Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17
Turning Point Nations On The Stage - 11th Oct 17
The Profoundly Personal Impact Of The National Debt On Our Retirements - 11th Oct 17
Gold and Silver Report – Several Interesting Charts - 10th Oct 17
London House Prices Are Falling – Time to Buckle Up - 10th Oct 17
The S&P Is A Bloated Corpse - 10th Oct 17
Are Gold and the US Dollar Rallying Together? - 10th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

U.S. Recession 2013 100% Risks Follow On

Economics / Recession 2013 Dec 02, 2012 - 11:37 AM GMT

By: PhilStockWorld

Economics

Courtesy of Doug Short : Professor Piger updated his recession probability model that caused so much attention early November (See “Debunking 100% probability of recession“). As we forecast last month, the probability index undertook a “revision” of epic proportions as displayed below (01-Dec-12 vintage):


This is a classic real-world rendition as to why you cannot make “never before has recession probability reached 20% without a recession ensuing shortly after” type inferences with these Markov model readings, and why the developers of the model use 3 or more readings above 80% before making recession calls. Hopefully last month was the last time we see misinformed bloggers jumping to wild conclusions and scaring everyone witless with baseless inferences without doing their homework.

The reasons for the dramatic drop in recession probabilities were of course the inclusion of better data from September. Because of a two-month delay in the availability of the manufacturing and trade sales series, the probabilities of recession were also available only with a two-month delay. So the reading in early November we saw that caused so much fright applied to the economy as at August 2012. We had one set of extra data readings since the scary reading was published that were not yet incorporated into the model. As we stated last month, this data was likely to have a favourable effect on the model and drop probabilities down to 10% from 19%. The reason the probabilities dropped even further is likely to do with the fact that Real manufacturing and Trade sales printed a new high at the September data point published in November:

(Chart courtesy of Doug Short)

It is with some interest that we noted ECRI pointing to Sales as having peaked in their defence of recession call last week. I looked very hard at their peak indicator of Sales published on their web site last week and struggled to find the remotest inference of a peak in their chart, no matter how creative I got with my geometry skills. With this latest print from Real manufacturing and trade sales forming a new high (it was published after ECRI did their rounds last week) I find this even more baffling. No doubt the November figure for the more timely monthly Retail and Food Services Sales[NAIC based] used by the NBER and our “NBER Model : Recession Confirmation of last resort” and published around the middle of December will be more telling. Whilst the chart below shows growth slowing (red line), the growth is still well above a negative print and the blue line offers absolutely no sound geometric reason for a peak inference right now.

I’m not denying recession risks right now, but do get a little frustrated when weak arguments for the case are put forward by industry professionals and broadcast on mainstream TV. It leaves the impression one is clutching at straws. You could trot out a half-dozen cases right now for recession far more compelling than a non-existent peak in retail sales (conversely we could roll out 2 dozen cases for expansion!) On that note, we have a full month of October data for our NBER model maintained for clients. On Friday we released the full report to them, but below is a snapshot of the recession probability section of the report:

The red dotted line is the “Never before” inference line ? in other words when probabilities exceed this line, recession has always followed very shortly thereafter, bar one occasion in 1966. If the red line were moved to 35% then you would have a level that has never made a false alarm (false positive) in the past. We can make these kinds of inferences as this model is not subject to the large revisions in the Markov models, it is merely subject to the data revisions themselves. As we have comprehensively researched in a prior note ? these revisions are not as dramatic as some would lead us to believe and have little effect around turning points for the NBER Model.

I am more inclined to think the levels posted by this Probit model (12.8%) or more representative of risk right now that the Markov models’ 3%. But we do not have to wait until the 15th Dec to get a comprehensive November view of the economy ? our Labour Report which gets published on 5th December will include a battery of BLS data that can be combined into a comprehensive and broad US economic composite. Its the earliest possible time to achieve a broad view of the economy status for the prior month. If you go to the OUR SERVICE menu you can download a copy of the report from last month to see what it is saying through the lens of the labor market.

Dwaine van Vuuren is CEO of RecessionALERT.com, a provider of investment research.

www.recessionalert.com

- Phil

Click here for a free trial to Stock World Weekly.

www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

© 2012 Copyright  PhilStockWorld - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

PhilStockWorld Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife