Shedlock's Guts ECRI claim that its indicators have predicted turning points in past

Discussion in 'Wall St. News' started by ByLoSellHi, Oct 14, 2009.

  1. October 13, 2009 , 5:04 pm
    Leading indicators and the shape of the recovery


    Michael Shedlock has an awesome takedown of ECRI’s claim that its indicators (a) have successfully predicted turning points in the past (b) point to a sold recovery now. I’d add that this is a really, really bad time to be relying on conventional indicators.

    Why? Basically, because in a zero-interest rate world — the three-month rate was .066% last I looked — especially one that’s suffered from a collapse of the shadow banking system, conventional indicators don’t mean what they usually mean. Increases in the monetary base aren’t especially expansionary. The yield curve more or less has to slope up, even if no recovery is expected. And so on.

    So historical correlations, to the extent that they exist — and as Shedlock points out, ECRI is claiming a much better record than it really has — can’t be counted on to prevail. There’s really no alternative to making fundamental analyses of the macro situation.

    http://globaleconomicanalysis.blogspot.com/2009/10/look-at-ecris-recession-predicting.html