Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
Ruble Takedown Exposes Cracks in Putin’s Defense - 20th Dec 14
Oil Drilling Our Way Into Oblivion - 20th Dec 14
Stocks Bull Market Resumes - 20th Dec 14
Gold And Silver Nothing Is Ever As It Seems And No Respite For PMs - 20th Dec 14
What Are Technical Indicators Saying About the Stock Market? - 20th Dec 14
Here’s How You Can Still Make 27% With Apple Even if You Buy Now - 20th Dec 14
Gold Stocks to Shine in 2015 - 19th Dec 14
Why Alibaba Stock Shares Are a Screaming Buy - 19th Dec 14
China, Dollar, Japan, Europe Burning Questions for 2015 - 19th Dec 14
U.S. Economy is in a Sweet Spot! - 19th Dec 14
US Dollar and the Gold Fairy Tale - 19th Dec 14
Show Me The Money (Flow)! Tracking Money-Flow Through Value Shifts In Stock Markets - 19th Dec 14
The Commodities Market Is Not Dying, It’s Just Hibernating - 19th Dec 14
The Price Of Gold And The Art Of War - 18th Dec 14
Euro Succumbs to ECB QE Expectations and FOMC - 18th Dec 14
John Williams: A Downhill Run for the U.S. Dollar in 2015 - 18th Dec 14
Outrage at Taliban Islamic Fundamentalists Massacre of 132 Pakistani School Children in the Name of God - 18th Dec 14
How Inflation Changes Retirement Benefit Choices - 17th Dec 14
The Real Reason It's Tough to Beat the Stock Market - 17th Dec 14
Russian Currency Crisis and Debt Defaults Could Create Contagion in West - 17th Dec 14
How to Profit From Russia's Stock Market Crash - 17th Dec 14
Russia Crisis - If You Put Your Money in the Bank Will You Get it Back? - 17th Dec 14
Crude Oil Price Crash, U.S. Employment and Economic Growth - 17th Dec 14
Opposing Forces At Play In Gold and Silver Precious Metals Complex - 17th Dec 14
Wall Street Will Always Find An Excuse For Not Raising U.S. Interest Rates - 17th Dec 14
Torture, Terror And Elite Schizophrenia In The UK - 16th Dec 14
Eurozone Conflict Will Bring a Major Stocks Buying Opportunity - 16th Dec 14
Viewing Russia From the Inside - 16th Dec 14
Gold and Silver Stocks Bottom - Are We There Yet? - 16th Dec 14
The Financial Industry Pigmen Win Again - 16th Dec 14
Crude Oil Price Epic Blowout - 16th Dec 14
Asian Stocks Markets: Sand In The Gears Of The Bull Market - 16th Dec 14
U.S. Dollar Trend Forecast 2015 - Video - 16th Dec 14
Silver Price Bottom? - 15th Dec 14
Gold Price Base Building Bullish Pattern - 15th Dec 14
Stock Market Probable Pop-n-Crash Today - 15th Dec 14
Stock Market Time for a Bounce - 15th Dec 14
Stock Market Euphoria: The Mother of All Ponzi Schemes - 15th Dec 14
Gold - The Weight of Time as Trend - 15th Dec 14
U.S. Dollar Collapse? USD Index Trend Forecast 2015 - 14th Dec 14
The Rushing Stocks Bear Market and How to Prepare - 14th Dec 14
Gold and Silver Dreaming of a White Christmas - 14th Dec 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

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

© 2005-2014 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

Free Report - Financial Markets 2014