinese workers helped cause the great recession – Quartz

Europe’s continental drift

You think we have it bad, caught between a stagnant economy and gridlocked politics? Then take a trip to Europe, where the economy is going not sideways but backward — and the politics are too.

Europe’s numbers should be familiar by now, but they’re still awful. In the United States, President Obama’s much-derided stimulus package helped end our recession in 2009; in Europe, with no comparable stimulus, the recession isn’t over. Unemployment in the 17 countries that share the euro is higher than 11%, and it’s still heading up. The International Monetary Fund says the Eurozone’s economies won’t start growing again until next year, if then.

Since 2008, Italy’s gross domestic product has shrunk by almost 10% after inflation; by some estimates, Southern Europe is experiencing its worst drop in living standards since World War II. It all makes the U.S. recovery look positively healthy, even though our 2% growth rate and 7.6% unemployment feel anemic by modern standards.

LA Times – McManus: Europe’s continental drift

Bad Omens | Outside the Box Investment Newsletter | Mauldin Economics

2– Another bad omen: collapsing silver prices

Unfortunately, it’s not as if, lately, equity markets have been the only place to lose money. Indeed, as every gold bug has rediscovered in recent months, precious metals have again proven that they are anything but a safe-haven. Still, drops of 30% or more in silver prices do not happen that often: looking back at the past 100 years, such drops have only occurred 11 times. And interestingly, each one of these massive declines marked a significant change in the world financial system.

To cut a long story short, the investment rules after large declines in precious metals were almost always totally different from the rules which prevailed before the fall. More worryingly, each such decline was accompanied by a massive recession/depression somewhere in the world and almost every time by a recession in the US (grey shaded areas), the only exception being 1983-1984 when the Latin American depression did not trigger a US recession but instead a collapse in oil prices.

Bad Omens | Outside the Box Investment Newsletter | Mauldin Economics

Rout Puts Gold on Pace for Largest Quarterly Loss in Decades [June 26, 2013]

Gold futures prices are on track for their largest quarterly loss since at least 1974, down 23 percent in the past three months. Similarly, silver has plunged 34 percent in the same period—its largest loss in at least 50 years.

Rout Puts Gold on Pace for Largest Quarterly Loss in Decades

MAULDIN: Economists Are Still Clueless – Business Insider

US GDP has been slowly ramping up, only to fall back and then try once more to bring us back to the ’90s. Stocks markets are volatile but seemingly moving higher in most of the developed world, except for Japan, where the current 20% drop comes hard on the heels of one of their frequent “end of the bear market forever” rallies of almost 90% – how many of those have we seen over the last 24 years? Europe is mostly in recession or Muddling Through with very slow growth. I continue to read from those who know China intimately that there is a real crisis brewing there. And over the last four weeks I have highlighted how desperate the situation is in Japan.

MAULDIN: Economists Are Still Clueless – Business Insider

ALBERT EDWARDS: ‘One Of The Biggest Economic Bubbles Is About To Go Into The Minsky Masher’

“One of the biggest economic bubbles in history is now about to go into the Minsky masher,” writes Edwards. This refers to periods of speculation that lead to crisis, and was named after economist Hyman Minsky who wrote about the inherent instability of bull markets.

“Make no mistake – the Australian tide is going to be heading way out as China is about to have what our economist Wei Yao described as its’ Minsky moment’, or in layman’s terms, its day of reckoning! But even before China suffers this ‘moment’, final demand in the commodity dependent Western Australia (WA) has fallen into recession. The Australian Treasury’s preferred measure of activity, State Final Demand (SFD) contracted a striking 3.9% qoq (flat yoy) led by a sharp 10.7% qoq decline in private investment. This follows a 0.9% decline in 2012 Q4 (previously estimated to be 0.5%).”

EDWARDS: Australia’s Minsky Masher – Business Insider

Russia’s Putin looks isolated in new Kremlin term

Since Surkov’s departure from the presidential staff, veterans of the spy and security agencies and other conservatives known as the “siloviki”, or men of power, have gained the upper hand in shaping Putin’s thinking and are behind what the opposition sees as a Soviet-style clampdown on dissent.

Putin has in the past two years been abandoned by, forced out or become distant from the more liberal thinkers who once influenced him, leaving him politically isolated as his popularity wanes and the economy slides towards recession.

“I won’t say that power is slipping from his hands but he is not as strong as he was,” said a source once close to the Kremlin and the government. “At the start of the 2000s, he was a unifying figure. He is no longer that.”

Russia’s Putin looks isolated in new Kremlin term – One America News Network

ALBERT EDWARDS: The Party Is Over, The US Is Just One Recession Away From Japan-Style Doom – Business Insider

Here’s your happy thought of the day from SocGen strategist Albert Edwards:

Over the last 15 years most investors have refused to contemplate that events in the West are playing out in a similar fashion to Japan in the 1990s. But the latest inflation data out of both the US and eurozone should ram home the fact that we are now only one short recession away from Japanese-style outright deflation. Similarly, investors refuse to believe that equities can fall in an environment of rampant QE. They are wrong.

Basically, we’re so close to deflation, that all it will take is another downturn, and we’ll be toast.

ALBERT EDWARDS: The Party Is Over, The US Is Just One Recession Away From Japan-Style Doom – Business Insider