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Another Week, Another Drop In The ECRI Index, Another Bizarro Reason To Chase Stocks Higher
The ECRI Leading Indicators just can't stop falling. From a revised annualized -7.6% drop last week, this week the index dropped to a fresh low of -8.3%. Should be sufficient for another major leg higher in stocks. Of course, the funniest thing is listening to the index creators describe how while the index was a perfect leading indicator on the way up, it is completely useless on the way down. With an attitude like that, one would almost think Columbia is part of the Ivy League, and status quo perpetuation is a prerequisite for not losing tenure. But yes, according to the index the probability of a recession is now about 90%; compare this number to that spewed forth by Goldman's Recession Prediction Eight Ball, which has the risk of a double dip at just about precisely 1.6%.
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columbia is ancient eight
roar lions, roar. pick on someone else like harvard or princeton!
OT but has anyone noticed that the lower right CNBC ticker has been stuck for the past 10 minutes and shows the DOW at +14.23, S&P at +2.23 and NASDAQ at +4.31
It is now 11:18 Eastern Daylight Savings Time.
that's funny - they've had it stuck at spx 1500 for the past 3 years and i was wondering when their realtime feed would come back.
The entire control room contingent at CNBC must have been gassed and are dead because at 12:02 PM EDT the lower CNBC ticker is still flashing the same numbers. :>)
It wasn't me or they would be smiling.
easy we have earings upon us which reflects the past and forward indicators which reg=flect the future. earnings will be good at this kevel and drop later.
The indicator I have been patiently waiting for all week with great anticipation and glee.
Who cares. Markets are rallying because the octopus ate the mussel out of the box marked "No Double Dip," a far more important leading indicator.
Thanks for that laugh.
Ha! What wasn't reported is that after the "No Double Dip" appetizer, it then ate the main course mussel out of the "Double Dip" box. No word yet on whether the next scheduled feeding time will include "Deflation" ,"Inflation", and "Knife's Edge" boxes.
Only hope for jobs is hyperinlation. Germany has less than 1% unemployment rate in the summer of 1922. (November of 1923 currency 100% worthless)
Its a deal with the devil on a Kenysian would be willing to make.
What on earth would lead to the belief that hyperinflation (i.e. a currency collapse) would cause employment to go up?
Even the correlation between regular inflation (i.e. a credit expansion) and unemployment, the "Philips Curve" was shattered in the 1970's. "Stagflation" was the word coined to describe high inflation and high unemployment, both of which were above 10% as I recall.
But a collapse of the currency? Which sorts of jobs do you think would survive this? Web designers? McDonald's order takers? Wal-Mart greeters? Tax preparers? Mortgage brokers or bankers? Real estate agents? Hair stylists? Which industries would survive?
During the early stages of Weimar hyperinflation, unemployment was practically non-existant.
Want to speak to "printing". Denninger gets very angry when it is mentioned. He believes that the Fed/Treasonry complex acts in their capacity to manage money supply according to the old formula. He says Treasury prints up bonds and sells them at open auction where yield is established by free market rules. The Fed makes purchase of many, whereupon they print up or electronically create additional currency. Government spends every new dollar into existence and it is collateralized by the interest bearing bonds which are claims on futurative productive capacity of the nation and paid through tax collections.
However--just a short time ago to suggest that the Fed would monetize (and a significantly higher prices than market clearing rates) impaired debt instruments like MBS or CDOs would have been laughable. No more. To suggest that some entity in the gov't financial complex was frequently buying/selling in the equity and bond market was fringe radical nonsense. It is open and apparent now that gov't actors, in affront to free-market rules, guide the price levels of select stocks and seek to minimize the yield on T-bills, notes, bonds. Maybe these same players are surreptitiously nakedly printing US FRNs outside the usual channel and without corollary collateral in the form of matching bonds.
Think of all the stimulus, bailouts, gov't salaries (fed through local AND military), transfer payments, and interest expenses which we know exceed substantially the tax revenues and probably too, the revenues and ostensible deficits.
Where it is proven that new debt has inflected to a state where each new debt dollar SUBTRACTS from GDP and credit aggregates and money supply are contracting, only naked printing can fill the gap to achieve the stated goals of countering deflation and achieving an inflation target.
Is the USA naked printing? Is it doing so in large scale?
I think Charles Hugh Smith has it right. TPTB have no intention of "naked printing" because that would decimate the value of their dollar-denominated holdings. What they want to do is to own U.S. sovereign debt, maintain the value of the dollar, and compel the lumpen to pay interest on that debt forever. It's the feudal landlord-tenant relationship from the Middle Ages.
Elvis, just to help out, decimate means 10%. "Deci" being the operative. Roman for killing evry 10th soldier to smother a mutiny or to motive them to fight. And the 9 were usually ordered to the the 10th person. A better word would have been "collapse". And yes I agree with you.
"What they want to do"
I read CH Smith's take on what TPTB want to do but I don't believe what they want is possible, given the quantity of public/private debt, jobless recoverys, low and dropping pay, banks/Fed sitting on mountains of bad mbs, QE to infinity on the horizon, et al.
I believe the Fed in collusion with the treasury has been steath printing and will continue to do so even when the truth is known to all. Their choices are almost all used up. As clueless as the people are they will finally catch on and we will eventually have a hyperinflationary event when confidence in the currency drops to zero.
The world will return to hard money...Wash, Rinse, Repeat...
Excellent observations A S... I have suspected the same since the Fed did away with publication of M3...offering the lame excuse that collecting data for and publishing M3 was an 'unnecessary expense'.
Since when did the Fed care about expenses, especially tiny expenses like publication of M3?
Thank you for reminding us of M3's demise. Your timing is impeccable.
And dropping these new bills out of black helpcopters.
Printing.
Also. Consider this.
The evolution of the world's reserve currency since establishment of Federal Reserve and post-WWII Bretton Woods.
It was established as a paper proxy for real money, gold. Exchangeable upon demand by the lowliest consumer to the greatest nation-state for precious metal. In other words, it was fully collateralized by the best monetary commodity of highest wealth condensation and universal immediate recognizability. The US currency was asset backed. In terms of the time continuum, the currency represented THE PAST. Meaning, accumulated wealth from labour and resource obtained by past endeavours and transmuted into gold/exchangeable proxy paper was the basis of the nation's trade.
The Great depression made the first run at devaluing the asset backing. FDR declared bank holiday and devalued the currency in terms of exchange for gold nearly 50%. Still collateralized currency but cheapened and weakened.
Then exchangeability was restricted to only the highest elite financial players. Common unwashed economic ants were denied immediate swap upon demand throughout the country. Convertability was ostensibly retained, but gold was not to be dispensed to any but the VIPs.
DeGaulle broke that in another run. Nixon in 1971 broke the swap-for-gold function of USA currency (and then proceeded to China to enlarge the pool of usury potential and enlist a massive slave population for first world nation's exploitation). USDollar became pure fiat. Its nature had changed from a claim upon the past's demonstrated economic production and the restraints upon supply compelled by gold's scarcity, to a claim upon the future creation of the nation. It moved from asset to pure debt.
It, and its variants of gov't debt instruments--the dollar being a bond of zero coupon, zero duration--moved in the time continuum to pulling demand for the future, while discounting the present.
It has exhausted all such ability to make claim upon the future. It has exceeded the servicing capacity of the populace to pay the interest, let alone amortize the principal. First stripped from asset backing, devalued, then made pure claim on future works, it has again failed. The next step must be to break it from a hard binding to debt instruments. It must go to naked printing where there are no assets, all debt, but furthermore supply will become unconstrained. Currency collapse.
collateralized asset, promissory note, unbacked arbitrary token of capricious value.
The timeline of fiat currencies. And paper will eventually be repudiated. And cannot be replaced by different paper.
It will be replaced by some hard asset backing to restore confidence and restart the system. As it stands now though, the USD FRN has spent all its past, present, and potential future. It has no more domain to exploit except through massive inflation and naked printing.
Excellent posts A S...
Eloquently written -- succinct and to the point. Please increase the frequency of your postings!
And we've got just the Kenyan to make it!
the other way around dude ... no jobs no lending- what bank do u work for? lehman? lending leads to inflation if you cant catch that one..
Why do you keep giving annualized numers? Dear oh dear, such razzmatazz.
Agreed. Keep it real Tyler, or you risk losing your credibility. We need you!
To show a more dramatic picture...sorta like ummm...the dipshitment last year showing the "massive" turn around in housing starts. http://phoenixsourcedistributors.com/WeBlog/wp-content/uploads/2009/06/Private-housing-starts.gif
Look how thick that recession bar is as well...and TPTB say we are not in a recession now.
That's one hell of a roller coaster ride. How many negative G's do you think we're pulling right about now?
ZeroG's - we're in free fall...
Freefall is 1-G you silly goose. Zero-G means you're floating in space.
Freefall and floating in space are both zero G you silly dog.
Somebody knows they use aircraft to simulate zero G space!
Help a newbie out here. This chart is showing the slowing (rate of change) of the economic recovery not the actual ECRI long leading indicator, correct? The long leading indicator is still well above zero, yes? When the long leading indicator goes to zero then we have a depression?
See:
http://www.businesscycle.com/resources/
The XLS spreadsheets have historical data. (They appear pw-protected, but will open if you have MS Excel).
Total index reading bottoming in the mid 115-ish level at the bottom of 2009's dip, so, it doen'st need to go to 0 for a recession.
I think I know why Leo is so optimistic, he lives in Canada:
Canada’s stunning jobs data for June -- with payroll gains of 93,200 that smoked expectations -- all but cements another rate hike later this month from the Bank of Canada, analysts say.
http://www.financialpost.com/news/Rake+hike+assured+news/3255573/story.html
Crap, so that is why our markets tried that leap to the moon.
I thought for sure -10 was in the cards today.
Not that an indicator that predicts recessions 100% of the time (-10 or less) means anything to buy buy buy bots.
Enjoy the extra week of economic prosperity!
Since when did the stock market follow the reality of the economy? If it did, the S&P 500 would have a value around 500 or less.
It shouldn't be too difficult to understand, Tyler! The financial institutions, who received bailout (that means virtually everyone on the block), is under federal obligation (to be honest, its more like you scratch my back - i scratch yours) to prevent market from crashing down. With money available to them at 0% where is the chance that they would let the stock market crash?
I don't think the artists would stop playing the violin now until the Titanic is all under water.
http://www.youtube.com/watch?v=Fi1hgIcflFU
Ecri? We don't need no stinking Ecri. Google to the fucking moon Alice.
ok the greedy bastards are just about to pull the rug from under the brainwashed, gullible, naive and mentally challenged v shaped crowd
if (ECRI > -10)
BidStocksHigher();
Perhaps the indicator is slowing in its rate of descent. To be perfectly fair - we were ALL expecting that -10% today.
Since we didn't get it, it suggests we could be nearing a bottom (for this indicator). Time will tell.
"Perhaps the indicator is slowing in its rate of descent."
RRA_223, I'm not arguing with you but simply using your comment as a springboard for mine. I see you're simply trying to see both sides of the event.
It always seems when the first derivative indicators are going south, the cheerleaders (usually on CNBC/FOX) immediately begin to talk about the second derivative. The lengths we will go to satisfy our confirmation bias is amazing.
http://youarenotsosmart.com/2010/06/23/confirmation-bias/
Thanks CD, I needed the confirmation bias perspective. I think I'll change my handle to BearBull
I will state, that last time the second derivative had more of an upward concavity than now.
Confirmation bias or not, the weekly ECRI is a somewhat volatile index and has been known to give many brief (false) turns.
As long as the growth number is negative, one should expect to see a moderating trend in economic growth... second derivative nor not. There are many events between now and the fall that could drive the weekly ECRI to +10.0, or even -20.0. Yeah, time will tell. But the index does strongly suggest that the current revenue and earnings estimates floating out there are at risk.
With ECRI sounding a voice of moderation due to their readings of the Leading Long Index, it would be nice to observe the trends there. But, alas, the Research Institute does need to make money eventually.
Perhaps a 3rd party strategist could take a gander at that long index and make his/her own interpreation for our consumption.
So is this why TPB are now looking to tax pot? All those hippies should be happy that the economy tanked that allowed the prospect of pot to become leaglized.
The ECRI WLI growth rate has declined in nine straight weeks, & 13 of the last 14, and has been negative for five consecutive weeks. The growth rate's all-time high is 28.5%, which was set in early October 2009. Prior to the current deceleration spell, the growth rate had moved steadily higher between December 2008 & October 2009. The growth rate’s low was -30.2% in early December 2008. Prior to the last recession, the ECRI had started declining in mid-2007, but the sharpest declines started in the second half of 2008. The ECRI’s movement is looking similar to the steep drops seen in late 2008 - Happy Friday...
Kind of like the old Henny Youngman jokes; Doc said I needed surgery, couldnt afford it, so for a couple of bucks he changed the x-ray. Doc gave me 6 months to live, couldnt pay his bill so he gave me another 6 months.
This site's commenters are kind of a funny lot. There is general agreement that computers do the majority of the trading and that stocks rise/fall correlate to the AUD/JPY. Yet people complain about "they who ramp markets." It's computerized folks. Nobody ramps them. The computers buy every tick up and down. What I think will be quite humorous (to me, anyway) is we may soon discover that the correlation breaks: AUD up, stocks down. This would cause great pain to the markets and the computers would have to be unplugged for a while causing a further acceleration down. Computers had to be unplugged in the fall of 07 and 08 because of a similar breakdown. I love computers, by the way.
Greenspan: Economy may be undergoing a 'pause'
http://www.bloomberg.com/news/2010-07-08/greenspan-says-economy-may-be-having-a-pause-can-t-rule-out-double-dip.html
Fuck Greenspan! Sorry but that guy has put us in this perilous situation that we have been in with no way out. Reaganomics was a lie, drivatives will regulate themselves a lie, and no houseing bubble a lie. I wonder what the world would look like had Volker stayed as chariman longer?
+1. But Volker is no angel. He did the con-game with the Banks back in the early 80's with the Latin American problem. It is the blueprint that they are following now, but on a larger scale. This con game is the only thing they can imagine.
Still, I agree, the world would've been far better off with Volker than Greenspan.
pause? that is what a defibulator does right before it flat lines
A defibulator stops the heart in hopes that it restarts in sync instead of in arrest. A depression would possible reset the economy much like a difbulator works.
I guess we're going to need a "nucular" defibulator!
"Should be sufficient for another major leg higher in stocks."
Maybe this time the second derivative may be prescient...
Damn if I know, but this is what I suspect: Most buy side funds are already all-in, and merely adjust sector weightings on occasion. Most are also bullish. Even the bearish managers are positioned for a rising market. All are conditioned to ignore declines, assuming someone, somehow will right the ship.
On down days, i.e., days with volume, sellers tend to be hedge funds. There is a finite amount of talent in the financial community, as well as the intelligence to think for oneself, and these fine attributes are definitely not concentrated among the pension and mutual fund managers. Most of these lesser folks have benchmarks like S&P or MS Emerging Market Index, etc., so down is not necessarily bad. Below the benchmark is bad. They are natural lemmings. If bad data comes out, they look around to try and learn if they should care about it or not, because they lack the skill to figure it out for themselves.
Hedge funds have as their benchmark ZERO. They must behave differently, because losses hurt and eliminate the performance fee. It doesn't matter if they "only" lose 20% if the S$P falls 40% percent, because they only get paid if the bottom line is plus. Non hedge fund managers, who are judged against a benchmark index, can still be a hero if they "only" lose 30% when the S&P is down 40%. Thus, once they have locked in a position below the index level on their starting date, they have little incentive to sell no matter how bad things get.
I often contact friends on major sell side desks as well as Prime Brokers when we get these dramatic moves. Not once has anyone said their customers are buying on these volume-less melt-up days; in fact, their customers call continuously to ask who is behind the move, especially in the futures. Since these friends of mine do substantial business (upwards of $50 million commish in major firms), it seems odd that their clients never seem to be behind the rallies. Conversely, on high volume down days, folks tell me the major sellers are hedge funds. Most non-HF types just cover their eyes and ears and wait for somebody to come save the day. For a year and a quarter now, being a deer in the headlights has been a rewarded trait.
I cannot say with certainty, but the easiest answer to these volume-less melt-ups, especially when they come on the back of bad data, really does lean towards a government helping hand. If anyone has a better explanation, I'd like to hear it.
Good post. I don't think you'll find many on these ZH boards that disagree with you. Fair markets my arse...
spot on...I'll second that observation
@chindit13
Thanks for the well-reasoned argument. I can't think of anything else, either.
You discounted the possibility that someone in Goldman Sachs has some unflattering pictures of Timmy G and Helicopter Ben in his/her possession. That'd fit the bill, too.
"Excerpts from ECRI professional reports:
January 2010 “The U.S. Long Leading Index (USLLI) growth rate, which had soared to a 63-year high in September, is now in a cyclical downturn… This means that U.S. economic growth is likely to start easing by mid-year…In this context, it is also notable that cyclical downturns in stock prices (a short leading indicator) have almost always followed post-recession cyclical downturns in USLLI growth…In sum, the U.S. economy is moving off the sweet spot and entering a higher-risk environment.”
February 2010 ECRI goes on public record about implications of upcoming slowdown (CNBC clip above).
March 2010 “With stronger U.S. economic data discrediting the doubters, double-dip talk has dried up. Not surprisingly, most economists are marking up their growth projections for 2010 and beyond. As usual, such prognosticators are focused largely on coincident economic indicators, which they then extrapolate. This is why there was so much fear of depression last spring, when we forecast a growth rate cycle upturn, based on our objective leading indexes.
Having correctly predicted an upturn in economic growth in the face of widespread skepticism a year ago, those leading indexes are now anticipating a near-term cyclical peak in U.S. economic growth. Specifically, growth in the U.S. Long Leading Index (USLLI) has declined for five straight months to a ten-month low… The directional unanimity among our sector-specific leading indexes is striking. Just as compelling are the successive downturns in USLLI growth, WLI growth and USSLI growth, which are providing sequential signals of an upcoming growth rate cycle downturn for the overall economy – precisely as expected… (Thus), even as people are starting to believe that the perfect storm has ended, clouds are gathering on the horizon.”
April 2010 “There is no doubt that USLLI growth is in a post-recession cyclical downturn… (O)ur forecast of a growth rate cycle downturn by mid-year remains fully intact. With the markets growing increasingly confident about a sustained acceleration in U.S. economic growth in the coming months, this highlights a potential divergence between ECRI’s outlook and growing market optimism.”
May 2010 “The risk of a cyclical downturn in stock prices has risen significantly. Moreover, we are approaching the most dangerous period of the business cycle to employ a buy-on-dips strategy.”
http://www.businesscycle.com/
Great post - Thank you!
also: http://www.businesscycle.com/news/press/1890/
LMAO! Great!
Ha!
Just add poop to all orifices pictured and the story is complete!
All those....er.....glands appear to be well kept. Those cows are obviously lovingly cared for. That's where I want to get my milk.
OK, my guess is that these are all versions of "tail".
BTW why do women plaster their face with makeup and then leave their blemished chest "natural"? I've always wondered and I would like to hear other points of view. They wear a blouse that moves your attention to the chest and there are all kinds of imperfections there. Yet one little zit on the face MUST be hidden.
I don't get it.
Cog Bro,
I just bumped into a charming lady in her late her forties as i came into Zerohedge McMansion a few moments ago.
This was the conversation:
Myself:"Well Madam, Why do older women focus all their energy on the face and leave out important parts such as their bosoms"?
Lady:"How dare you young man".I suggest you ask your own wife that is if you have one you revolting twit you"
LOL
What, no face slap? You're slipping bro. :>)
What happened? Where'd she go..........Oooooh my head!
Anyone know where I might be able to find the comparable growth rate chart for the ECRI's US Long Leading Index?
Black Pantherz, bitchez.
start buying, ECRI is slowing down. won't or may just barely hit -10. then will rebound. no recession.
BS, http://www.consumerindexes.com/index.html
Can you dig that? Consumer credit has contracted for the past 13 of 14 months. No recovery, just a continuation of the Greatest Depression.
The market will not continue to rally without QE, Stimulus, tax credit or unemployment extension. This was just another excuse once again to use a rumor to make money for the trading desks the only way they know how which is squeezing shorts once again and temporarily keep new shorts on their toes awaiting a QE announcement.
Ben will not launch new QE if the markets continue to go up so the markets will continue down and no QE will be announced unless we go sub 900 on the S&P. It is however costing them an increasing amount of money for less return with these laughable rampers. IMO the banks are in serious trouble and all these reports regarding how large the wealth gap is becoming in their favor and the continued abuse of savers can only go on for so much longer. The easy money was to be made last year but as we see every economic indicator is worsening and even with an jobs benefits extension we still have 99'ers dropping off the face of the earth regarding consuming and now even credit consumption.
Even if they announce QE in the coming months it will just stoke massive polticial flames as the unemployment number rises. As the cash stops rolling in people well become more aware of how the government, Fed and Wall Street along with the pols have aligned against them to reward those who caused this catastrophe because of easy money and I beleive many are slowly educating themselves.
'Costing them money'?
Hell its not costing them a damn dime, the entire bill goes to moron american taxpayer, who cant even understand what a billion is much less a quadrillion!
I dont think most people will ever realize whats going on, even as theyre making ketchup soup for dinner, stock market=economy! Thats all they know.
Benny has to inflate quickly and soon, or his whole imaginary world he lives in, is going to come crashing down on him. Get ready folks, hyper-inflation is on the way. Not quite yet, but as soon as QE 2.0 is announced and enacted. The world as we once knew it will enter a new realm.
Zero news + Zero volume + Friday in the summer ==
100-point ramp-job on the DOW, 10-point melt-up on the S&P, in the last hour of today's trading.
Lather. Rinse. Repeat.
Yes but consider the positive effect this will have on Americans that can see their tax dollars so well at work.
America, go and spend, spend, spend this summer. Max out the cards, make minimum payments, get new cards. Just like the Fed and UST do!
Lather. Rinse. Repeat.
The funny part is that bears like Rosenberg were laughing off the ECRI in the March/April 2009 rally when the ECRI was clearly turning up, argueing that the ECRI is a "poor indicator." Now it's collapsing and now Rosie is all over the ECRI and it's his favorite tool.
I suspect the casino is being pumped on bad news to prepare for this:
http://www.marketwatch.com/story/fingers-crossed-as-second-quarter-earni...
The patient was in perfect health other than the fact that he was dead.
Markets getting pumped back to the 2010 highs by September.
Investors are coming back to resume buying, buying, buying and load up on "cheap" stocks in September and October.
Right, I believe that.
What are the chances that in the face of worsening indicators and no QE2 on the horizon more and more investors will start to sell at these levels if they haven't done so in May?
how are these probabilities calculated? what is the formula? have the details been verified?
http://covert2.wordpress.com
More rally next week ?
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
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