Tag Archives: recession

Recession Watch: Falling Commodity Prices to Hurt America

Economic indicators are like biosigns of a living organism. They signal changes in complex systems that we cannot directly say and don’t well understand. The top rule is that rapid change in key indicators shows destabilizing forces at work, despite the complacency with which they’re usually seen by economists.

We see this in the on-going collapse of commodity prices. This has beneficial effects on America, but signals rising global stress — both political and economic — that might bite us hard. See my analysis of this at Wolf Street…

Recession Watch: Falling Commodity Prices to Hurt America

A leading indicator of trade, economic growth, and geopolitical instability

A hard landing for the Hindenburg

Recession Watch: a turning Point in Unemployment Claims?

A new era has begun for the US and global economy, trashing the simple rules of the post-WWII era. Instead of the business cycle (the “clock” analogy found in textbooks), we have secular stagnation interrupted by frequent bubbles alternating with bouts of debt deflation that are fought by massive government stimulus programs.

Since we have no playbook for this new economic regime, investors must watch the data. Bulls look at signs of strength; bears focus on signs of weakness. Survivors look at broad indicators, showing the net effect of the many cross-currents affecting the economy. The number of new claims for unemployment is among the best: close to real-time (weekly), hard data, and a leading indicator.

New unemployment Claims: YoY in 2015

See the analysis at Wolf Street. Second of 2 posts today.

The Fed’s Vice Chairman warns about us about the strong dollar

Stanley Fischer (Vice Chairman of the Fed) gave us a warning in a speech on Nov 12. He’s someone we should list to.

Effect of rising US dollar on trade.

He reported that since July 2014 the US dollar has risen aprox 15% vs the currencies of our major trading partners, a “large, though not unprecedented” move. The Fed’s econometric model show that a 10% dollar rise reduces exports by 3% after one year and 7%+ after three years — and increases real imports by 4% after three years. The net effect on GDP: a decline of 0.7% after one year and 1.5% after three years (these numbers are roughly estimates). The bottom line…

Read my full report at Wolf Street.

What Will the US Do in a Recession? Look to Japan for Answers…

Summary: In a previous article I listed the powerful tools the US government would deploy during the next recession. Today we discuss something more important: will they work? We can look to Japan for an answer. Their great stagnation began with the 1989 crash, 11 years before the tech bubble burst and began America’s new era. Japan took fiscal and monetary policy to the outer limits. Now it’s in a recession. Although our circumstances differ, we’re following in their tracks.

Keiki Kaifuku, Kono Michi Shika Nai” (“Economic Recovery,
There Is No Road But This”).
— LDP Campaign Slogan, December 2014. If only this were true.

Japan: setting sun

Is that a setting sun, or a rising sun?

As Richard Koo predicted, during the Great Recession America repeated Japan’s mistakes during its “lost decade”. That’s the bad news. The good news is that America climbed into a slow recovery after the worst downturn since the 1930s. The worse news is that another recession lies ahead. Potentially a bad one, with both the world economy and many domestic sectors weak. The government will deploy powerful tools to fight this downturn. How well will they work? Look to Japan for answers…

Read the rest at Wolf Street.

What will cause the next US recession?

Summary:  It’s been six years from the previous recession. We should be watching for the next downturn. Since the usual forecasting tools never worked well, and are probably even less reliable in this new century, what should we watch? I suggest looking at potential causes of the next recession. There are a few obvious candidates. See their story in my post at Wolf Street.

Economy

Contents

  1. Reasons for economists’ confidence
  2. Bubbleville in Northern California
  3. Bigger:  Automobiles
  4. Bigger: Housing
  5. Biggest: Exports
  6. Conclusions

See the article at Wolf Street.

The Fed will use these power tools during the next big recession

Summary: Six years after the recession ended, we are due for another recession. Many experts say that the government is “out of bullets” to fight the next severe downturn. That’s quite false because 2008 marked the start of a new era in which our leaders manage the business cycles using strange and awesome tools. We’ll learn the long-term effects of these tools slowly, probably only decades later.  {2nd of 2 posts today.}

“All is not lost until you run out of airspeed, altitude, and ideas.”
— Pilots’ wisdom.

Frankenstein

Roger Bart and Shuler Hensley (on table) in the musical “Young Frankenstein” at the Hilton Theater.

(1) Expect the next recession

Free market economic systems produce greater growth than any other system yet tried. Business cycles — and recessions — are a price we pay for the growth. They’re unpredictable — literally so (the consensus of economists has never predicted one). They can destroy years of growth, and change the course of nations. The 2008 crash did both, as shown by this slide from a typically excellent analysis by Brad DeLong.

See the full post at Wolf Street!

How to watch the economy & prepare for the next recession

Summary: Our sophisticated information systems deliver a blizzard of economic statistics. I strongly recommend that you ignore them, unless useful to you professionally. Life is short; nothing can be gained by collecting and pondering the snowflakes.  Here are some numbers you might find useful to watch. Their only value comes from what you do with them. {1st of 2 posts today.}

Knowledge + Action is power

(1)  Watch the big trend, not the pixels

Watch the trend, not the details. An easy way to do so is to follow the writings of an economist you consider reliable. Even easier is to subscribe to one of the many indexes of leading indicators, such as the Conference Board or the Economic Cycle Research Institute. Or the surveys of economists, such as the Blue Chip consensus, the Wall Street Journal survey, and the Philly Fed’s survey.

I recommend following the Atlanta Fed’s GDPnow page (their algorithm is not better than that of carbon-based economists, but it is just as good and has more frequent updates).

GDPnow

For a broader perspective I recommend the OECD’s composite leading indicators (CLI), available for the major nations and regions. As you can see in this graph of the CLI for OECD nations, the world changes only slowly. Remember the thousands of excited headlines embedded in those slow undulations, and what a waste of time it was to read them (but the 1% would rather you burn time reading trivia than thinking or even worse, taking political action).

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