Monday, September 07, 2009

ECRI: US "Double-Dip Recession In The Fourth Quarter Is "Out Of The Question""

The Economic Cycle Research Institute has a press release last Friday:
September 04, 2009 (Reuters) - A weekly measure of future U.S. economic growth rose in the latest week, while its yearly growth rate surged to a 38-year high that suggests the recovery is on track.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 124.7 in the week to August 28 from a downwardly revised 124.3 in the previous week, originally reported as 124.4.

The index's annualized growth rate rose to 20.8 percent from 19.6 percent a week earlier. The latest reading was the index's highest yearly growth rate since the week to May 21, 1971, when it stood at 21.3 percent.

"With WLI growth rising to a new 38-year high, U.S. economic growth is poised for a stronger snap-back than most expect," said ECRI Managing Director Lakshman Achuthan.

The index was pulled higher this week by stronger housing activity, he said.
ECRI has predicted that the longest U.S. recession in more than a half-century will end before the summer is out.
Last week, Achuthan said a double-dip recession in the fourth quarter is "out of the question.
Why one is looking at ECRI? Well, the historical track record is rather good, and this chart by Citigroup Global Markets shows the implications for the financial markets (click on chart to enlarge).
Correlation does not mean causality, first of all! What about structural break-downs, shifts and failures?

By the way, the global equity strategists at Nomura made a "re-focus on sectors that have lagged the rally so far" over the weekend, but asserted:
Many will view such a shift in sector exposure as an explicitly bearish move, but 1994 provides a precedent for sector rotation of this sort, coupled with a continued rise in the market.
Indeed, even Nomura's perma-bearish Mr. Macro fears the pro-risk move in the markets, but asks himself:
When a bear capitulates that is often a sign to hide in the cave. Is Mr. Macro a contrarian indicator? Is now the time to become even more worried? Only time will tell.
The Danish Royals should not fear the bear. There is no one at Danske Bank, at least! The following paragraph by Danske's strategists is the paradox of positive feedback loops:
In our view, this opens up a scenario in which, for a while, we continue to see a market upturn despite weak job data. Furthermore, ISM data from August clearly underpins the view that it will only be a matter of months before the US employment turns into positive... Unemployment could continue to rise into 2010 however, and this will without doubt cap the performance potential for Wall Street. However, as we are recovering from one of the greatest stock market crises in history, stocks are likely to move higher before a weak job market becomes a problem.
So, it is sufficient for equities to rise on hope and leading indicators! The only reason to cap performance would be the lagging and ugly unemployment not turning its down-beat head up?

No wonder that strategy team at CLSA writes:
... equity markets are fundamentally optimistic creatures with a built-in bullish bias.

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