“The stock market has called nine of the last five recessions.” Paul Samuelson.
Economic forecasts are notoriously unreliable. Many have failed to recognize a recession until it’s well underway. Generally, forecasters use rigid models based on a set of backwards-looking relationships. The problem is that while economies do operate according to certain principles, there is a great deal of fluidity in the way they react to particular circumstances, and inflexible systems are often incapable of taking this into account.
The Economic Research Institute provides reliable economic forecasts. Instead of looking to recent economic data to provide information on the economic future, they use long-term historical data to search for patterns. Indicators like economic growth, inflation, and employment are frequent signs of a turning point, and their research covers centuries of business cycles throughout 21 economies, which enables them to provide accurate economic forecasts. Their strong record makes them an important source for silver and gold brokers analyzing the markets.
2001 and 2008 Recessions
Compared to other forecasters, ECRI’s track record is very impressive—in the last 15 years they have provided advance warning of the last 3 recessions, with no false alarms. ECRI correctly predicted the 2001 and the 2008 recessions. As early as September of 2000 they began to issue warnings that the dot.com bubble was ready to burst. In March of 2001, when the recession is now recognized as having officially begun, 95% of American economists predicted the country was not in danger of a recession. ECRI claimed that the recession was unavoidable. The housing market crashed in 2008, but ECRI had anticipated it by November of 2007, and were even able to correctly predict the market’s recovery starting in the summer of 2009.
According to the ECRI, the future of the American economy is looking rather bleak. In fact their data would suggest that the country is already in the midst of a recession. Lawmakers and citizens alike celebrated the avoidance of the fiscal cliff at the start of the year, but ECRI sees the compromise as a temporary relief at best. The FED continues to print money, but this measure only artificially buoys the economy.
The state of the European economies is a factor behind their forecast. Many countries are currently in recession, and since several of those countries are leaders in the market, it would stand to reason that the US will soon feel the impact. Forecasts from other economists suggest that the US economy is actually on the verge of recovery and growth, but ECRI’s track record makes them worth considering. They noted the beginning of a bear market in May 2012, and bear markets historically precede or follow a recession.
Significance for Investors
Signs can be misleading. Reports of job growth and a rallying stock market are encouraging, and point to the possibility of economic growth. But Europe’s situation remains highly unstable, and the US cannot hope to remain untouched by the problems facing the EU. The value of the dollar continues to decline, while the national debt rises. Most gold and silver brokers will affirm that precious metals are still the safest option for investment given the unsure status of the global economy.