Take something beautiful and drag it through the gutter

When I saw Jeff Sommer’s column, “Scoping Out a Phantom Recession”(May 24, 2015, NY Times), I thought I was in for a beautiful treat–the New York Times calling out an economist for a miserable call. And, initially that is what I got–Sommers taking the Economic Cycle Research Institute to task over making a highly confident call in 2011 that “We’ve entered a vicious cycle, and it is too late: a recession can’t be avoided.” Then he called out Lakshman Achuthan, the institute’s Chief Operating Officer for taking nearly four years to correct the error. Their excuse: they were certain revised economic numbers about the state of the economy at that time that would prove them correct.

 

More importantly, what difference did it make? Even if they had been right by a micro-tick, their rhetoric about this being a “vicious cycle” was way off base and it could have been the basis upon which some people made bad investment decisions.

How vicious was it?

Well, the average unemployment rate in 2011 was 8.9%. Today it stands as at 5.4%. GDP in 2011 was $15.52 trillion–in 2014, $17.42 trillion. And, oh yes, the S&P 500 closed out 2011 at 1258 … May 22, 2015 close, 2126 +69%. Ironically, these guys had predicted the previous three recessions correctly; but, you probably would have been better off as an investor putting cotton in your ears. Why? Because their economic advice probably would not have gotten you back into the market after their last botched call.

IMPORTANT POINT: THE MARKET IS A LEADING INDICATOR. IT WEIGHS THE ECONOMY AND STOCK VALUES LONG BEFORE ECONOMISTS PICK THESE CHANGES UP IN THEIR DATA SETS. TRYING TO TRADE ON THESE PRONOUNCEMENTS IS AN IDIOT’S GAME. ALSO, UNLESS YOU ARE VERY GOOD, TRADING IS AN IDIOT’S GAME. 

But, that Sommers even deigned to take Achuthan and the Economic Cycle Research Institute to task was a beautiful thing.

Then, he drags his good work through the gutter.

Yes, after making good points about the predictive ability of Achuthan and ECRI, he lets them off the hook–Instead, he (Achuthan) has come around to the consensus view, which isn’t much more cheerful. The economic cycle shuddered and growth slowed but didn’t turn down enough to have registered a recession (he used the phrase”pronounced, pervasive and persistent” to describe the institutes recession criteria).

Sommers goes on to add. “No one is cheering about the economy, even without a second recession, the recovery from the last one that did take place has been the weakest since the Great Depression.”

I’m not sure what planet Mr. Sommers hales from. He seems to ignore irrefutable facts that we continue to grow at a modest, low-inflation pace and we’ve come a long way since the depths of the financial crisis in 2009.  Why can’t his glass be at least half-full? My only answer is that in the modern media world, bad news sells. 

Remember this: If the media ever does get positive on the economy and the market: RAISE CASH!

What’s your take?

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