Comments on: Another One http://alamedalearning.com/reality/2006/12/31/another-one-3/ Separating fact from fiction in finance and economics Thu, 11 Mar 2010 13:20:12 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: James http://alamedalearning.com/reality/2006/12/31/another-one-3/comment-page-1/#comment-221 James Tue, 02 Jan 2007 15:13:14 +0000 http://alamedalearning.com/reality/2006/12/31/another-one-3/#comment-221 Lakshman Achuthan was on CNBC.com for an excellent interview recently to discuss their 2007 outlook. Their outlook is far more nuanced than the snippet from their weekly release to us paupers. Essentially, they are seeing a recession in manufacturing - including housing, and that there are not yet signs of a bottom in that recession. They correctly forecasted the global industrial slowdown - they actually began forecasting it with their long leading index almost 1 year before it emerged. However, they see continued and actually renewed strength in the service sector. Because the US economy is now dominated by services, the overall economy is likely to accelerate late in the 1st quarter into the 3rd quarter. This is not at odds with most bearish forecasts for the economy except for the lack of bleed over to the service sector. In fact, it makes sense given the continued credit expansion, as this feeds into the financial sector which is a HUGE player in the service sector. Lakshman Achuthan stated that they are watching the leading home price index very closely because of that sectors importance. It has turned up in the past 4 months but it does not yet meet their definition of being persistent, so they are not yet forecasting a stabilization. With all this said, the economy is NOT the stock market. ECRI accurately forecasted the end of the 2001 recession in Oct/Nov when everyone else was saying that 9/11/01 was the cause of a recession....when it had in fact begun 6 months earlier. The vicious part of the bear market did not begin until April 2002, while the economy was strengthening. With all of the reckless speculation and leverage that is taking place globally, it is more likely in my mind that we get another 1997 or 1998 style correction...which could cascade into something worse. Because the financial markets like to make fools of logical thinkers, I think we could get a stabilization in housing (at least for a period of time...I don't think it is over yet), no recession in 2007 AND a severe correction/bear market in stocks. Throw in higher interest rates and a stronger dollar and that would essentially confound the most people in my opinion....which is exactly what Mr. Market likes to do. Lakshman Achuthan was on CNBC.com for an excellent interview recently to discuss their 2007 outlook. Their outlook is far more nuanced than the snippet from their weekly release to us paupers. Essentially, they are seeing a recession in manufacturing – including housing, and that there are not yet signs of a bottom in that recession. They correctly forecasted the global industrial slowdown – they actually began forecasting it with their long leading index almost 1 year before it emerged. However, they see continued and actually renewed strength in the service sector. Because the US economy is now dominated by services, the overall economy is likely to accelerate late in the 1st quarter into the 3rd quarter.

This is not at odds with most bearish forecasts for the economy except for the lack of bleed over to the service sector. In fact, it makes sense given the continued credit expansion, as this feeds into the financial sector which is a HUGE player in the service sector. Lakshman Achuthan stated that they are watching the leading home price index very closely because of that sectors importance. It has turned up in the past 4 months but it does not yet meet their definition of being persistent, so they are not yet forecasting a stabilization.

With all this said, the economy is NOT the stock market. ECRI accurately forecasted the end of the 2001 recession in Oct/Nov when everyone else was saying that 9/11/01 was the cause of a recession….when it had in fact begun 6 months earlier. The vicious part of the bear market did not begin until April 2002, while the economy was strengthening.

With all of the reckless speculation and leverage that is taking place globally, it is more likely in my mind that we get another 1997 or 1998 style correction…which could cascade into something worse.

Because the financial markets like to make fools of logical thinkers, I think we could get a stabilization in housing (at least for a period of time…I don’t think it is over yet), no recession in 2007 AND a severe correction/bear market in stocks. Throw in higher interest rates and a stronger dollar and that would essentially confound the most people in my opinion….which is exactly what Mr. Market likes to do.

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