Macro Overview

As we noted Monday, the soothing soothsayers have latched onto the few decent econo-data points amongst all the awful economic news as proof the economy is fine.

We’ve also heard the claim that the sudden increase in market volatility and global market turmoil were not signalling anything

These are a bit "head-in-the-sand" for my tastes.

A review the of the Macro data
suggests recession odds remain a much higher possibility than many realize. (And no, I do not mean a "33% chance").

My pal Nouriel notes the good and bad news:

Good Economic news:


The February manufacturing ISM surprised on the upside going back to a 52.3 level that is the critical contraction level of “50”;

• Existing home sales were up 3% in the last month;

• January personal incomes went up 1% while personal spending went up 0.5%;

• Mortgage applications were up 3% in the last week.

• The Conference Board’s January index of consumer confidence unexpectedly rose to a level of 112.5.

The Not-so-Good Economic news:

• The Q4 GDP growth estimate was revised from 3.5% to 2.2%

• Based on the Q4 growth revision all of the four components of investment fell in Q4: residential investment, business investment in software and equipment, non-residential investment in structures, inventories investment

• Inventory to sales ratios remain high – in spite of the Q4 inventory adjustment – so that further cutbacks of production to reduce inventories will be necessary in Q1 and Q2.

• Durable goods orders were sharply down in January including, most importantly, capital goods orders and shipments, good proxies for current and future investment. At current rates, real investment in software and equipment could be down 10% in Q1 alone. The sharp and unexpected fall in durable goods orders was a crucial trigger for the US stock market sell-off on Tuesday.

< snip! >

There’s a full parade of horribles to check out, at RGE; these are the first four  negatives of 15 or so — check out the rest for more details . . .


Hard Landing Recession Ahead
Nouriel Roubini
RGE | Mar 02, 2007

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What's been said:

Discussions found on the web:
  1. mark commented on Mar 8

    not sure why anyone would foloow the opinion of a permabear. too inflexible for me. always too negative.if you listened to some, you would be in gold igots and live in a cave. Not sure why some people just have such a negative bent. maybe they desire the good old days of buying stocks for 6 and 7 times earnings and interest rates at 14 and 15 percent. not sure really. maybe a little bit of schadenfruedism going on there. they re right every so often, and then they become “gurus”. but no one brings up the fact that they have been bearish for years on end. other than last weeks hic up, this market is the best in 7 years. Its been on a tear. if the perma bears followed through with their convictions, i can only conclude that they have been residing in the house of pain for the last two years. this market may be going higher if this rate cut talk gets some legs. things really aren ‘t all that bad except for those hedgies reaching for yield that bought those tranches of of sub prime paper. other than that, things will work themselves out and your US economy will continue humming along. Recessions come and go and in looking backover 35 years of investing, they are merely speed bumps on the long road of lifetime investing. I read recently with interest of a Pimco manager selling his house and moving into an apartment obviously fearing the worse to come. What is the point of living if you don’t live? Let s see what happens….but will we go into a mutli decade post 1929 type of depression? I am betting not.

  2. Barry Ritholtz commented on Mar 8

    Mark is right — this market is AWESOME! Especially, as he notes, the past 7 years! Why, the Nasdaq is up almost 100 points over that period! Yeah awesome Nasdaq!

    Just because over the past 7 years CASH has outperformed the Dow its no reason to consider that maybe there are some problems . . . Why, I still have all the awesome dot coms I bought in 2000. Totally cool.


    To sum up: Nothing to worry about, yeah awesome markets!

  3. SINGER commented on Mar 8

    nominal vs real returns also MATTER

  4. Lauriston commented on Mar 8

    In the space of one week, we are back to “bad news is good news and good news is good news” mentality. Already “repricing of risk” seems so yesterday…

  5. mhm commented on Mar 8

    Fed Accepts $15 Bln In 14-Day RPs
    Last update: 3/8/2007 8:31:10 AM

    Agency Collateral Operation
    Total accepted: None
    Total submitted: $27.6 Bln

    Treasury Collateral Operation
    Total accepted: $15 Bln
    Total submitted: $41.55 Bln

    Mortgage-Backed Collateral Operations
    Total accepted: None <<<<<========= Total submitted: $25.3 Bln Now is that a bad sign or what?

  6. Steve C commented on Mar 8

    As far as the stock market is concerned, compared to 2000, the sentiment figures are completely different this time. In 2000, even after the first correction in March, there was abundant optimism by the newsletter writers. Now the situation is reversed to a large extent. Much more pessimism (very good for a contrarian’s point of view).
    This of course isn’t the only parameter one should be looking at, but it is one of the most important.
    My view: buy the dips with increasing funds committed and you’ll do just fine.
    Right now the EAFE value, European, and U.S. MidCap value indices are the top sectors to invest in.
    Any contrary views?

  7. Philippe commented on Mar 8

    I would wish the dentists of the contrarians to apply the same logic and extract the wrong teeth based on their contrarian approach to medical care.

  8. SINGER commented on Mar 8

    look at the 15 yr monthly chart of the INDU/GOLD with the DOW in the background…

    It’s astonishing….

  9. mark commented on Mar 8

    remember 03, 04 05, my treasurey money markets were paying 1 percent or so. my municipals were just a little better. during that time my stock accounts are up over 10% percent average per annum. whats not to like?

  10. dad29 commented on Mar 8

    There’s also the relationship between MEW and consumer spending–and since MEW is declining rapidly…

  11. Dan commented on Mar 8

    Mark’s economic views seem to mimic the polarity of the political landscape – if you’re not with us, you’re obviously against us. What Barry primarily offers here is a constant supply of data with some analysis of what the data means to him. Data doesn’t have a viewpoint or agenda, so I think the “permabear” stuff is a little over the top. Drive that big car of your’s right off the cliff if you want, Mark, but I’m going to stop at the viewpoint and watch the waves crashing below rather than join them.

  12. greg0658 commented on Mar 8

    “What is the point of living if you don’t live?” (Mark above)

    Thats been my slogan thru life. Or another way said “money is just paper that buys toys”.

    Credit Card Providers – pushers of consumption

    Insurance Providers – pushers of sympathy

    Pension Providers – pushers of future substanance

    Lose a job, sell your collectables. Lose a house, heres a ___% check. Lose a pension, heres the job ads.

    gloomy permabear

    disclosure: 3/4 million consumer, non trader small saver, pension & SocSec holder

    your welcome (in advance)

  13. greg0658 commented on Mar 8

    forgot the important time element

    49 year old

  14. Barry Ritholtz commented on Mar 8


    You are correct about munis and money markets, but your memory fails you re: Markets.

    The markets did not see 10% gains in 2000/04/05. They saw big gains from the oversold condition created pre-war — From March 2003 til the end of the year, the S&P500 went from ~800 to ~1100 — about a 37% gain. Indeed, thats the bulk of the gaisn we have seen this run came in 2003.

    The next two years tacked on another 150 points total — about 6% per.

    Of course, that ignores the damage done in 2000/01/02, but data mining is like that.

  15. dblwyo commented on Mar 8

    Well somebody has to take the other side of each of our trades. :). Just for the record both the Dow and SP500 are up 0% from Jan00. The Dow, SP and Nasdaq are up approx. 20% from Jan02 and 25%(SP)/ 18%(Dow, Nas.) since Jan04. Looking at my compound return tables thats an annual rate of 6% from ’04, 4% from ’02 and de nada. So if we can get 5 1/4% from s.t. funds (admittedly not back then) that’s quite a risk premium. Not to mention how we think we’ll get our 6-9% from where the market’s currently at. In any market btw – open to suggestions here.

  16. S commented on Mar 8


    The S&P might generate 7%-10% this year if:

    1) CPI comes down;
    2) Interest rates don’t rise;
    3) No recession;
    4) No increase in corporate taxes;
    5) Protectionist policies not pursued;
    6) Regulatory burdens not increased;
    7) No exogenous shocks

    Assuming we breeze through all 7 items, to get that 7%-10% expected return, you may have to endure some gut wrenching swings.

    Good luck.

  17. Bill commented on Mar 8

    Question: I see lots of emphasis on possible recession in this blog, but how about a credit crunch? Could a credit crunch by itself bring down the markets hard even before we get to a recession?

  18. dblwyo commented on Mar 8

    Bill – very…very good point. In fact you could argue that we’re seeing a rippling credit crunch that started domestically with sub-prime and might/could/will ripple on it’s way thru other assets classes. And that it started int’l with the Yen. Bill Gross has a great post on the 10 Little Indians (assets) that’re being knocked off on the Pimco site. It and the two priors are worth careful reading.

  19. howard commented on Mar 8

    the funny thing about mark’s comments is that he commits a common fallacy, which is to confuse the stock market with the economy.

    barry’s entire post was about the economy (even his one reference to the market was whether an increase in volatility represents a response to economic conditions). mark wants to tell us about his portfolio the past few years.

    if, in fact, we are heading towards a recession, the market will eventually reflect that; if we aren’t, the market will reflect that too. but the question is not whether the market is suggesting a recession (that’s a different kettle of fish): the question is whether the economic data is suggesting a recession.

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