David Rosenberg went nuclear on Barron’s Gene Epstein yesterday for overly optimistic economic forecasts (we previously took Mr. Epstein to task for the same thing: here).
Here’s Rosie:
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"A man who has committed a mistake and doesn't correct it is committing another mistake." - Confucius
Barron's economic guru, Gene Epstein, titles his column in this week's edition A Second Dip Still Unlikely. In his piece, he cites this as evidence:
"The Credit Suisse probability model of recession, discussed here last week, put the six-month probability of recession at zero — and still does."
Wow.
Go back to January 7, 2008, and in his column, Mr. Epstein boldly said: "So, are we headed for a recession now? Not so fast." What was his reasoning? Get ready for this:
"Reflecting the December data for private-sector nonfarm payrolls, released Friday, the Credit Suisse six-month model put the chances of an outright recession at 43%."
This recession model was pegging recession odds at 43% and yet the recession had already begun three months earlier.
If that wasn't bad enough, Mr. Epstein, on February 4, 2008, dug his heels in even further even though the recession was five-months old:
"Has a recession begun? Probably not "” and a recession probably won't strike in 2008 … By fourth-quarter 2008, real gross domestic product should be running about 1.5% higher than fourth quarter 2007, a slowdown from the 2.5% of the year just ended."
Well, instead of GDP being 1.5% higher on a year-on-year basis at the end of 2008, it was in fact 1.9% lower. Then on May 5, 2008, he acknowledged that there was in fact a recession, but titled his piece The 2008 Recession Has Been One of the Tamest on Record. However, didn't it actually end up going down as the "?Great Recession' when all was said and done?
Look, we don't intend on being cruel here and nobody is perfect "” it's not as if we believed that "?green shoots' and a short covering rally were going to elicit an 80% bounce in the S&P 500 from the lows (though we rightfully questioned its longevity). But to come out and cite the same survey as saying zero odds of recession that only applied a 43% chance in the last go-around when we were already knee-deep in it, would not likely have impressed Confucius.
As an aside, we updated our ECRI logit model and it is suggesting that we have 52% odds of an outright recession, up from 48% last week. ?
I feel as though there are a lot of people out there with selective memory.
The recession wasn’t actually announced (officially) until the fall of 2008, after Lehman Brothers had already gone down.
The NBER got to look back in time and say, look, there it was! November of 2007 was when the recession started.
Few people remember that GDP grew in the second quarter of 2008. That’s right. Look it up.
Most people at the time were also expecting some type of inflationary recession. Ag prices were up huge, oil was up huge, BR’s main comment at the time was “I got yer core right here!”.
Maybe Epstein is a bit of a dork, but Rosenberg has been a huge money loser for the last 15 months too.
Oil was up huge because of the RISK ON trade. The money pumpers gave huge incentive to buy commodities. AG and OIL and COPPER and others were all up from speculators and had nothing to do with SUPPLY AND DEMAND. In fact, we are still correcting those markets as we contiinue to see asset prices decline. Free money drove prices crazy. Thanks Ben for screwing everything up over and over again. Rosie might not be 100% correct, but he is a lot more right than you are giving him credit for.
BR- a bit OT-
but any impression of Altrucher’s “unleash the PPT’ comment from yesterday?
the dude always looks like he just rolled out of bed- so maybe he was half asleep- but any overt Fed program to manipulate the market by buying futures AH, morning and afternoon would throw any semblence of fair play out the window-
not that the Fed hasn’t been involved covertly
correction-
last post- name should read “Altucher”
Where is it said that Dave Rosenberg has been losing money for G-S clients? From their latest press releases, I see that they’re increasing their AUM. Would people be handing them more money if they were a “huge money loser for the last 15 months?”
Ag commodities were up big for three reasons: 1: speculation by Wall Street morons who think they know something about ag. 2: the price of oil and fertilizer were forcing all farmers to strive to get higher prices, in part by leveraging the high price of fuel into higher corn prices via ethanol. 3: the high price of diesel in the supply/shipping chain of ag commodity production was pushed through the system.
BR – to the core of Mr. Rosenberg’s “smack-down” (which is really a very polite smack-down, if it is a smack-down at all – it is difficult to tell with Canadians. Off the hockey ice, they’re terribly polite…):
The central problem here is that too many people keep wanting to ignore the credit bubble and knock-on effects and after-effects. The type of analysis in which Barron’s keeps engaging is that this is a normal recession. No, it isn’t. Normal recessions don’t take down entire investment banks. Normal recessions don’t bankrupt entire countries (eg Iceland and but for the ECB/IMF bailout, Greece). Normal recessions don’t cause people to wonder whether the Euro will still be here five years from now. Normal recessions didn’t cause the US Government to take Fannie/Freddie back inside the government and de-list them from the exchanges. Normal recessions don’t make people go out and buy gold hand over fist in the US and Europe.
I don’t understand why so many economists continue to blithely ignore the ramifications of what we’re seeing in the credit markets and the instability of the finance sector.
DOW 10,000!
Rosenberg has been correct on his advice to buy U.S. Treasury bonds. They’re up big time this year, while the stock market has been weak.
@scott…you are incorrect, if you have been reading all of Rosenberg’s postings you would know he has repeated that this equity rally “is to be rented, not owned.”
All models aside I still place value in talking to the sales guys and girls out in the field and what I’m hearing has turned decidedly negative in the last 8 weeks. In May, I heard plenty of talk about deals closing and Q2 that was coming in at about 80-95% of plan. Lately, these same people are saying that they are trending toward 50-60% of plan and Q4 is looking even worse.
I’ll offer that most of my contacts are in tech and consumer products, so I’d be interested in thoughts from other segments like cap goods, etc.
As always, good comments here.
Please pardon my ignorance, but I keep seeing references to the ECRI. What is that? (I assume it isn’t the European Credit Reporting Institute.) I wonder if links to term definitions could be inserted….
Grindstone – the company I work for sells a rather expensive, highly discretionary product nationally and our sales are up almost 30% over last year.
My contacts at Dell and CDW tell me that business for them is still down quite a bit though.
This might be hard for some people to politically accept, but without further stimulus the double dip is assured. And in fact, what we are doing now is anti-stimulus. Cutting services and laying off teachers and policemen.
M Caldwell-
assuming you are not just messing with our minds-
ECRI = Economic Cycle Research Institute
geniuses all- they can tell you there is a recession months after it has arrived- why use a Crystal Ball- when you can just wait until it’s already happening
If there is not to be a “double-dip” with the scoop on top so large that it can’t be balanced on the one in the cone, where is the growth to come from?
Actually though, this is a single dip that just paused on its way further down, heading now for a splat on the sidewalk. Unless you figure Apple’s gadgetry can support all of the economies of the free world. But once everyone has an iPod, iPad, iTouch and iPhone (4g) from where will growth come?
What’s the difference between a 52% probability of a recession, and a 48% probability?
I f a person’s assessment of the probability of recession is anywhere in the range of 25% to 75%, what event would cause one to say that the person’s prediction was wrong?
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