Posts
Click to enlarge.
I'm going to predict the next recession will hit on or before October 2014.
You are probably wondering why I am using the "or before" disclaimer in my prediction. Well, it's a bit like predicting a volcanic eruption. As seen in the following chart, the pressures are apparently already here. Just can't say exactly when it will blow. Could be tomorrow. Could be October 2014. Who knows!
Click to enlarge.
Check out those downward trend lines in both charts. I also find it interesting how accurately the extrapolation of the trend line in the second chart is matching reality. It's shooting from 1995 through 2000. It hit both 2008 and 2012 right on the targets. Go figure.
And lastly, I assume here that the economy will continue to deteriorate over the long-term. I do run an illusion of prosperity blog though, so if nothing else I am being consistent.
Update:
Want scary? Check out real inventories per civilian employed.
Click to enlarge.
Good luck on that one! Got volcano?
Source Data:
St. Louis Fed: Orders Custom Chart
St. Louis Fed: Inventories Custom Chart
St. Louis Fed: Inventories Custom Chart #2
3 comments:
If you draw the line from the trough of the 2007/8 recession, eyeballing it looks like recession in Q1 2013.
If we pretend that the EU fixes it's problems, the fiscal cliff looms on 1/1/13 unless the lame duck Congress acts boldly to extend a lot of policies.
Re: anti-bondmageddon
My copy-stagflationary-mark TIPS trade is way up since early April. Go me! I took my lumps on gold, but the worst seems to be over. We'll see.
I don't understand the Certainty vs Uncertainty chart on the previous post. Explanation?
Mr Slippery,
If you draw the line from the trough of the 2007/8 recession, eyeballing it looks like recession in Q1 2013.
I opted to start the trend lines when they appeared to stabilize. Call me an optimist! ;)
If we pretend that the EU fixes it's problems, the fiscal cliff looms on 1/1/13 unless the lame duck Congress acts boldly to extend a lot of policies.
This would certainly cover the "or before" part of my disclaimer, lol. Sigh.
My copy-stagflationary-mark TIPS trade is way up since early April. Go me!
Hahaha! If you are a trader, you might want to brace for some pain. In the short-term, a recession may cause TIPS rates to spike higher. In my opinion, they would fall again once the inflationary medication is applied again (and people therefore realize that making money off of money isn't nearly as easy as it once was).
My next comment will cover your question.
Mr Slippery,
I don't understand the Certainty vs Uncertainty chart on the previous post. Explanation?
For those just tuning in, the chart can be found here.
Before the crisis, you could predict what the 10-year treasury yield would be fairly accurately if you knew the 10-year TIPS yield (and vice versa). That's represented by the blue certainty trend line. Note the high 0.90 correlation of the blue data points. You could predict with such accuracy because inflation was well anchored.
As we plunged towards deflation that relationship fell apart. That's represented by the red uncertainty trend line. Note the lower 0.55 correlation of the red data points.
Lately, we're back to the blue certainty trend line and all appears well.
There's something else going on too of course. We've generally been moving down and to the left on the chart and it is therefore becoming harder and harder to make money off of money.
Inflationists seem to think this is an inflation problem. As seen in the chart, inflation has yet to be a problem. Heavy inflation would appear in the upper left hand corner of the chart. There aren't any data points there though. None!
The real problem is dying real yields. That's why I have liked TIPS for the past decade (and probably well into the distant future). They are directly tied to real yields (regardless of what inflation does or does not do).
Some argue that it is insane to embrace TIPS with such low yields. I would simply point to the real yields of World War II and the 1970s. Things can get worse and stay worse. In fact, I'm kind of betting on it.
It does not necessarily mean that we get the inflation of those eras though. I tend to believe the Fed and their 2% inflation target. There are ample deflationary forces in the world, and the next recession will no doubt highlight them again.
Just opinions!
Post a Comment