Has the recession begun?

numbercruncher · 21 December 2007

ASF has alot of armchair (and probably pro) economists so I thought running a poll on that topic seldom discussed within in polite circles might be enlightening !

I think it has begun, and will site a few sources whom agree ......

The global credit crisis and widening subprime mortgage defaults in the US have most economists now talking about the probability rather than the possibility of a recession in the world's biggest economy.

http://www.abc.net.au/news/stories/2007/12/20/2124457.htm

We know only two things in life are certain: death and taxes.

Now, along comes Merrill Lynch economist David Rosenberg with the declaration that there is a 100% chance of a recession in 2008.

One hundred percent, as in it’s going to happen beyond the shadow of a doubt.

http://www.foxbusiness.com/article/recession-sure-thing-fast_414385_55.html

Bill Gross, founder of Pimco, one of the world’s largest fixed-income managers, has sounded a downbeat note on the US economy by saying it has gone into recession.

“If I had to be bold I’d say we began a recession in December,” he said in a Financial Times interview, in which he called on the Federal Reserve to bring interest rates down to 3 per cent. The recession would last “four to five months”, he thought, but he added it would be prolonged if the administration and Congress failed to “take some rather unperceived and unforecasted measures in terms of fiscal stimulation”.

http://www.ft.com/cms/s/0/6a7a056a-af37-11dc-880f-0000779fd2ac.html

So whaddaya think ?

numbercruncher · 21 December 2007

BTW im mainly speaking about the US currently with the poll, and unless you subscribe to the theory of decoupling one would have to assume that Australias hole in the ground economy would eventually follow suit

Whiskers · 21 December 2007

numbercruncher said:
BTW im mainly speaking about the US currently with the poll, and unless you subscribe to the theory of decoupling one would have to assume that Australias hole in the ground economy would eventually follow suit

I agree it seems pretty likely the US will, but I vote no because I don't see us necessairly following the US, mainly because I believe our system is fundamently more sound than the US which many people have already highlighted is more reactionary.

ithatheekret · 21 December 2007

I think the entire situation is extremely precarious .

What we are not being told is that the credit supports for most lien loans have been like a kid on a sheet of galv. sliding down a hillside .
Come Feb/March when the resets strike , the first tier lien loans will go into further delinquency spirals , effecting close to an entire pool of these loans .
The domino effect can be spread easily into the second line up in the loan pool , which would add further pressure to the deliquency rate .

You can be sure that S&P and Moodys etc. will be on the rerating hunt real soon . This will have a shattering effect on the financial markets as bonds slide from AAA to Baa and Ba , all the way down to Ca etc. effectively turning quality to garbage or junk as it is aptly named .

They've been selling junk for years ! Now they have a pile of garbage !

Sean K · 21 December 2007

Is this about the US or Australia? Or, is the assumption that if the US is in recession then the rest of the world is too?

ithatheekret · 21 December 2007

I'm assuming the discussion was US related Max .

But , I've got a box a tissues ready for the sneezing fits ...........

Real1ty · 21 December 2007

I voted WE won't have a recession, as i thought by using WE he meant Australia.

I don't believe we will have one but i think the U.S will.

numbercruncher · 21 December 2007

kennas said:
Is this about the US or Australia? Or, is the assumption that if the US is in recession then the rest of the world is too?

Yes I added after that mainly speaking US, decoupling theorists are welcome to vote accordingly

Nick Radge · 21 December 2007

Here's an exercise that may answer your question, regardless of it being Australia or US. Whenever the unemployment rate moves off a low by 0.5% the stock market goes into bear mode.

You can download the data from www.rba.gov.au back to 1977 or so. It has never failed, nor has it in the US. Australia still looks healthy in this regard with record lows still being seen. However, in the US the unemployment rate was 4.4% in March this year. Its now 4.7%. When it hits 4.9%...

tronic72 · 21 December 2007

kennas said:
Is this about the US or Australia? Or, is the assumption that if the US is in recession then the rest of the world is too?

I was thinking the same thing. It's true that in the past if the US sneezed Australia got a cold but it's becoming less and less an issue. OUR Economy is still powering along. Who's gonna supply the materials for the 2.5 Billion Chinese and Indians so they can have mobile phones LCDs and TVs.

The USA "only" has 303,640,541 http://www.census.gov/population/www/popclockus.html

They have 8 times more people that the USA!

We all know the US is close to recession but that doesn't mean the rest of the world will follow suite. In the past, YES. We are living in a much different world now. What about the new Russia? Chine? India? Europe? The pound is still strong as ever. There's a lot of what my brother calls "old money" in Europe, UK & USA.

US Recession is 50/50 atm but a world wide recession could be 5 years away or not at all.

Merry Christmas.

coolcricket · 21 December 2007

tronic72 said:
I was thinking the same thing. It's true that in the past if the US sneezed Australia got a cold but it's becoming less and less an issue. OUR Economy is still powering along. Who's gonna supply the materials for the 2.5 Billion Chinese and Indians so they can have mobile phones LCDs and TVs.

The USA "only" has 303,640,541 http://www.census.gov/population/www/popclockus.html

They have 8 times more people that the USA!

We all know the US is close to recession but that doesn't mean the rest of the world will follow suite. In the past, YES. We are living in a much different world now. What about the new Russia? Chine? India? Europe? The pound is still strong as ever. There's a lot of what my brother calls "old money" in Europe, UK & USA.

US Recession is 50/50 atm but a world wide recession could be 5 years away or not at all.

Merry Christmas.

Agree with what you say tronic, although I think India and China will keep the global economy (excluding US, not sure about them) afloat for the next 10-15years+.

Merry Christmas and a Happy New Year all.

numbercruncher · 21 December 2007

No one want to consider that this boom has been facilitated by extremely low interest rates and credit ?

The US is a 9t consumer economy and China a 1t consumer economy ...

disarray · 21 December 2007

even if US slowdown means china doesn't need as much raw material it is still modernising and this will continue to require masses of raw materials like iron, copper and oil. add to this the mountains of US money they are sitting on they are going to want to spend it before it devalues too much (like dubai has been doing). australia should be out there marketing to sovereign wealth funds and modernising countries getting them to put their money with us to secure resources for the future, otherwise most of the money bailing out of the US will end up in europe.

we want to market ourselves as a stable, guaranteed supply of raw materials for modernisation and stockpiling while pushing fear, uncertainty and doubt about continued supply of crucial resources - "sure you can get so and so in south africa or tajikistan but look at them? history of instability blah blah where we can guarantee you product to remain competitive against the japanese / koreans / taiwanese etc. etc."

billions of people are undergoing a process of modernisation which is finally achievable with their relatively stable and secure governments. this process won't stop, people will continue to demand increased quality of life so we need to be out there selling all our dirt and putting the money somewhere sensible to set us up for when agriculture and mining fail us.

ithatheekret · 21 December 2007

numbercruncher said:
No one want to consider that this boom has been facilitated by extremely low interest rates and credit ?

The US is a 9t consumer economy and China a 1t consumer economy ...

DITTO , except for essentials , prices will stabilize in some ores , wages will go up .... or else trouble will start for us at home . The boom has been facilitated by monetary policy . But , now the miners who actually had something to export are cashed up , like ZFX .... with all that cash it should do a Packer special ( ie. CPH ) and buy Oxiana , for its cash hoard .

ithatheekret · 21 December 2007

Real1ty said:
I voted WE won't have a recession, as i thought by using WE he meant Australia.

I don't believe we will have one but i think the U.S will.

We will see some softening though ........ I have a bank list at pounce prices below what we've seen to date . PPT is the only other financial sector play that I think is under value on its rising price , didn't have enough cash available to enter earlier . Fixed that though .

Not investment advice , blah , blah , blah , yada , yada , yada , yada

dhukka · 21 December 2007

numbercruncher said:
BTW im mainly speaking about the US currently with the poll, and unless you subscribe to the theory of decoupling one would have to assume that Australias hole in the ground economy would eventually follow suit

You don't have to subscribe to the theory of decoupling to argue Australia could avoid a recession even if the US has one. We avoided a recession when the US had one last time around. I voted yes for a recession in the US but am undecided whether Australia will have one yet. It depends how deep the US recession is.

dhukka · 21 December 2007

tronic72 said:
I was thinking the same thing. It's true that in the past if the US sneezed Australia got a cold but it's becoming less and less an issue. OUR Economy is still powering along. Who's gonna supply the materials for the 2.5 Billion Chinese and Indians so they can have mobile phones LCDs and TVs.

The USA "only" has 303,640,541 http://www.census.gov/population/www/popclockus.html

They have 8 times more people that the USA!

We all know the US is close to recession but that doesn't mean the rest of the world will follow suite. In the past, YES. We are living in a much different world now. What about the new Russia? Chine? India? Europe? The pound is still strong as ever. There's a lot of what my brother calls "old money" in Europe, UK & USA.

US Recession is 50/50 atm but a world wide recession could be 5 years away or not at all.

Merry Christmas.

Tronic,

You seem to be subscribing to the decoupling theory, a theory incidentally which China itself does not believe. Sure these economies are growing rapidly however that growth is skewed to the export side. Asian economies are becoming ever more reliant on exports to drive their growth. See this thread for more info.

dhukka · 21 December 2007

Nick Radge said:
Here's an exercise that may answer your question, regardless of it being Australia or US. Whenever the unemployment rate moves off a low by 0.5% the stock market goes into bear mode.

You can download the data from www.rba.gov.au back to 1977 or so. It has never failed, nor has it in the US. Australia still looks healthy in this regard with record lows still being seen. However, in the US the unemployment rate was 4.4% in March this year. Its now 4.7%. When it hits 4.9%...

I would add that employment is a lagging indicator and that by the time the unemployment rate ratchets up by half a percent recessions are usually in full swing.

Nick Radge · 21 December 2007

I would add that employment is a lagging indicator and that by the time the unemployment rate ratchets up by half a percent recessions are usually in full swing.

Maybe, but its alignment with equity market peaks and troughs is quite amazing.

dhukka · 21 December 2007

Nick,

That is interesting. According to John Hussman of Hussman Funds stock market declines usually begin before the onset of a recession. He is talking about the US market of course:

Financial Markets Anticipate Recessions Before They are Obvious

- Hussman Investment Research & Insight, October 3, 2000.

A year later, the NBER business cycle dating committee (the body that officially dates ・not forecasts ・recessions) confirmed that the U.S. was in recession. By then, the S&P 500 had already lost over 35% of its value. Indeed, by March 2001, which the NBER identified as the official recession start-date, the S&P 500 was already down more than 25% from the high it had set just a few months earlier. A large portion of bear market losses occur while investors are still denying the probability of a recession. By the time that a recession is well-recognized, significant damage has already been inflicted....

It is crucial to recognize that the market downturns associated with recessions are never one-way movements. The basic feature of bear markets is that they maintain the hope of investors all the way down. The stock market often rides the Bollinger band lower, becoming more and more oversold, but will then unpredictably clear those oversold conditions by producing explosive advances that are fast, furious, and prone-to-failure. The 2000-2002 bear market, which took the S&P 500 down by half and the Nasdaq down by more than three-quarters, included three separate 20% trough-to-peak advances in the S&P 500, and many more 5-7% rallies. We did capture a portion of those, but "clearing rallies" are always prone to failure, so we could remove only a fraction of our hedges. Unless we observe a very broad improvement in market action, that sort of trade would require more modest valuations than we see at present. Generally speaking, when valuations are stretched (on normalized earnings) and both market action and economic measures have turned negative (as they have now), you can expect that buying-the-dip・will result in a brief feeling of genius and success followed by profound regret.

Has the recession begun?