This is a replay to a debate a week ago about ECRI between
lessarda, rp et al - but I had problem with the upload of graphs
then.
The first one shows ECRI together with US GDP and it seems that
ECRI is quite often right about the trend in the GDP. One obvious
reason is of course that ECRI is published every week but GDP one
time in a quarter (with two revisions).
The second graph shows ECRI together with S&P 500 and it
seems that ECRI also here has a pretty good ability to show the
coming trend for S&P 500. Right now the reading is very
negative for the GDP and S&P 500.
However, I wouldn't trade on ECRI as it is a black
box. It uses probably S&P 500 itself as a leading indicator
together with different PMIs, CPI, credit and velocity of money. I
prefer to go directly to these parameters instead of making trust
into a black box.
Playing around with the indexes I found a very high correlation
between M2 (US money supply year over year index) and ECRI. M2
seems to be a good leading indicator for ECRI.
Growing M2 may also be a good reason for the stock market to go
up - its still plenty of cheap money out there
Posted by angelo851 on 13th of Nov 2011 at 07:11 pm
...So since M2 is still growing, and is inflationary and
initially good for the stockmarket, do you think that the ECRI will
reverse and their prediction of a new recession will be proven
wrong? I'm not sure which is the lading indicator, M2 or the
ECRI?
Just looking at the graph M2 is leading ECRI. My personal view,
for what its worth, is that growth will slow below 0 again during
Q1 and/or Q2 and we will have a QE3. With the high volatility in
the ECRI-index, ECRI can always say that they have been right,
whatever the outcome will be. It's a black box.
Posted by angelo851 on 14th of Nov 2011 at 07:31 am
Yes, it is a tough call. I have seen ECRI's representative go on
CNBC and he says that ECRI always calls recessions many months in
advance of the market realization of recessions. If their black box
is that good then maybe the M2 will start dropping if the
economy heads into recession. Please keep those charts up and
keep posting them, if you can. Maybe once a month would be
adequate. Thanks.
ECRI still bearish
Posted by lebow on 13th of Nov 2011 at 08:10 am
This is a replay to a debate a week ago about ECRI between lessarda, rp et al - but I had problem with the upload of graphs then.
The first one shows ECRI together with US GDP and it seems that ECRI is quite often right about the trend in the GDP. One obvious reason is of course that ECRI is published every week but GDP one time in a quarter (with two revisions).
The second graph shows ECRI together with S&P 500 and it seems that ECRI also here has a pretty good ability to show the coming trend for S&P 500. Right now the reading is very negative for the GDP and S&P 500.
However, I wouldn't trade on ECRI as it is a black box. It uses probably S&P 500 itself as a leading indicator together with different PMIs, CPI, credit and velocity of money. I prefer to go directly to these parameters instead of making trust into a black box.
one more for the road
Posted by lebow on 13th of Nov 2011 at 10:24 am
Playing around with the indexes I found a very high correlation between M2 (US money supply year over year index) and ECRI. M2 seems to be a good leading indicator for ECRI.
Growing M2 may also be a good reason for the stock market to go up - its still plenty of cheap money out there
...So since M2 is still
Posted by angelo851 on 13th of Nov 2011 at 07:11 pm
...So since M2 is still growing, and is inflationary and initially good for the stockmarket, do you think that the ECRI will reverse and their prediction of a new recession will be proven wrong? I'm not sure which is the lading indicator, M2 or the ECRI?
tough call
Posted by lebow on 14th of Nov 2011 at 12:29 am
Just looking at the graph M2 is leading ECRI. My personal view, for what its worth, is that growth will slow below 0 again during Q1 and/or Q2 and we will have a QE3. With the high volatility in the ECRI-index, ECRI can always say that they have been right, whatever the outcome will be. It's a black box.
Yes, it is a tough
Posted by angelo851 on 14th of Nov 2011 at 07:31 am
Yes, it is a tough call. I have seen ECRI's representative go on CNBC and he says that ECRI always calls recessions many months in advance of the market realization of recessions. If their black box is that good then maybe the M2 will start dropping if the economy heads into recession. Please keep those charts up and keep posting them, if you can. Maybe once a month would be adequate. Thanks.
and here is the second graph
Posted by lebow on 13th of Nov 2011 at 08:29 am
with ECRI vs. S&P 500