There are plenty of smart folks that are not concerned about the inverted curve and see a soft landing and not a normal recession. OK this is reasonable, I happen to disagree and think expecting something that appears to have only happened twice before (correct me if I am wrong), a soft landing, is a bit of wishful thinking but there could be a soft landing and the cycle could go on for an extended period. But when has an inverted curve been a good thing, let alone a beautiful thing?
Mr. Anderson (sorry I do not know if he is a PHD and should be called doctor) is clearly much smarter than me to be where he is but his comments are such that Larry should have asked about it but alas he did not.
Often when they have these soft landing love fests they never ask anyone from the soft landing crowd when they think the cycle will end, what they will be looking at to tell them when it will end and how they reconcile all of the things occurring now that have triggered the end of past cycles.
The soft landing idea can be valid but I would like to hear more about the questions I have asked here to understand their point better.
A big thanks to Michelle Leder at Footnoted.org for handling a syndication without authorization issue for several blogs.
My buddy Jim, who has a little too much time perhaps, Elfed me at a site called Elfyourself which is an OfficeMax toy.
13 comments:
There's an article by Mark Hulbert this morning reporting that Jack Schannep, a Dow Theory newsletter editor, just turned bearish. This is because the Dow Jones Transportation Average hasn't been able to "confirm" the new highs achieved by the DJIA.
http://www.tiny.cc/Ct3c2
So what? Well, it turns out the "Dow Theory" is a pretty decent timing system. Here's a quote from the article:
"Because research has shown that the Dow Theory has beaten the market over the long term. Consider a study conducted in the mid-1990s by three finance professors -- Stephen J. Brown of New York University, William Goetzmann of Yale University, and Alok Kumar of the University of Texas at Austin."
"They fed Hamilton's market-timing editorials from the early decades of the last century into neural networks, a type of artificial intelligence software that can be "trained" to detect patterns. Upon testing this neural network version of the Dow Theory over the nearly 70-year period from 1930 to the end of 1997, they found that it beat a buy-and-hold by an annual average of 4.4 percentage points per year. Their study appeared in the August 1998 Journal of Finance."
This has been an issue of concern in several things I have read over the last few months. Bulls justify it away, bears say it matters but the market has worked higher.
I am not defending either point just noting that the market has confounded a lot of indicators on the way up.
Here's a real time example of headline silliness via Marketwatch.com:
December 22, 2006 9:40 A.M.EST
BULLETIN
Economic data soothe jangled nerves
One more gift in Santa's bag
Stocks set for gains, as inflation at the retail level looks to be tame, possibly giving Fed room to cut.
DOW IS DOWN 30 POINTS!
A couple weeks ago, the wsj.com published an article pointing out 3 factors that are leading indicators to a recession:
1. declining auto sales
2. declining home sales/prices
3. inverted yield curve
then proceeded to explain why it this time is different. I believe the primary reason was low interest rates, or relatively low interest rates. I think if you look hard enough, there will always be a reason to be a perma-bear/perma-bull.
p lee, I agree.
Roger,
Lincoln Anderson usually comes across as a reasonable pundit and a good economist. I agree with you. I have never heard anyone describe an inverted yield curve in such positive terms. My reading of the tea leaves shows slowing growth and rising inflation. But even if I am wrong, I struggle to find an explanation for how the current yield curve is beneficial.
Russ
There are "experts" on both sides of the economic fence and the usual suspects that straddle the fence itself (ouch).
We all know that practically nothing in regards to the timing, duration, severity or ramifications of the ups and downs for the post-economic cycle are correctly predicted.
There is always a good investment somewhere in any economic climate. Spend more time finding great companies, bonds and funds and less time pondering who said what to whom.
We may want to look more closely at the worldwide political and military shifts occuring in 2007. World violence and unholy alliances may control more of the world's investment options than before.
Kudlow asking about soft landing? u kidding me? Kudlow has only a single forecast: market will be up 25-30% in the next 12 months. That's the same forecast he had for the last 35+ years.
--Sami, Ph.D. (but not in economics).
Over the last 50 years, the yield curve has inverted nine times, excluding the current inversion, according to monthly interest rate data from the Federal Reserve. A recession has followed within a few months of eight of those inversions -- the only times the U.S. economy has slipped into recession in that period.
In our analysis, periods of yield-curve inversion that were separated by three or fewer months were counted as part of the same period. The one time when a recession did not immediately follow an inversion was when yields on one-year notes eclipsed the rate on the 10-year from December 1965 to February 1967. The yield curve inverted again later in December 1967 and remained flat-to-inverted until March 1970. According to the National Bureau of Economic Research [NBER], the economy sank into recession in December 1969.
http://usmarket.seekingalpha.com/article/18091
Here is another good, but somewhat old (March 2006), article on the subject:
http://www.safehaven.com/article-4862.htm
So Roger, What did you invest in this week with the 401K money??? You went in a circle, But did not give the funds, etc that you picked up. It would be nice to hear them now.
Sami-funny about Kudlow!
Thanks to the SafeHaven crew for the yield curve commentary.I thought there was a period of inversion before the 1960s where no recession occurred but I must have that wrong.
to the 11:22 comment it was mostly adding to positions.
Generally we are trying to teach how to fish here not handing out halibut.
Roger...I followed some your series of posts on the Big Picture blog and was not 'sure' of your economic perspectives with the series of posts that generated a lot of discussion about two or three months ago. That was one heated discussion..Whew....
With your observation that inversion in the yield curve proceeds recession...I am now a fan and believe you are keeping it real. I was trained as an economists and while very few if any Rosetta stones exist, inversion is a north light for many who studied economics as a predictor of coming economic issues as well as core industrial metals like copper and transport index of material moved.
Thanks for the posts and enjoyed the blog and appreciate the fishing comment.
I recently came across a website at www.alternativeanalyst.com which contains an interesting article on the fallacy of the Soft Landing theory. I think you should have a look because the guy sets out his arguments very logically and convincingly using Wily Coyote as an analogy for the economy.
Post a Comment