From the Desk of Craig Griffin
I have written that the economy is in recession according to Economic Cycle Research Institute (ECRI) and that I feel this is a very dangerous stock market!
I have followed ECRI’s work closely for over a decade. I have interviewed their co-founder, Lakshman Achuthan over a dozen times since 2000. I remember the summer of 2001, when Lakshman was on the Lou Dobbs Show. ECRI had made a recession call in the fall of 2000. I distinctly remember Dobbs saying to Lakshman, “I know how sophisticated your data is, let’s just hope you’re wrong!” To which Lakshman replied, “You don’t understand this is not a forecast, this is a fact, we are in a recession now!” Well, as it turned out he was right. It would later be confirmed by the National Bureau of Economic Research (NBER), the organization that determines when a recession officially began and ended, that the recession actually did began in March of 2001, three to four months prior to his appearance on Lou Dobbs! And again remember, they had put out a recession warning around September 2000, five months prior to the recession setting in!
What were other Wall Street economists saying at that time? Interestingly enough, the same kind of stuff you see them writing today. Most don’t seem to know a recession even when they are in one! For example, in the summer of 2001, when the economy was already in recession, an article appeared in the Wall Street Journal. They asked 55 Wall Street economists if they thought a recession was possible. Only five said yes! Only five said yes and we were in the midst of a recession!
Prior to 1978, there wasn’t an official committee in the U.S. to determine recessions. From 1949 to 1978, ECRI co-founder Geoffrey H. Moore was the one who determined for the NBER when a recession officially began and ended. Moore also served as the committee’s senior member until he passed away in 2000. As Lou Dobbs said, “Their data is very sophisticated and accurate!”
On May 31, 2013, ECRI, wrote, “Despite surging prices for homes and equities, consumer spending is contracting, registering its biggest monthly decline since September 2009. Quite simply, the wealth effect is rendered moot by languishing incomes. No wonder yoy [year over year] U.S. import growth has also plunged into negative territory, whether or not oil imports are included. In recent decades, this has happened only during U.S. recessions. Notably, unlike data for GDP and jobs, imports data are not revised substantially, long after the fact.”
Lumber has been plunging, copper which has always been used as a sign of economic activity is on its back, and consumer spending is contracting, signs of a recession! About 80% of the time a recession spells trouble for the stock market, as it did in 2001, when the NASDQ crashed and in 2007-2008 when the entire stock market melted down. So 20% of the time the stock market will march on through a recession.
ECRI then closed by saying, “The bottom line: for all the talk of the wealth effect, demand is falling and deflation is closer than at any time since 2009.”
Deflation is what the Fed is afraid of and despite all of the stimulus, running our National Debt up over $16 trillion, “deflation is closer than at any time since 2009.”
Today it was reported that the economy added 175,000 jobs. That doesn’t come close to the 360,000 jobs that are needed as reported by Peter Morice – Economist on MSNBC The Cycle today. I have supplied other statistics as reported by ECRI that are consistent with a recessionary economy. I don’t think there is any doubt that the NBER will eventually determine that the U.S. economy slipped into recession in the summer of 2012 and that we are in the midst of a recession now!
The numbers for employment, GDP, and a host of government figures are revised months after they are initially reported and they are very deceiving! So you can’t judge what is happening by those numbers and how they are being reported by Wall Street, D.C., and the press. This is common by the way. For instance the NBER didn’t actually call the 1990 recession until 24 months after it ended!
There are a lot of things that bother me about this stock market but this most recent run up in the market truly concerns me. Do you remember 1999-2000 or 2007-2008 the stock market was on a tear and then the market crashed?
If the market begins to tank, what will the Federal Reserve do? Well, many experts believe they will do what they have always done, print more money! This will put more pressure on the Dollar long term and that is why so many experts are saying to buy gold now at these levels. The reason gold has been strong is because the Dollar has been so weak. Yes, the Dollar has been a little bit stronger as of late due to the weakness in the Euro but in the summer of 2001 the USD Index reached 121.5. Today it closed at 81.67, down over 32% from its 2001 high.
Gold rose from around $255 in 2001 to over $1900 at the end of 2011. It’s the law of cause and effect! That is why I write about the markets and the economy! And I believe the cause is going to have a powerful effect on the price of gold over the long term!
So remember, “It would be foolish to acquire gold for the short term but it would also be unwise not to own some gold for the long term!”
Craig P. Griffin