Good gains in energy offset continuing losses in market timing, where my system is still short. New records for worst drawdown and longest trade. But as other comments have mentioned, the economy is in poor shape and the markets are diverging dramatically. Can you say 3Q29?

Relative performance is based on Fidelity Magellan, FMAGX.

10/31 portfolio.

The Chicago Purchasing Managers’ Index (PMI) fell below 50 (well to 49.9, but that’s below 50, eh?) and unemployment claims rose sharply again. The trend in state unemployment claims is very negative.

Stick a fork in it.

Well I’ve been posting a variety of gloomy predictions from economists and others who have recently turned to the dark, or Eeyore, side. These are, to an extent, concerning because they indicate that the consensus may be starting to shift and my observation is that the consensus of economists is generally wrong about the future. Economics is not a science – it does not produce falsifiable theories in the Popperian sense and does not use the scientific method. It is based on a variety of sects – “Chicago school”, “Austrian”, “Keynesian” and so forth which produce competing theories about how the world works. In the absence of the scientific method, the competing claims of these sects are never resolved. So we should not be surprised when economists do not produce much useful information about the future.

The scary part is that government, always terrified of markets which by their nature are opposed to the rent-seeking nature of politics, turns over major policy decisions to economists rather than allow markets to make the decisions. So we have BOGSAT (Bunch Of Guys Sitting Around A Table) at the Fed blowing monetary bubbles based on their religious belief that printing money somehow has benefits other than making the money out there worth less. Sigh.

Weakness in the housing market is likely to push the economy into a recession next year, according to a forecast by the Center for Economic and Policy Research.

“Recession Looms for the U.S. Economy in 2007,” by economist Dean Baker, predicts that the economic recovery that began in November 2001 will come to an end in 2007.

“This recovery has been fueled by a housing bubble, just as the late 90s cycle was fueled by a stock bubble,” said Baker. “Now that the housing market has weakened, Americans are looking at a recession in 2007.”

Baker expects that the weakness from the housing market, which is already spreading over to other sectors of the economy, will have an even larger impact in 2007 as consumers lose the ability to borrow against dwindling home equity. With weak consumer demand dampening investment, the economy is likely to shrink by close to 1 percentage point over the course of the year.

For the record: “WASHINGTON (MarketWatch) — The U.S. economy has stalled, Deutsche Bank economists said Tuesday in a note to clients. ‘In light of continued weakness in the economic data, we are cutting our fourth quarter real GDP growth forecast to zero from the 1.0% that we were originally predicting,’ wrote Joe LaVorgna and Carl Riccadonna. The economists made the forecast change following Tuesday’s weak durable-goods report, coupled with tepid reports from retailers. ‘Consumer spending is not getting the boost from falling gasoline prices that many analysts anticipated,’ they wrote. Other economists aren’t so glum: The average forecast for growth in the fourth quarter is 2.3% following a 1.6% gain in the third quarter.”

Nouriel Roubini has also predicted 0% growth in the fourth quarter.