Hi Joe:
I am glad that Bob tuned us all to the ECRI. I think it's great to have an independent economic group not beholden to Wall Street or to any other conflicting interests.
The ECRI call is for a global slowdown, not just for the US ("we"). Looking at only US indicators is only looking at part of the story.
It is a forecast based on forward looking indicators to a large extent.
So far, according to the longer term charts I follow, the stock market seems to be following the past history of those calls. So one has to respect the call for sure.
One also has to respect the call in light of the fact that we have not had such a big decline in the stock market in the third year of a presidential cycle since 1939. We had a 14.54% decline from end of 2010 (1257.64) to the market lows of October 2011 (1074.77):
See: tradingtheodds.com
Note in three out of four of those years where the declines exceeded 10% from end of year (table I), gains for the year were 0 or negative ('47,'39,'31). (Remember, we are talking about a loss from end of year, not the market highs of the following year, and this explains how 1987 is handled in the table).
But Bob is betting on the overwhelming positiveness of the third year of the cycle. From 1947 until 2007, the gains have been all 0 or positive, sometimes substantially positive. (But from 1900 to 1939, the third year was only up 1/2 the time).
Anyway, declines are supposed to be mild during the third year and this wasn't in comparison. And so far, the rally off the decline and rally off the bottom has the markings of a bear market rally.
What might change my thinking is a new yearly high before the end of the year.
Let's look at it a different way. If Bob is right, the upside is 10% SPX or so from SPX 1300 in his thinking. If Bob is wrong, the downside from 1300 could be up to 50%.
With that said, the recovery has been anemic. So any recession may be anemic as well for this cycle. So maybe we don't go back to 666. But who really knows. You don't know until you shake the trees (Greece, MF Global) are shaken during times of turmoil.
And with that said, when you are out of the market during a recession or bear market, you have to pick another point of entry. ECRI does not give green light calls at the stock market bottom.
What are your thoughts and where do you stand?
Justa
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