Global Economic Intersection
Advertisement
  • Home
    • 카지노사이트
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
    • 카지노사이트
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Investors: How Much Recession Warning is Useful?

admin by admin
February 10, 2012
in Uncategorized
0
0
SHARES
27
VIEWS
Share on FacebookShare on Twitter

by Guest Author Dwaine van Vuuren, PowerStocks Investment Research

At the end of September 2011, ECRI made a recession call which left the impression recession was imminent. With a track record like theirs there was very little challenging argument. Two days later, the S&P-500 bottomed and rose and incredible 22% since.

In December 2011, ECRI “dialled down” their call to “within 9 months”. Just how much recession warning is useful? It is understandable that long 10-12 month warnings would be useful for governments and some business leaders planning factory/infrastructure build-outs or acquisitions, but is this true for the stock market participant? How many thousands of investors heeded the recession call and are sitting in disbelief on the side-lines (or heavily hedged) in this rally wondering when the recession is going to arrive and vindicate their decisions?

Many analysts dismiss the usefulness of co-incident indicators in recession dating, with the notion that by the time you realize its recession with co-incident indicators, the horse has bolted. Therefore the use of leading-indicators is advocated and the longer the lead the better. This seems intuitive, but is it really true? We can be far more accurate in dating recession using short-leading and/or co-incident economic indicators but does this really add no value as common wisdom seems to dictate? Come to think of it – is it even really worth taking any defensive action with looming recession?

Let us take a look at what history tells us in the 7 recessions going back to 1967 and we can answer these questions with some very surprising results. Before we proceed we need to frame the methodology and analytics we will present in the below chart depicting the very first recession under review in 1970:


For each recession we will examine % decline from recent high of the NYSE in relation to NBER dated recessions (defined as the month following the business cycle peak through to the trough) by a black line. We will measure 4 metrics, namely P2NBER (how many months elapsed from the NYSE peak to the 1st month of NBER recession), DROP1 (how much % the NYSE declined in the P2NBER months), NBER2T (how many months elapsed from the 1st month of recession to the NYSE correction inter-recession trough) and DROP2 (how much % the NYSE declined from the 1st month of the recession to the NYSE inter-recession trough.)
The conventional wisdom tells us DROP1 will be much larger than DROP2 – the earlier your warning and the sooner you get out, the better.

The results of this exercise are tabled below:


What jumps out is that the conventional wisdom held until 1973 and then underwent a dramatic change, with the stock market becoming much more timely in signalling recession as shown by the dramatic fall in the size of the months in the P2NBER column. We think the stock market and recession forecasting/dating techniques & models have become much more sophisticated to result in this fall in the “lead” between when the stock market peaks and onset of recession. If we include the 1970 and 1973 recessions, then the analysis tells us the stock market peaks 7.3 months on average before the onset of recession. But if we exclude these two recessions, the average almost halves to a mere 4.8 months with a 3 month standard deviation!

We can conclude that any defensive action longer than 4.8 months before recession is going to be counterproductive for the stock market participant (on average mind you.) Think about this – it has been 4.5 months since ECRI’s recession call and the stock market has rallied more than 22% since. Is that counterproductive enough for you? Ask the guys sitting on the side-lines or heavily hedged!

Now for the big surprise – DROP2 is much bigger than DROP1 – almost double! That hits most seasoned investors and clients we have revealed this to right between the eyes. Think about this carefully – if you use any number of well-crafted models that are based on coincident indicators (and there are brilliant ones out there, including some we have built) you are still likely to avoid two-thirds or more of any recession related correction (assuming of course you time the re-entry on stock market trough perfectly- but we have to assume the two methods will re-enter at the same time when evaluating optimal times to exit.) This stylized fact is not isolated – in 5 of the 7 recessions this was true and for the 2 it was not, DROP2 was not that far from DROP1.

Obviously, it is ideal to exit 4.8 months before recession (on average). BUT IT IS NOT CRUCIAL and arguably unless your leading indicator is dead accurate (which cannot be guaranteed) it is possibly NOT IDEAL unless it has a short lead.

Given the far higher dating accuracy one can achieve with statistical models deploying co-incident indicators, you ignore co-incident data at your peril. We say this as many respected leading economic indicators (the ECRI WLI being one) have been whip-sawed with false positives of late and one ought to be hesitant in basing high-stakes decisions-which is what acting on recession calls are-on purely leading indicators. Co-incident indicators reflect the REAL economic reality, whereas leading indicators PREDICT. Co-incident is always going to emerge the winner in the “measure the real outcome” contest. That is why statistical models for dating recessions using co-incident indicators are generally more ACCURATE in pinpointing exact start and end dates of recession. Hey, the NBER use a set of co-incident indicators to proclaim recession (a belated 8-12 months later), not leading ones, so it figures right?

Of course, co-incident indicators will never offer lead warning as leading indicators do. They were not designed to. But we are saying it is not such a huge deal, since their improved accuracy coupled with their “small” 1/3 loss of “efficiency” in a high-stakes game still makes them a player in any self-respecting recession model or approach.

Our composite SuperIndexes, which we used to offer an opposing view to the cacophony of recession calls in late December/early January deploys co-incident and leading indicators in various ways to offer recession forecasting and dating for this very reason. By all means use leading indicators, but be aware that risking an entire exit or hedging strategy based purely on leading indicators may not offer the best risk adjusted approach, since leading indicators CAN be whipsawed with false positives.:

The takeaways:

1. Heading for the hills more than 5 months before recession is more likely counterproductive than productive

2. You need not isolate your decision points to LEI’s only

a. They can be subject to false positives

b. They only give you an extra 33% “edge”

3. Couple or stage your actions with recession models using more accurate CEI’s to still capture 2/3 of the benefit

 

Related Articles

All Posts on Leading Economic Indicator

All Posts on Economic Forecasts

 


About the Author

Dwaine van Vuuren is CEO of PowerStocks Investment Research, a South African-based provider of investment research. If you would like to receive the next 2 weeks SuperIndex Recession Reports for free, just email us at [email protected] with FREE SUPERINDEX ECONINTERSECT  in the subject line.


Previous Post

Gold Miners: Sorting out the Best

Next Post

What is America, Anyway?

Related Posts

Addresses With Over 1 Bitcoin Surge To New Highs: Investor Optimism Soars
Econ Intersect News

Addresses With Over 1 Bitcoin Surge To New Highs: Investor Optimism Soars

by John Wanguba
September 29, 2023
Unlocking the Future: Google's Game-Changing Move to Advertise NFT Games Starting September 15th
Business

Unlocking the Future: Google’s Game-Changing Move to Advertise NFT Games Starting September 15th

by John Wanguba
September 8, 2023
Bitcoin Is Finally Trading Perfectly Like 'Digital Gold'
Economics

Bitcoin Is Finally Trading Perfectly Like ‘Digital Gold’

by John Wanguba
August 5, 2023
Can Worldcoin Overtake Bitcoin?
Economics

Can Worldcoin Overtake Bitcoin?

by John Wanguba
August 4, 2023
Bitcoin Is Steady Above $29,000 Awaiting US NFP Figures
Economics

Bitcoin Is Steady Above $29,000 Awaiting US NFP Figures

by John Wanguba
August 4, 2023
Next Post

What is America, Anyway?

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins bank banking banks Binance Bitcoin Bitcoin market blockchain BTC BTC price business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe Federal Reserve finance FTX inflation investment market analysis Metaverse NFT nonfungible tokens oil market price analysis recession regulation Russia stock market technology Tesla the UK the US Twitter

Archives

  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Addresses With Over 1 Bitcoin Surge To New Highs: Investor Optimism Soars
  • Unlocking the Future: Google’s Game-Changing Move to Advertise NFT Games Starting September 15th
  • Bitcoin Is Finally Trading Perfectly Like ‘Digital Gold’

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.