Real-Time Information
June 25th, 2009 by 
reality
You don’t get much useful information from government releases, despite the market reactions in the short term. You need to check with the horse, in this case Warren Buffett, in a CNBC interview yesterday with Becky Quick.
BECKY: The last time we sat down to talk to you was on May 4, and at that point you told us that you think we’re in an economic war right now. How much progress do you think we’ve made in that war?
BUFFETT: Well, it’s been pretty flat. I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we’ve had no bounce. The financial system was really where the crisis was last September and October, and that’s been surmounted and that’s enormously important. But in terms of the economy coming back, it takes a while. There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while. In the (Berkshire Hathaway) annual report, I said the economy would be in a shambles this year and probably well beyond. I’m afraid that’s true.
BECKY: We hear people on our air all the time who talk about the ‘green shoots’ that they’re seeing. Are you seeing any of those green shoots?
BUFFETT: (Laughs.) I looked. I wasn’t seeing anything. I had a cataract operation on my left eye about a month ago and I thought maybe now I’ll be able to see green shoots. We’re not seeing them. Whether it’s retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we’ve never seen it for a simple thing like electricity. So it hasn’t happened yet. It will happen. I want to emphasize that. But it hasn’t happened yet.
Well, with all due respect, Mr Buffett, yes, I can’t argue with that, it will happen – eventually. But not for a long time, and from much lower levels. In my opinion, anyway.
In the meantime, the horticulture fans are driving up stock prices again. The big buying surge in the NDX today was led by BBBY – Bed, Bath and Beyond. They have to be kidding, is all I can say. You would really have to believe that the consumer is coming back – but that’s not happening unless the housing bubble re-inflates, so cash-out refinancing can drive spending. Oh well. One waits.
Posted in Strategy & Scenarios, The Economy | 
3 Comments »
June 26th, 2009 at 5:59 am
While no single indicator is every omnipotent, ECRI has expressed that their long leading index and WLI bottomed last fall and are now at 2-3 year highs. This implies the economy will be recovery during the 2nd half of this year. Importantly, their leading indicator for the global industrial sector is very robust to the upside. They are also careful to point out that a cyclical recovery is not mutually exclusive with the long term structural problems of debt in the economy which will take many years to play out. Given their track record, I’d be careful going against their forecast.
Of course financial markets do not equate to the economy, so this is not a market forecast!
June 27th, 2009 at 5:55 am
James, I offer the following analysis for your consideration:
“In summary, ECRI WLI movements probably coincide with or slightly trail stock market behavior, offering no significant trading intelligence over the short or intermediate terms.”
http://cxoadvisory.com/blog/internal/blog4-09-09/
June 29th, 2009 at 8:07 pm
Thanks – great analysis. I would simply say that ECRI is not solely the WLI. They have publicly stated that it was the recent sequence of the long leading index (which does not include stock prices) bottoming followed by the WLI bottoming which is followed by a stock market bottom, that is the high probability sequence for forecasting a recovery. They also rely upon moves being pronounced, persistent and pervasive in order to try and reduce the odds of false signals. No-one has a crystal ball, but I think ECRI’s methodology is the closest I’ve found to be deterministic and non-linear in forecasting economic cycles.