Tag: alphabet soup

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Waiting for the Other Sheep To Drop… Or Not

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Does anyone really know what’s going on?  Despite the gloom and doom of my recent posts (Waiting for the Other Sheep to Drop, Alphabet Soup:  What Shape will the Recovery Take?), the latest publication of the Conference Board’s Leading Economic Index (LEI) on Tuesday trumpets:  “Fifth Consecutive Increase!”  The LEI is supposed to predict economic activity approximately 6 months into the future, so you’d think that a five-month run would mean it’s time to celebrate, especially given what looks like the impressive bounce shown in this graph.

Picture 1

(The Coincident Economic Index — blue line — shows what’s happening to the economy currently, and — no surprise — it shows we’ve bottomed out.)

To be sure, The Conference Board hedges its bets and says that while a recovery is near, “the intensity and pattern of that recovery is more uncertain.” You can find the full report here.

Meanwhile, today’s WSJ headline reads”Rebound in Home Sales Hits a Bump” , with national sales declining last month after four straight months of increases. (Thank you, X-Man, for the heads-up on this article.)

What does all this mean?  I think it means two things.  1. The worst is over.  2.  You might just as well go consult your magic 8-ball (“signs point to yes,” “ask again later”…) as consult the experts on what the recovery will look like.

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Alphabet Soup: What Shape Will the Recovery Take?

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On the anniversary of Lehman Brothers’ demise and the near-collapse of global markets, it seems appropriate to take a step back from our little corner of heaven for a wider view.

Given where we were a year ago, the world seems to have heaved a huge, if cautious, sigh of relief.  During the chill days of February, the stock market had lost more than half it’s value.  Now it’s down “only” 35%.

San Francisco home prices have also improved.  In January home prices were down 37% from their all-time highs. By July prices had recovered 11%. In August, however, prices fell back 2%.  That’s a pretty stiff drop. (Click the chart for a big version.)

S&P 500 vs SF Home Sales

A sign of things to come?  Who knows.  Everyone seems to have a different letter of the alphabet – or at least the nether end of it — to describe the shape the recovery will take.

Ben Bernanke’s is a long, flat “U”: he thinks we’re on the way, but it’s going to be slow going.

Liz Ann Sonders, Schwab’s chief forecaster and one credited with having seen the train-wreck coming, holds out the possibility of a “V”, in which the economy bounces back like a “coiled spring,” propelled by low inventories and a recovering housing market.  You can dismiss that view as self-serving, but I prefer to give her the benefit of the doubt, especially since she’s been right before. Though I’m not sure she’s right this time.

The one that worries me the most, though, is the “W” , otherwise known as the dead-cat bounce or “double-dip” to cat-lovers.  Nouriel Roubini, no slouch at forecasting himself, has recently said that there’s a “small probability but rising” that we’ll not only run out of steam but fall back again, victim to enormous deficits and the premature closing of global cash spigots, among a host of other ailments.  To that rosy picture, he adds the specter of stagflation, as unsustainable budget deficits lead ultimately to higher interest rates while the economy remains weak.  Perhaps that’s the “X” scenario.

As for San Francisco, the housing market certainly seems sunnier these days, with volume at decent levels.  But I wouldn’t be surprised to see it turning colder, along with the weather.