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ECRI Warning

By John Batchelor on July 24, 2010 at 1:22 PM in Current Affairs

Spoke Paul Vigna, WSJ, re the ECRI, a private index that is regarded privately as a careful leading indicator of economic activity.

The bad news is that the ECRI has now gone negative to -10.5. What does this mean? Every time since 1980 that the ECRI has gone beloew -10.0 there has been a recession in 13 weeks.

How can this be? We are in recovery?

Yes, we are in recovery, and this makes the ECRI very worrisome to the traders. The ECRI climbed from the December 2008 lows of the last thirty years, -29 plus, to a recovery in early 2010 to positive numbers.

Then this sudden reversal of the last few months. What now. Joe Brusuelas, Bloomberg, points to the European bank stress test results.

The seven banks that failed, the 84 that passed will now come under the scrutiny of the smart money traders who will do their own stress tests with the bank numbers. The European stress test was deliberately easy to pass. For example, the Greek banks were tested with bond losses of 23%, whereas the average losses of bonds the last part of the 20th century was 46%. The usual turmoil and doubts starting Monday 26.

The underlying tale is the extreme caution for the remainder of the waiting time ’til the Election. Joe Brusuelas asserts there will be no credible rally.

Waiting on the New Year. And housing starts will wait until 2012. If you can trade the downside, or the volatility, enjoy. For now, quantitative easing is available for the Fed, not much else.

Obama: Dubya 2 Electric Boogaloo

::insert creepy symphonic bumper music::

What?!

There will be no blood?!

::slighty turn up creepy bumper music in background::

Now I’m disappointed…

::creepy symphonic bumper music at full volume::
foxyladi14

been saying all along we haven;t hit bottom yet
EllenD

The European stress test was deliberately easy to pass.

You mean as opposed to the American stress test that was INSANELY easy to pass?
Nice Try

John,

A couple of points.

The people at ERCI, like Lakshman Achuthan, are constantly say that they wont make a recession forecast until there is also a downturn in the LLI, not just the WLI. So not sure the ERCI tells us much.

See the CNBC interview on their website here:

http://www.businesscycle.com/

Lakshman Achuthan, one of the guys who has created the index, says the index points to slower growth, but not necessarily a recession. He also say there is “no double dip imminent”.

The other commentator in the interview about the index says we are just in a new phase of the recovery. A new more mature phase that represents slower growth, but this is still healthy and makes a recovery more likely to last longer.

Also in a July 14 Bloomberg interview Lakshman Achuthan of ECRI said an economic slow down is likely, but not a recession. This is not a surprise, as many economists have been suggesting this.

However, beyond this index, corporate earnings certainly point to a better economy, certainly much better than where we were a year ago. There is also evidence that CEOs are starting to spend again, so I suspect more job growth is likely to follow. However, we do have a large hole to climb out of and it will take a while.