Are we headed for a recession?
Since I’m not much of an economist, this is more a question for discussion than an expression of any clear verdict on my part. For now I’ll say that some very smart folks think we are headed for a recession; that list of folks includes economist Nouriel Roubini, zillionaire Warren Buffett, and the top executives of Caterpillar. As much as two-thirds of the general U.S. population agrees with them, but opinions vary.
U.S. companies disagree on prospects for a recession
…Almost two-thirds of Americans said a recession was likely in the next year, and a majority said the economy was already faltering, according to a Bloomberg/Los Angeles Times poll taken from Oct. 19 to 22. The survey showed the gloomiest view of the economy since February 2003.
A survey of chief executives released this month by the Business Council predicted that U.S. growth would slump to 2 percent or less next year but that the economy would avoid a recession, defined as two successive quarters of declining gross domestic product….
This puts me in mind of The Epicurean Dealmaker’s witty post from this weekend, in which TED discusses just how poorly mathematicians sometimes do when they try to predict the movement of markets.
…Write this down: Black-Scholes [a prevailing theory of option pricing] works not because it describes some external ontological fact about how pricing relationships between securities and their derivatives have to work; it works because everyone agrees, more or less, that that’s how prices should work. It is a convention, not a physical or financial law. This is the central epistemological trap that quants fall into when they conflate the tools, techniques, and ontological assumptions of physics, which attempts to describe that which is (more or less independent of us humans), with those of mathematical finance, which attempts to descibe how human beings trade and value financial instruments and their derivatives….
Myself, I tend toward caution, so if I were running a company, I would long ago have put back a supply of dry powder to counter the effects of the mortgage crisis and the shriveling of the credit markets. My own view is that the marketplace — not just the financial markets, but the broader sphere of business — has more corrections to make before it stabilizes again. Some of these corrections will be large and painful. Whether that amounts to a recession, I don’t know.
What do you think?
Category: Economics3 Comments so far
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I think we’re in a growth recession now, defined as below potential growth and have been some some time in a generally very week, non job-creating, “recovery”. A call also made and borrowed from Paul Kasriel of Northern Trust. As Pauls points out the impact on jobs, capex, etc. is not much difference in such as opposed to a formal recession. It’s also important to note that a formal recession recession often lags sustained downturns in GDP and Consumption by several quarters. IF you’d like to see this laid out in nice, Ellis “Ahead-of-the-Curve” charts try:
GDP YOY: http://tinyurl.com/2zvof7 . or for a take on the outlook by sector: GDP Components: http://tinyurl.com/39adyt
Higher-frequency data (i.e. monthly) gets looked at here:QR Mary: HF Econ Data: http://tinyurl.com/2zzmfm
Bottom-line is if your hypothetical CEO hasn’t been putting some corn and powder aside now would be a very good time to start. Very good indeed.
But don’t take my word for it - the charts let you be your own economist. Or at least draw your own conclusions.
No one ever says a recession is beginning.
They simply deny that we’re headed toward one, silently fire their top heavy execs (early retirement wall street???) and then a year later like the 3 dumb monkeys declare we’re in it.
10 years later we’ll be out.
But in the interim I’ve got loose cash and I’ll buy the house you can no longer afford.
Ya see, I’m a giver.
xoxo
Sue
yes i think we are headed for a recession. look at the factors.
the feds which should have increased rates at some point didnt so now we have no room to cut rates and now our dollar is sinking like the titanic.
oil is looming at 100 bucks a barrel this economy cant sustain that for very long because, the most costliest thing for businesses is transportation so with gas going up, transportation costs going up, cost of goods going up, and wages are predicted to be out paced by rising cost of inflation. 70% of our economy is based on consumer spending. consumers will cut spending surely.
and another thing our outragous government deficits arent helping which started the down turn of the dollar in the first place.
for a while the rich has been getting richer, the poor has been getting poorer and a shrinking middle class, now everyone is going to feel this one