[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?

[powayseller]

What sorts of problems occur from female deployment?

[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).

[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.

[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]

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.”

[powayseller]

Why do criminals get severance pay? The right thing would be to fire him, but let him keep 3 months of employer-covered health insurance until he can find his own plan. If I were a shareholder, I would be livid, that directors are rewarding people for ripping off the company. What kind of logic is that?

[powayseller]

Why do criminals get severance pay? The right thing would be to fire him, but let him keep 3 months of employer-covered health insurance until he can find his own plan. If I were a shareholder, I would be livid, that directors are rewarding people for ripping off the company. What kind of logic is that?

[powayseller]

Eric Janszen from iTulip.com just wrote a piece about the private equity bubble.

[powayseller]

Eric Janszen from iTulip.com just wrote a piece about the private equity bubble.

[powayseller]

SD Realtor, how do engineering and health care companies do in recessions? Have you followed these companies in past recessions, and what did you find?

I discussed the upcoming recession with my kids’ orthodontist, saying he was lucky to be in a recession proof industry. He said, “No, we are hit by recessions too. Families postpone dental work when money is tight”. How is plastic surgery different? How is engineering different?

[powayseller]

Good find, IONEGARM, I had no idea about this.

[powayseller]

Good find, IONEGARM, I had no idea about this.

[powayseller]

When I left Fashion Valley at 6pm tonight, the parking lot was half empty. The mall didn’t seem quite as full of people. Neiman Marcus was really empty, and the sales associate attributed it to Bloomingdale’s opening, which was packed according to my daughter. I didn’t check it out. Long lines at Victoria’s Secret, as usual, but then it’s easy to come up with $50 for a bra. How many people were buying jewelry, computers, furniture, drapes, and other more expensive items? The salary reductions for realtors and contractors will have their effect soon enough.

[powayseller]

#1 lowered their price to $440K – $470K and is now in escrow.

#2 lowered their price to $515K last week and having an Open House every other Sunday from 1-4pm.

#3 is having lots of Open Houses.

A fourth home, 300 sq ft smaller than these three, closed escrow last month at $440K. That home was also a corner lot, but 10 years newer, with new roof and new exterior paint. What would be the increased value of the 300 sq ft, and deducting for the very old cracked shake shingle roofs for #1 – #3?

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