Is Larry Kudlow a Contrary Indicator?

This spring and a number of NASDAQ and S&P points lower, EBR pointed to a Ben Stein opinion piece in the New York Times that was ridiculously bearish and suggested that based on Dr. Stein's track record in recent years, this was probably an actionable buy signal (and yours truly started buying stocks). Unfortunately, another prognosticator of a different type-- a permabull, is back-- and he's snorting more than I have seen him. Dr. Lawrence Kudlow writes in It's a New Bull Market: resilient capitalism pushes back against Obama:

Let’s call this what it is: A new bull market in stocks has emerged from the ashes of the financial meltdown and the deep recession that followed. And it’s signaling the onset of economic recovery. Free-market capitalism is more durable, resilient, and self-correcting than its detractors would have us believe.

This is not just a summer rally — although a 12 percent market rise since July 10 is absolutely splendid. There’s a lot more going on here. Over the last five months, since March 9, the broad-based S&P 500 is up 46 percent. If I’m not mistaken, a 20 percent rally that is not quickly reversed constitutes a bull market. We are more than double that, and there will be no total reversal.

He goes on to snort as a snorting bull should. Another snorter is the Economic Cycle Research Institute (ECRI), which was brave in calling a recession but was clueless as to how bad it would be just as it was getting horrible. For example, on August 29, 2008, the face of ECRI, Dr. Achuthan, gave an interview to the BBC which was titled Mild Recession Despite Positive GDP and in which he explained "that even with more than 3% growth the U.S. is in a mild recession".

And the ECRI is good at forecasting, far better than Dr. Kudlow has been lately!

The S&P 500 was in fact priced for a mild recession that would, it was expected, give rise to another expansion. It was 1t 1300. It is now a little under 1000. It would be cut virtually in half within only 6+ months from the date of that interviewer. Here is the ECRI today:

The index's annualized growth rate continued to soar, reaching a new five-year high of 8.8 percent from 7.7 percent the prior week. . .

ECRI Managing Director Lakshman Achuthan has said the recession is already beginning to wane, and that increased stimulus from Washington is not necessary for economic growth.

"Not only is the U.S. recession set to end this summer, but the recovery is apt to be stronger than many expect."

The weekly index rose in the latest week due to firmer housing activity, said Achuthan.

Now, how could $23.7 trillion worth of support to the financial system, with specific massive support to the housing industry, not fail to produce "firmer" housing activity given that new home construction fell to its lowest level since the 1940s? But so what? You may have seen a Seinfeld episode about whether certain prominent features on a young woman were natural and if so, you will recall that they were real. But this housing firmness feels fake.

The depression that is probably ending is the longest since the Great D and the most severe in many ways since then, as well. The NASDAQ rally is fundamentally and technically suspect. Treasury bonds are acting better. ECRI's bullishness is long in the tooth. The snorting and chortling by Dr. Kudlow could be the sign of at least an intermediate top.

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