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Thursday, October 30, 2008

We Are In A Recession Now; Revenge of the Cassandras!

Congratulations to ECRI for correctly predicting a recession while many others like Bob Brinker early this year were saying the American economy was healthy, they were very bullish and they expected the market to make new all time highs.

When the S&P500 was last at 1400: From "Bob Brinker's May 31, 2008 Cassandra Rant"
“What we have right in here now is evidence that the Cassandras, who earlier this year, were telling us we were in recession – right now they’ve basically – well I’ll be kind, basically, they look like fools right now.

….So what we have here basically, is an example of false prophets and it’s sad. And the reason it’s sad is the damage done. Think of the people that are looking today at the market, S&P at 1400 and they’ve been scared out of the market in the first quarter by these bears………

It’s just amazing and yet these people are out there, and these people are not happy, I’m sure, to find themselves out of a rising market since March. To find themselves looking for ever lower prices when in fact we’ve had the opposite."..
Who looks like a fool now Bob Brinker?

Nobody doubts the economy is shrinking in the fourth quarter. The US Department of Commerce says the US economy (Q3 GDP) contracted at a 0.3% annual rate in the third quarter. Rex Nutting of MarketWatch summarizes:
  • The U.S. economy contracted at a 0.3% annualized rate in the third quarter, as consumer spending declined at the fastest pace in 28 years, the Commerce Department estimated Thursday.
  • Final sales to domestic purchasers fell 1.8%, the largest decline in 17 years.
  • Consumer spending dropped 3.1%, the first decline in 17 years and the biggest drop in 28 years
  • business investment fell 1%.
  • Investments in homes fell for the 11th straight quarter.
  • Inflation-adjusted after-tax incomes fell 8.7%, the largest quarterly decline since the record-keeping began in 1947!!!!
Readers of my blog, Kirk's Market Thoughts, should not be surprised by this data as The Economic Cycle Research Institute, a New York-based independent forecasting group also known as ECRI, warned us on my blog earlier this year with the following articles as well as their regular "Weekly Leading Index" (WLI) updates that I cover in my newsletter and often report in my mailings between monthly newsletters to my subscribers.
  • January 2008 Marketimer with S&P500 @ 1468.36 : Pg 3:
    “In summary, the Marketimer stock market timing model indicates that conditions are favorable for the market as we enter 2008. We expect the S&P Index to achieve new record highs this year and to reach the 1600’s range in the process. We continue to rate the market attractive for purchase on any weakness into the S&P 500 Index mid-1400’s range. Above this range we prefer a dollar-cost-average approach for new purchases. All Marketimer model portfolios remain fully invested as we enter 2008."
  • Saturday, January 05, 2008: "ECRI Says Fed Has Room To Cut Rates Despite Fears of Inflation"
    "WLI growth is now at its worst reading since the 2001 recession. However, the WLI's recent decline is not based on pervasive weakness among its components, suggesting that a recession could still be averted"
  • Friday, January 25, 2008: "ECRI Says There Is A Window of Opportunity for the US Economy"
    The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession.
  • Friday, March 28, 2008: ECRI Calls it "A Recession of Choice"
    The U.S. economy is now on a recession track. Yet this is a recession that could have been averted. In January, given the plunge in the Weekly Leading Index, we declared that the economy had entered a clear window of vulnerability. Yet we emphasized the brief window of opportunity within that window of vulnerability for timely policy stimulus to head off a recession.
  • Moneytalk, April 19, 2008, Bob Brinker said:
    "It’s my opinion that the March 10th low on the S&P 500 was the bottom for the correction. And I think that what happened was that was a very successful test of the initial low recorded January 22nd."
The Q3 GDP number is subject to revision in the future but few think it will be revised to a positive number. Most economists now think we could have a much deeper and longer recession than recent short, shallow ones we are more used to. Some bears (Cassandras if you prefer) are now calling for a depression while others like Warren Buffett and Larry Lindsy have started to buy stocks again. See:
Congratulations to ECRI for correctly predicting a recession. I wonder if Brinker will say this weekend he feels like a fool or will he pretend he was right all along. For sure, not knowing how he will spin the data is what makes him so entertaining!

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 157% vs. S&P500 only up 9.9% vs. NASDAQ down 5% vs. Warren Buffett's Berkshire Hathaway up 85% (All through 9/30/08) (More Info)

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1 comment:

  1. It does appear Bob Brinker has become the preeminent contra-indicator.


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