Tuesday, March 20, 2012

Historical Recession Odds (Musical Tribute)

This is an update to the Mean Time Between Failures post a few days ago.

David Merkel wanted to know what history would say about the odds of a recession given that we have completed 32 months of expansion so far (i.e., we're in our 33rd month).

Here's the chart.

One expansion ended at the 33 month point. Since we're in our 33rd month of expansion, history doesn't even allow this month to have a 0% chance. You can see that in the chart.

If we could rely on what history is trying to tell us then there is a 50% chance of a recession within one year. We can't necessarily rely on history of course. If we could, in the words of Warren Buffett, the richest people would be librarians.

That said, the odds of a recession continue to increase. There have been 33 expansions since 1854 (not counting the current one). None of them lasted longer than 10 years.

I would also point out that the one and only expansion that did last 10 years (ending March 2001) led to an epic stock market bubble that is still reverberating throughout our economy. One could therefore easily argue that the longer we are pushed to expand, the harder we eventually fall.

I don't want to end on that gloomy note though.

"The Midnight Show", 1973

Don't let it concern you that he sung that song heading into one of the worst recessions in our country's history. Just enjoy the music! And let's not forget that unlike the 1970s, we truly can see all obstacles in our way now, or at least most of them. I've listed them many times. Here is one of them. Here is one more. Here is another. The list hardly ends there though. Sigh.

September 9, 2010
The 13 Worst Recessions, Depressions, and Panics In American History

1973-75 Recession

This period stood apart from many other U.S. recessions as it was marked distinctly by stagflation – the combination of high unemployment and high inflation. The United States faced a surge in oil prices due to OAPEC’s (Organization of Arab Petroleum Exporting Countries) oil embargo, combined with increased spending due to the Vietnam War and a stock market crash after the collapse of the Bretton Woods monetary relation system, officially putting an end to the economic boom which followed WWII. Unemployment peaked at 9% and, although the recession is recognized as having ended in 1975, the country experienced low economic growth for years afterwards.

Source Data:
NBER: US Business Cycle Expansions and Contractions


mab said...


Seems like you're a believer in the "Great Moderation"........ of American wages. ;)

Bondmageddon, hahaha!

Stagflationary Mark said...


The name is Bondmageddon, James Bondmageddon.

I'll take my economy shaken, not stirred. ;)

mab said...


Gentlemen prefer bonds. Why? Bonds have more fun.

Bond vigilantes, what a joke. Wall St. finance is lies heaped upon lies.

Stagflationary Mark said...


It would seem the death of Mr. Bond was highly exaggerated.

What are you? Some kinda doomsday machine boy? - Sheriff J.W. Pepper, Live and Let Die (1973)

Stagflationary Mark said...

I'm Gonna Hide from Stocks

I'm gonna hide from stocks, 'til they all come down
I'm gonna hide from stocks, 'til the next meltdown
I don't need Wall Street the way that they do (they do, they do)
They *can* turn it on and off the way that I do (I do, I do)
Ooo, Ooo...

I'm gonna hide from stocks, 'til the end of timing
They'll turn some corner soon, and find they're not owned by me
I don't need Wall Street the way that they do (they do, they do)
They *can* turn it on and off the way that I do (I do, I do)

I don't see stocks as some kind of "sure thing" of the century
They've doubled from the bottom and look a little bit more than pricey
And we know that they can prance
But I know I will not take the chance
I'm gonna pass for free
Ooo, Ooo...

mab said...


The "massive spike" in your chart is hardly a bond-voyage for us bond-vivants!

Stagflationary Mark said...

Hardly a bond-voyage? Hahaha!

It couldn't be! This is the bondage! Um, that didn't quite come out right. I meant the age of bonds of course.

It is also the age of vagabonds.

Vagabonds may lack residence, a job, and even citizenship.

We're three for three!

Housing bubble pops!
Job market implodes!
Patriot Act!