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:

• Nov 30, 2010 "ECRI Calls for Revival of US Economic Growth"
• Oct 28, 2010 "The much-feared double-dip recession is not going to happen"
• Oct. 28, 2010 ECRI Warns of High Inflation Nightmare From QE2
• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• July 01, 2010 ECRI Weekly Leading Indicators Widely Misunderstood
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

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:

¿Se Habla Dinero? The Everyday Guide to Financial Success (English and Spanish Edition)

ECRI WLI GRowth Rate Continues Plunge to Record Lows

Today the Economic Cycle Research Institute, or ECRI an independent forecasting group based in New York, said its Weekly Leading Index (WLI) fell to its lowest level in its six decade history. The WLI and its growth rate are designed to predict future turning points in the business cycle (recessions and recoveries.)

• More about ECRI
  

Today ECRI said its WLI fell to 110.9 for the period ending October 31, 2008. Last week WLI was 112.9 .

The WLI growth rate fell to -24.6%, down from -21.9% last week.

Commenting on the data, Anirvan Banerji, from ECRI said

"We are now in a severe recession."

and

"The leading indicators are showing no light at the end of this tunnel. In the last week of October they registered their worst readings in their six decades of history. It tells you the economy's not just down, it's plunging. There is no end in sight to this recession."

Date and graph courtesy of Economic Cycle Research Institute

Jobless rate bolts to 14-year high of 6.5 percent in October; 240,000 jobs cut

• The jobless rate zoomed to 6.5 percent in October from 6.1 percent in September, matching the rate in March 1994.
• Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.
• October's decline marked the 10th straight month of payroll reductions

In this March 28, 2008 article, ECRI Called it "A Recession of Choice." At the same time Bob Brinker called ECRI and others "Cassandras" for scaring investors out of stocks in the 1300s and 1400s. In this May 31, 2008 "Cassandra Rant" when the S&P500 was last at 1400, Bob Brinker told his radio audience:

“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."

Bob should have listened to the Cassandras or at least admit he of all people can not time the stock market or predict the economy.

Current Market numbers (Stock Markets at a Glance):

• DJIA = 8,888.94
• NASDAQ = 1,643.51
• S&P500 = 924.90

Check Out US Treasury Rates at a Glance

Click to Post Comments on this Article

==> Very Best CD Rates with FDIC <==

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:

• Sy Harding's MACD Seasonal Buy Signal
  
  
• Warren Buffett Buy Signal
  
  
• John Bogle on CNBC

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)

Subscribe NOW and get the October 2008 Issue for FREE! !

Other key sentiment indicators for stock market technical analysis include:

• AAII: American Association of Individual Investors Bull/Bear Index: AAII Charts and Info
• II-BBS: Investors’ Intelligence Bull Bear survey: II Charts and Info
• ISE (International Securities Exchange) Sentiment Index: ISE Charts and Info
• State Street Investor Confidence Index State Street Charts and Info

==> Very Best CD Rates with FDIC <==