Best of the Week
Most Popular
1.Gold Price Trend Forecast, Where are the Gold Traders? - Bob_Loukas
2.Stocks Bear Market of 2017 Begins? Shorting the Dow At its Peak! - Nadeem_Walayat
3.Betting on President Trump Leaving Office Early, Presidency End Date - Betfair Market - Nadeem_Walayat
4.Why Stock Market Analysts Will be Wrong About 2017 - Clif_Droke
5.Is This The Best Way For Investors To Play The Electric Car Boom - OilPrice_Com
6.Silver Price 2017 Trend Forecast Update - Video - Nadeem_Walayat
7.Gold Price Set For Very Bullish 2017, Trend Forecast - Austin_Galt
8.10 Things I learned From Meetings With Trump’s Transition Team - - John_Mauldin
9.How Investors Can Profit From Trumps Military Ambitions - OilPrice_Com
10.Channel 4 War on 'Fake News', Forgets Own Alt Reality Propaganda Broadcasting - Nadeem_Walayat
Last 7 days
Stock Market Sentiment at ‘Extreme Greed’ - 26th Feb 17
Trump Relinquishes Control of Foreign Policy - 26th Feb 17
[Gratis] "Dark Money" Secrets Revealed! - 26th Feb 17
Stock Market SPX New All-time Highs Continue - 25th Feb 17
POWERFUL GOLD & SILVER COILED SPRINGS: Important Charts You Have To See - 25th Feb 17
Underperformance in Gold Stocks Argues for Interim Peak - 25th Feb 17
Watch What Happens When Silver Price Hits $26...  - 25th Feb 17
Gold Futures Buying Yet to Start - 25th Feb 17
When the Stock Market Flying Pig Tops - 24th Feb 17
Gold, Second Fed Hike and Interest Rates - 24th Feb 17
Bitcoin Price Hits Record High! - 24th Feb 17
Another Stock Market Bubble? Bring it On! - 24th Feb 17
What Investors Need To Know About U.S. Money Market Funds? - 24th Feb 17
When Was America’s Peak Wealth? - 24th Feb 17
The Oscars – Worth Their Weight in Gold? - 24th Feb 17
The Best Reasons to Buy Gold in the Age of Trump - 22nd Feb 17
Silver, The Return of Stagflation - 22nd Feb 17
Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - 22nd Feb 17
Gold: Short End US Rates Matter More Than Long End Real Yields - 22nd Feb 17
CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry - 22nd Feb 17
Here’s Proof Rising Rates Are Good for Gold - 21st Feb 17
Gold and Silver Weekly Update - 21st Feb 17
US Dollar and Gold Battle of the Cycles - 21st Feb 17
NSA and CIA is the Enemy of the People - 21st Feb 17
Big Moves in the World Stock Markets - Big Bases - 21st Feb 17
Stock Market Uptrend Continues - 21st Feb 17
Brent Crude Oil Price Technical Update: Low Volatility Leads to High Volatility - 20th Feb 17
Trump’s Tax System Could Spark The Wave Of Self-Employment - 20th Feb 17
Here’s How to Stay Ahead of Machines and AI - 20th Feb 17
Warning Signs Of Instability In Russia - 20th Feb 17
Warning: This Energy Investment Could Wreak Havoc On Your Portfolio - 20th Feb 17
The Mother of All Financial Bubbles will be Unimaginably Destructive when it Bursts - 19th Feb 17
Gold’s Fundamentals Strengthen - 18th Feb 17
The Flynn Fiascom, the Trump Revolution Ends in a Whimper - 18th Feb 17
Not Nearly Enough Economic Growth To Keep Growing - 18th Feb 17
SPX Stocks Bull Market Continues to make New Highs - 18th Feb 17
China Disaster to Trigger Gold Run, Trump to Appoint 5 of 7 Fed Governors - 18th Feb 17

Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

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

© 2005-2016 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