Fashion Valley packed last night

[an]

PS, no industry is recession proof. Some are more resilient than others, such as health care vs. retail. However, they are all affected to certain extent. I think SD realtor is saying he doesn’t believe there will be a recession since other part of the economy is still going strong. I believe that as well.

[powayseller]

Fleck is recommending several tech companies as short sale candicates, including RIMM, TXN, DELL, AAPL, INTC.

Merrill Lynch’s David Rosenberg notes the first month-to-month decline in outstanding consumer credit since Nov-Dec 1991, portending a poor holiday shopping season if the trend continues. Consumer credit declined $1.2bil in September, which was only the second monthly decline in 13 years!

AN and SD Realtor, every housing start decline of more than 20% led to a recession (except 2 times, Vietnam and Korean War), and the average S&P500 drop is 28.5% in a recession. I don’t know if any industries are exempt. It would be interesting for either of you to check into this, if you have time. Did health care or tech stocks drop less than other stocks in past recessions?

Roubini: “The fall in the stock market from the peak of the business cycle to the market lowest level in the recession was 21.0% in the 1970 recession, 33.88% in the 1974-75 recession, 10.6% in the 1980 recession, 18.2% in the 1981-82 recession, 14.6% in the 1990 recession, 10.3% in the 2001 recession….savvy investors will …adjust their portfolio to reduce the risk of being stuck in a bear market when the recession actually gets under way.”

[an]

At any point in time, there’s always some stock from every sector that gets short recommendation. So your first statement doesn’t mean much.

When you say every housing decline of more than 20% led to a recession, how many time is that? Why is Vietnam and Korean War period any difference? Why was it different that cause it to to crash as well? One major difference I can see now compare to the last recession following real estate crash is global economy. The economic landscape now is very different that it was in the past. Sure housing price decline will cause people in US to spend less. In the past, that would/could cause a recession. However, American companies are no longer selling only to American. They’re selling to people around the world. The question is, how much decline in American consumer spending will occur this time and how much increase in consumer spending will other countries experience? Will it be enough to offset the decline in the US? Only time will tell but as I see it, nothing is a sure thing and there are plenty of factors that’s different now compare to the past crash.

Oh, and if I remember correctly, the last recession was during the .com crash. Although that recession was short lived due to the major drop in interest rate. tech stocks were hammered but other sectors thrived.

[powayseller]

AN, the last recession was not a typical recession led by a decline in consumer spending, but a capital spending led recession led by the tech bust. The consumer kept spending. However, commodity prices dropped, and so did the stock markets globally. The only country whose economy kept thriving was China, since at the time they were exporting mostly textiles, and since the consumer kept spending, China kept growing.

8 of the last 10 housing downturns caused a recession. The exceptions are the 2 wars I mentioned. The reason that the Vietnam and Korean Wars prevented a recession during a housing market decline is because wars generate economic activity. Housing is a very large part of our GDP, as it employs contractors to lenders and retailers and uses a lot of commodities. Housing busts lower economic activity enough to cause recessions. Edward Leamer did the original work on this, I think. At least I read his article on it, but can’t find it now. I did a google search and found this chart on housing starts, housing permits, and recession.

I am surprised that there are people doubting the recession. The GDP is already dropping, and some people believe we are already in a recession. It is typical for recessions to be obvious only several months after they start.

The funniest thing is that even economists miss recessions even after they already started!! Then what use are economists?

Roubini:
“in March 2001 in a survey 95% of US economic forecasters predicted that there would not be a recession in 2001; 95% of them! Too bad that the recession had already started exactly in March of that year!. So, even as late as March of 2001 when it was totally obvious that the economy was spinning into a recession 96% of all forecasters were still living in the delusional dream that the US would avoid a recession. This even after the tech and investment bubble had totally busted in 2000; even after the 2000 Chrismas sales were a disaster and growth was already crawling down to zero by the end of 2000; this even after the Fed went into a panic mode on January 2nd 2001 and cut the Fed Funds rate in between FOMC meetings because of the collapse of Chrismas sales and the collapse of the NASDAQ that day
was clearly signaling a coming recession. There was systematic delusional bullish bias among forecasters, among investors and in the Fed.

The failure of professional forecasters in predicting recessions – there are always way overoptimistic and systematically miss the turn downward of the business cycle – is well known and documented in scholarly studies. Prakash
Loungani – who has written several research papers on this systematic bias – summarized the results of his 2001 paper on this forecasting bias with the following scathing remarks: “The record of failure to predict recessions is
virtually unblemished”. That sums it all. Why this ystematic failure? Because there are systematic biases and financial conflicts of interests in the economic forecasting business.”

I don’t think foreigners will pick up the US spending. We’ll have 1 million unemployed construction workers by the end of next year, and countless others in real estate, retail (all those Home Depots laying off)…. The export dependent nations will have a potential recession, as their exports to us decline.

[powayseller]

AN, here are some signs that Europe is already feeling a strong slowdown:
“newly published European statistics that show growth slowing sharply in Germany and coming to a standstill in France. The first official “guesstimate” for the whole eurozone for the third quarter, issued last Wednesday, showed a slowdown to 0.5 per cent from 0.9 per cent reported the quarter before. Forward-looking indicators of economic activity have been falling even faster. France has suffered a precipitous decline in consumption; in Italy consumer confidence is plunging and Germany has seen the steepest fall on record in the ZEW financial expectations index, now at its lowest level since 1993.”

Stephen Roach of Morgan Stanley sees the beginning of a US slowdown, and a spillover effect to the Asian economies:
“According to our latest estimates, growth in real consumer spending slowed to a 2.5% average annual rate in the final three quarters of 2006 — a significant shortfall from the 3.7% ten-year growth trend. If that’s not a flinch, I don’t know what one is…..

I continue to believe that global growth will fall well short of consensus expectations in 2007. The IMF’s forecast of another year of 4.9% world GDP growth in 2007 — identical to the trends of the past four years and the strongest surge in global activity since the early 1970s — is very much in line with what I hear from the broad consensus of investors I meet with around the world. Implicit in this view is that nothing can stop the American consumer or the Chinese producer — conclusions that are both being drawn into sharp question in the final months of 2006. With slowdowns in the US and China likely to have a meaningful impact on two-thirds of the global growth dynamic, the burden of proof for the case for global resilience has shifted to the decoupling crowd. The sharp -2.8% annualized decline in Japanese consumption in the third quarter of CY06, together with recent disappointing trade date from Taiwan and Korea, do not exactly bode well for the decoupling case.”

I’m not sure what diappointing trade data in Taiwan and Korea he’s referring to.

[an]

So if you’re saying 2 out of the last 10 down turn in housing market didn’t turn into recession because of the wars, then what make the Iraq war any different? Sure, you show signed that European economy is slowing, but hasn’t the European economy been pretty stagnate for a while now? Can you look up the Asian economy? Last I check, the Asian economy is booming, from India, to China, to Vietnam, they’re all exploding. Bottom line, I still don’t buy the “recession is in the bag” prediction.

Regards to your into about economic bias from forecaster, of course they’re biased, everyone is biased. Bear will more often than not miss the major upswing, while bulls will miss the turning point and caught holding the bag.

[powayseller]

I’m not sure why, but the Iraq war is draining our economy, not stimulating it. Maybe because we have too much debt this time around? Maybe because in those other times, the stimulus of making aircraft and military vehicles provided a boost to an otherwise stagnant economy, or was a larger % of the economy? Maybe now we buy a lot of our military supplies from overseas so our war is boosting China (clothes for soldiers come from Asia?) It increased employment, and this time we’re already at full employment? I really don’t know. The housing-recession connection is highly regarded by economists though.

Here are 2 other predictors of recession: inverted yield curve (which we have), and auto sales decline 2% (every time this happened we followed with recession and it happened last month).

[an]

I highly doubt the government would buy military equipment from any company outside the US or even US company w/out clearance. So I think the buying from China doesn’t make any sense. the Iraq war might be draining our economy as a whole but the government contractors such as GD, Northrup, etc, are doing very well since the war started.

I agree that inverted yield curve is a sign of recession. But never before have they had inverted yield curve at such a low interest rate, so that might be a sign of how bad a recession it would/could be. Auto sales is an argument I’m not agreeing to. Up to now, the US auto sale = the health of American top 3 auto maker which employ many Americans. However, this time is a little different. Toyota has just over taken Ford as #2, Honda, Nissan, Huyndai are growing very well. So the top 3 might be struggling a lot, I can see the foreign auto maker ramping up to help offset that. It takes time but foreign auto makers have many factories here compare to before and they’re looking to expand more.

[powayseller]

I didn’t mean autos manufactured by the US car makers, but new car sales. Every time that new car sales fell by at least 2%, we entered a recession. They fell 2.4% in June.

Here’s a link from Barry Ritholtz.

The Car Dealer Doldrums Indicator:
“According to Norris [New York Times], there is a surprisingly positive correlation when the figure is a negative 2% or greater. The indicators suggests a recession is either “under way or set to begin within a few months.” According to the chart, it has never warned of a recession that did not occur….The rule — unveiled here for the first time — is that if the figure is down 2 percent or more, a recession is either under way or set to begin within a few months. The figure fell to a negative 2.4 percent when June sales figures were released last week by the Census Bureau.

If things are miserable for America’s new-car dealers, can a recession be averted? History says it cannot and suggests a downturn may have already begun.

The available data go back to 1968, a period in which the American economy has recorded six recessions. The “dealer doldrums indicator,” as we will call it, called five of them, missing the 1981-82 recession only because it was not persuaded that the 1980 downturn had ever ended. It has never warned of a recession that did not occur.”

AN, I’m just curious, is the possibility of a recession worrisome to you? Do you think your job could be affected?

[an]

You’re not getting my point. Up until now, American automakers have majority of the market share in the US, so when they’re hurt, the auto industry is hurt too. But now, the foreign automakers are getting almost 50% of the US market share and last I heard, Toyota, Honda, and Nissan have breaking their sale records left and right. Seems like they’re limited by production. While American auto makers are struggling and closing plants, Nissan has already stated that they’ll buy those plants from GM or Ford when it’s available. So this decline in sales might be the American automakers losing market share fast while the foreign automakers can’t produce cars fast enough to offset the major decline from the big 3. The auto industry is in a very different landscape than it was in the past, so this decline in sales might just be temporary. Also, GM seems to finally be turning the corner too.

[powayseller]

Are you saying that the past recessions attributed to declining car sales were due to layoffs among the Big 3, and that this time those employees will be rehired by foreign auto makers?

However, the decline in new car sales is for all new cars, even foreign cars, and it shows that consumer spending is slowing. So the important point about this is that consumer spending is slowing, beginning with the big ticket items like houses and cars, and now we hear Home Depot’s sales are down 5% and they see a slump for all of 2007 at least, Walmart’s sales are down, and the unemployment in housing industries is expected to go high and ripple through the economy. (Majority of new jobs created in the last few years are housing related).

lindismith got an early start on preparing her company for the recession, and has increased her sales because of it. My family is living with the recession in mind, as far as our spending, investing, and jobs are concerned.

If you think this housing bust will not cause a recession, then the burden of proof is on you. How can the economy keep growing in the face of the housing bust? Q3 GDP was 1.6%, and that was when housing starts were still going strong. Now they have declined big time, and almost certainly GDP will be 0 or negative in Q4, as the lower housing permits and starts are reflected in even lower residential investment in Q4. This will ripple through to retails, high tech companies, manufacturers of all sorts.

I am not sure if the rest of the world will decouple from the US recession. It could go either way.

[an]

I agree that decline in consumer spending will drive down the economy. However, I don’t see a direct correlation between decline in auto sales recession. Last I check, foreign automakers are break sales record, not experiencing declining sales, so I don’t know where you’re getting your info from. Like I said, since US big 3 are decline at a much faster pace, that’s why you’re seeing a total decline.
What does living your life in preparation for a recession have anything to do with it? If you’re saying you truly live your life in preparation for a recession, then wouldn’t you be clipping coupons and shopping at Vons and such instead of those organic supermarkets?
Why is the burden of proof is on me? No one can tell the future, regardless of how much proof they have. Only time will tell. We can go back to this thread in 5 years and see who’s right. At least we have another thread where you’re predicting the crash in the S&P from a while back. We can follow that now and bring this thread back in a year or 2 for updates.
Since this is a global economy, if the rest of the world decouple from the US recession, wouldn’t companies that sell to other countries would still do OK, like tech stocks since they don’t have any borders? Also, I don’t see a major decline if at all in health care, since people get sick regardless of recession or boom time.

[sdcellar]

an– On car sales, I’m not sure I understand your point. If sales are down in this country, sales are down. Doesn’t matter if sales of imports are up and further, doesn’t that actually make things worse for the U.S. economy, not better? Sure, maybe the Japanese will buy some factories and create new jobs, but maybe the overall impact is still negative.

I believe powayseller’s point is that people buying fewer new cars has historically been a leading indicator of recessions. The mix doesn’t matter, it’s just the fact that people are buying fewer cars.

[an]

My point is that GM, Ford, & Chrysler are doing horrible. They’re the reason why auto sales are down. Since they have the majority share, 1% decline from them have to be compensated by 2% (estimated) by the foreign auto maker. If you look at most of the Japanese cars now, they’re made in the US. Especially the high volume ones. So my point is, auto sales down could be due to miss management as much as reduce consumer spending.

She also say the past real estate down turn always lead of a recession except for when there’s a war. This time, there’s the Iraq war. It’s not always black and white. Every ware in history is great for the economy. She stated that every RE decline caused recession except for period where there’s a war. So which take precedent?

[PerryChase]

AN, I too don’t understand the auto sales reasoning. Auto sales should hold up even if some companies aren’t doing well. If the Big 3 loose market share, the other makes should pick-up the slack and auto units should grow. Are you saying that many buyers will buy nothing but GM, Ford and Chrysler?

I think that a drop in overall auto sales is a sign of recession.

[Author]

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