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Sunday, February 13, 2011

Money Talk Guest Lakshman Achuthan of ECRI

This weekend Moneytalk host Lynn Jimenez interviewed Lakshman Achuthan. Lakshman Achuthan is the Co-Founder and Chief Operations Officer of the Economic Cycle Research Institute, or ECRI, a New York-based independent forecasting group. He is also the co-author of  the book "Beating the Business Cycle."  

Lakshman and I have been friends for over a decade.  We met after I wrote about how impressive their US Future Inflation Gauge (US FIG) was as a leading indicator for the direction of the Fed Funds rate changes.   

Summary of the key points:
  • We are in an economic recovery now but with the economy flying at a lower altitude where the ups and downs will be more noticeable thus
  • We should expect more frequent recessions.
  • The economy was smoother in the past that was wrongly attributed to "just in time manufacturing," better policy makers like the Fed and better models. 
  • Policy driven by models actually makes things worse since they use lagging indicators.
  • ECRI's leading indicators can only look ahead 2 to 4 quarters.
  • Central banks use old models that "don't work in the real world" and create bigger boom-bust cycles
  • Chance of inflation being above what the Fed is targeting is "pretty good" because we have a recovery now and they are strapping a rocket onto the back of the economy and they are stepping on the gas.
Read my latest article  How to Play Expected Inflation From the TIPS Spread
  • Look to take more risk now because we should boom before the next bust.
  • Don't give up if you are looking for a job as it will get better first.
  • "Get it while it is good" and reassess risk in the summer.
  • Watch the Future Inflation Gauge (US FIG) to get a handle on inflation.  (I cover this in both my newsletters.)
  • Lakshman says the FIG is going up since before QE2 was announced so he thinks the Fed is behind the curve.
  • Protect yourself and "Get while the getting is good"
If you sold stocks in early 2008 when I wrote that ECRI said a recession was inevitable, then you could have gotten out of stocks near 1400.  Then if you bought back on April 3, 2009 just after they said a recovery was ahead, you would have gotten back into the market  near the 800s.  Contrast that to Bob Brinker calling us "Recession Casandras" back in 2008 then not having any money  to buy the lows in 2009.  In fact, Brinker was fully invested at the top with a "gift horse buying opportunity" in the mid 1400s! 

==> 0328/8: ECRI Calls it "A Recession of Choice"
==> 5/31/08: Brinker's Cassandra Bashing

Below are some of ECRI's recent predictions that I posted as articles to help ECRI document their great success.
Click to View full size Bob Brinker Buy Levels
    KEY ECRI Articles:

    Beating the Business Cycle 
    By Lakshman Achuthan and Anirvan Banerji

    “This easy-to-read book tells you how the respected ECRI calls turning points, and how you can, too.”
    —Jane Bryant Quinn, Newsweek columnist

    " The Economic Cycle Research Institute can justify a certain smugness now that business cycles are back in fashion."
    --Harvard Business Review

    “Shows... how far the state of the art in cycle forecasting has advanced, and how investors can profit from it.”
    —Jon Markman, award-winning CNBC/MSN financial columnist 

    Lynn Jimenez Fan Club  and her Book:


    1. China inflation jumps almost 5% as food prices soar.
      China's consumer price index rose 4.9% in January from a year ago, vs. a 4.6% gain in December and 5.1% in November. January's increase was less than the 5.4% widely feared, but some economists think that could be due to China's reducing the impact of food in the basket of goods it monitors. Regardless, with nonfood items rising 2.6% on top of food rising 10.3%, inflation is spreading. A recent report suggests Beijing is prepared to further increase interest rates and raise the reserve requirement for banks to curb inflationary pressures. Overnight, Japan's Nikkei rose to a 10-month closing high on China's lower-than-expected inflation rate, but other Asian markets declined on concerns China will raise interest rates.

      Nearly half of the employers in mainland China said they raised salaries between 6 percent and 10 percent last year, the survey showed.

    2. You can read a good summary of the 3-hour show at February 13, 2011, Bob Brinker's Moneytalk: Lynn Jimenez Fill-in Host

      She quotes how bullish Bob Brinker was back in 2007 when the market was near the top compared to ECRI's warning of a recession that came just months later.

      Marketimer October 2007, Brinker wrote: "....we see the potential for the S&P 500 Index to rise at least into the mid-1600's range next year....In the August and September editions of Marketimer, we rated the stock market attractive for purchase on any weakness that occurs in the area of S&P 500 Index mid-1400's range

      Marketimer January4, 2008, Brinker wrote: "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 500 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.


      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."

      Brinker is an entertaining radio host but I pay attention to what ECRI says about the business cycle, not Brinker.


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