ECRI is among the mainstream voices that has recently addressed this.
The ECRI latest writeup was followed by media appearances. In the second part of Lakshman Achuthan's Bloomberg TV appearance, he comments that the economic data look recessionary both as reported by the government and the private sector, but that the only data that do not look that way are from market sources. Thus he almost explicitly blames the Fed and the powers that be in distorting market signals.
He also highlights the 1926-7 recession in defending ECRI's recession call. He points out that the stock market rose straight through that recession before going on to bubble until summer 1929.
The implication is consistent with what one hears everywhere: this stock market is going higher, and there is plenty of time to exit before a crash.
We shall see. One worrisome sign comes from this from SentimenTrader:
|March 1, 2013 Rising debt and receding cash have put investors' brokerage accounts in a deeply negative position - one of the worst in history. January's change was the 2nd-most negative ever.|
(Clicking on this does not enlarge it.) If you look hard, you will see little red dots near the peaks in 2000, 2007 and 2011. I think we are at a similar level. One thing about Mr. Market-- he will inflict pain on weak hands harshly. I am hearing the same silly theme everywhere, that a mere $85 B in monthly Fed bond buying can continue to levitate tens of trillions of dollars worth of assets. Meanwhile, the rising bond yields are damaging the balance sheets of bondholders everywhere. In the Japanese post-1995 experience and in the US ZIRP experience, this has within a year at most been followed by an economic downturn.
One did not see the following stories in the media in 1986, 1995, and probably not in 2005 (LINK, LINK):
For the middle class, expenses grow faster than paychecksand
More than 25% of Americans raiding 401(k)s to pay billsOne also sees continued flatlining from Gallup's hiring-not hiring metric. Over the past few years, that flatlining has been associated with a quick drop in rising interest rates. Gallup's estimate of the % of the population employed is unchanged from one year ago, the same as the household survey.
Thus I suspect that adjusting for government deficit spending funded in large measure by the Fed, the US would still be in recession. Whether it actually is in recession as ECRI argues is not my argument.
My guess is that now that the deficit is shrinking as a % of (inflated) nominal GDP, we are at high risk of starting to see further deceleration of economic activity. At the same time, the "bond vigilantes" who have made Jeff Gundlach happy by letting him buy 10-year T-notes above 2% will have done their job.
I'm suspicious of a crash in stock prices and interest rates this year, possibly next. This is March, and in March 1987, I was sensing during that rising rate environment underlying weakness in the stock market but not in the economy. Now I am seeing something more like 1999. Instead of the NAZ trading at some insane multiple of earnings, but where the leading stocks had rapid growth, now the new version of the NAZ is the Russell 2000 (IWM), where the iShares guys who run the IWM index find an average P/E well over 25 and a P/E/G of about 5:1 based on 5-year average growth of only 5%.
People such as Stanley Druckenmiller are telling us not to worry, we have a few years. So is Lakshman Achuthan, though more subtly. I'm watching gold, silver, oil and Dr. Copper. Let's see if they either break down or melt up (They may do neither). If the former, I'd expect stocks and bond yields to do the same. If the latter, bonds are toast.