A fascinating and increasingly bullish prediction from the Economic Cycle Research Institute this morning, presented in full. Should this come to pass, zero short term interest rates will quickly go away. Amazingly, should this come to pass, the talking heads will start talking--prematurely--of the next Fed tightening and the next recession. None of this would be overly surprising, given how much the Government has borrowed and the Fed has spent/invested/printed over this crisis, and given year on year drops of 10-30% on various large segments of the economy. Japan has gone through phases like this in its 2-decade-long post-bubble adventure, as did the U. S. economy in the 1930s. When you read the comparison to the 1980s, however, you must remember that then, Paul Volcker was suppressing growth ferociously, in part for political reasons, the U. S. total debt burden (government, corporate plus individual) was at its post-World War II low, tax rates were coming down along with uneconomic activity spurred by tax shelters, and the Baby Boomers had moved into their most productive and highest-spending years. The decline from record high interest rates further boosted stock and bond prices.
In other words, the prices of financial assets such as stocks and bonds may act differently now than they did in 1983, both in the short term and the intermediate term, for the identical degree of economic growth.
Here is the bullish news release from Reuters related to ECRI:
WLI Growth at 26-Year High
August 14, 2009
(Reuters) - A U.S. future economic growth gauge rose in the latest week, as its yearly growth rate surged to a 26-year high, suggesting that recovery will commence at the briskest pace in decades, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to a 47-week high of 123.9 in the week to Aug. 7 from a downwardly revised 121.7 the prior week, which was originally reported at 121.8.
Meanwhile, the index's annualized growth rate leapt to a 26-year high of 13.4 percent from last week's five-year high of 10.4 percent, which ECRI originally reported at 10.5 percent.
It was the index's highest yearly growth rate reading since the week to Aug. 26, 1983, when it stood at 13.9 percent.
"With WLI growth surging, the odds are rising that the early stage of this economic recovery will be stronger than any since the early 1980s," said Lakshman Achuthan, Managing Director at ECRI.
Achuthan recently told Reuters that the national recovery would be stronger than many expect, though signs of such strong growth will not be apparent until sometime next year.
"Next year, looking back you'll see that GDP, industrial production, sales, and even non-manufacturing jobs growth -- where 91 percent of Americans work -- began rising as recovery took hold," Achuthan said.
Copyright (C) Long Lake LLC 2009