patrick.net

"Guessing what the stock market will do is just that. Guessing." - edvard2, Patrick.net user.

There are at least two institutions to my knowledge who made a great call predicting the 2008 recession in November 2007.

One is ECRI - Economic Cycle Research Institute.: http://www.businesscycle.com

See this: http://www.creditwritedowns.com/2011/11/ecri-the-us-is-still-headed-for-recession.html

Ed Harrison's commentary:

Note Achuthan’s derision for the precision of economic modelling. He thinks the consensus has it wrong because of this focus. When Achuthan talks about forward-looking indicator ‘contagion’ it sounds to me like he is speaking to a fat tail amplifier type of effect, meaning that a confluence of multiple downward-pointing indicators amplifies the trajectory in that direction. Models do not capture this. I especially liked his comments about the confluence of downside forward indicators and modeling. What he was saying to my ears is that you get multiple poor forward data streams coming together and amplifying the effect of the individual streams. A sum is greater than the parts in effect both on the upside and on the downside. Powerful stuff.

ECRI already made a recession call in Oct 2011. Based on their proprietary leading indicators (of which they publish only their Weekly Leading Index for free), they predict that a recession is imminent within 9 to 12 months.

The other is Hussman Funds.

See this 2007 link, where a recession call was made by John Hussman: http://www.hussmanfunds.com/wmc/wmc071112.htm

Here's the latest article from Hussman: http://hussmanfunds.com/wmc/wmc120116.htm

Recession evidence is best measured by capturing a syndrome of conditions that reflects broad deterioration in both real activity and financial indicators .

Of course, it's possible that the downturn we've observed to date will quickly reverse to a new growth path, but we should keep in mind that GDP is just the sum of consumption, real investment, government spending, and net exports, and then ask what will drive that reversal. Have the credit strains in Europe been durably addressed? Can European economies presently be expected to expand? Is there now less need for fiscal restraint in the U.S.? Has the overhang of troubled mortgages in the financial system been worked out? Have savings rates rebounded or pressure on household budgets eased? Is consumer demand is sustainably rebounding? Is there pent-up demand for capital goods despite having drawn spending forward due to expiring tax credits last year? Are exports to the rest of the world expected to accelerate? Are profit margins likely to expand from already record levels in order to accommodate growth in corporate profits? Do companies expect demand to be strong enough to commit to large-scale or multi-year investment projects? Not all of these factors have to reverse in order to have a sustained expansion, but the headwinds don't appear light.

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