I believe it stands to reason that said recession will deepen before we see improvement

Consider the timing of reporting, October 2008 and now

Today’s Detailed Commentaries

World >> Statistics:  Consider the timing of reporting

Last week U.S. home prices in May were reported by S&P/Case-Shiller.  The composite 20-city home price index, said to be ‘a key gauge of U.S. home prices’, was reported to be up 2.2% in May from April, and down 0.7% from May, 2011.  This has generally been seen as good news – a possible ‘green shoot’ in the U.S. field of soggy economic ground as it were.

Consider broadly, beyond Case-Shiller or any other specific economic statistics, the importance of ‘speed of change in economic condition’ in the context of the time period for which statistics are reported.  Since early May a number of important things have happened in both the Eurozone and the United States that are directionally negative since early May including (to note but a few):

• Spain’s announcements of financial difficulties faced by its banks;
• most recently what seems to be an ever increasing likelihood Spain itself will require significant bailout fund;
• increased concerns with respect to Italy’s economic issues; and,
• very poor U.S. job reports for both May and June, with a somewhat improved – but somewhat questionable – jobs report for July having been released last Friday.

Two – three months is a long time in a rapidly changing economic landscape.  Consider what real value two-month old Case-Shiller, or any other two – three-month old economic statistic has when it is reported, and think hard about how much weight should really be given to such a statistic in the current economic environment by the governments in their planning activities, the financial markets, or anyone else for that matter.

Interestingly a second article that reports the Case-Shiller May report in a ‘favourable to U.S. housing recovery way’ is running a survey with its article.  The single question asked is: “have home prices bottomed where you live”.  Votes are being recorded as I write this, but the first 2,492 respondents have replied:

• 28.7% of those have answered ‘yes, prices are moving higher’ (715 votes);
• 26.1% of those have answered ‘yes, prices seem to be stable’ (650 votes);
• 32.7% of those have answered ‘no, prices are still falling’ (814 votes); and
• 12.6% of those have answered ‘not sure yet’ (313 votes).

Presumably this is what real ‘feet on the street’ Americans think now, not necessarily what they may have thought three months ago.  Decide for yourself what such a survey means in the context of U.S. housing recovery or further decline, if anything.  Note that based on the number of respondents, this survey may or may not have statistical validity depending on how many respondents come from individual U.S. cities and regions.

Topical Reference: A Look at Case-Shiller, by Metro Area, from

Economy Watch NBC News, Bill Briggs, July 31, 2012 – with accompanying survey – reading time 3 minutes.

North America >> United States:  October 2008 and now

Why read:  To test the contemporaneous views I expressed four years ago, to observe similarities and differences then and now, and to determine if you agree with my current views.

Commentary then:  On October 22, 2008, about one month after the Lehman Bros. bankruptcy, I commented on whether I thought the U.S. then was in recession.  At that time I said:

• there is daily ongoing talk by any number of economists as to whether the U.S. is in recession.  What are these economists thinking?  Who is kidding whom?  Irrespective of ‘economic modeling’ and historically based ‘measurement of what constitutes a recession as economists assess such things’, as a practical matter I can’t see how the U.S. is not in recession based on:
• continued drops in housing prices, foreclosure increases and housing sale stagnation;
• reported lack of consumer confidence;
• the extent of existing U.S. consumer credit; and,
• bank credit extension issues (read ‘Bail-out Strategy’).

How can the U.S. not be in recession?  Moreover, I believe it stands to reason that said recession will deepen before we see improvement;

• my sense is that many Investment Advisors, including those at the high end of the investment advisory spectrum, simply find it incomprehensibly that what is happening in the markets in October 2008 indeed is happening, and are firmly entrenched in the belief that all will be well once the current ‘correction’ has passed us by.

Having regard to the fact that many investors rely heavily on these investment advisors, I consider these views unrealistic, frankly naïve in the extreme, and downright frightening.  One of these Investment Advisors, who unflaggingly believed when the Dow was at 13,000 that the broad

stock market indices would not erode materially.
That same investment advisor has given me various versions of ‘why he thinks this’ over the entire 2006 – 2008 period.  Most often, his reasons have centered on the argument that the market weighs all probability into stock prices and hence material erosion could not occur.  He has been closed minded with respect to any other outcome, irrespective of the reasons and statistics given to him.  In a conversation last week he was so discombobulated that part way through the conversation he began to talk in garbled sentences.

At October 22, 2008 I continue to believe retail consumers are the key to the economic puzzle and where we are headed economically.  If we see continuing drops in consumer spending at the retail level in the U.S. and elsewhere, I strongly believe we will find that neither the U.S. Government or any other world government has enough ‘fingers’ to plug the holes that exist, and are threatening to develop, in the world economic ‘dike’.

Commentary today:  In summary, and with the benefit of four years of hindsight and experience, what I see today is very little different from what I saw in October, 2008:

• economists continue to worry about whether the U.S., not now in technical recession (being two consecutive quarters of negative GDP), is headed that way;
• U.S. consumer confidence, consumer credit, and whether or not new quantitative easing is going to be introduced by the Federal Reserve are still ‘daily news topics’;
• the U.S. has far more debt outstanding today than it had four years ago with no real end to even more National debt being accumulated (at the end of 2008 the U.S. cumulative National Debt stood at about $10.5 trillion.  Today it stands at just under $16 trillion);
• the U.S. Federal Government is more polarized today than it was four years ago;
• U.S. monthly net trade deficits have been experienced in every month since October, 2008, there is no end in sight to that continuing monthly experience, and as a result the U.S. weakens each month against its trading partners;
• the financial equity markets, now more clearly ‘trading markets’ than they were in 2008, are riding high in an environment where world economic underpinnings are questionable; and,
• the U.S. consumer continues to be the engine that drives the American economy, in circumstances that today as contrasted with October, 2008:
• U.S. official unemployment is higher now than it was then,
• U.S. unofficial unemployment (which accounts for employable people who have removed themselves from the work force) is higher now than it was then,
• youth unemployment is higher now than it was then,
• house foreclosures are higher now than they were then,
• house prices are lower today than they were then, and
• the list goes on.

As I see things, what were holes in the U.S. economic dyke in October 2008 are now ‘bigger holes’, and there are more of them.

Important Snippets From Today’s Commentaries

Snippet #1:  Two – three months is a long time in a rapidly changing economic landscape.  Consider what real value two-month old Case-Shiller, or any other two – three-month old economic statistic has when it is reported, and think hard about how much weight should really be given to such a statistic in the current economic environment by the governments in their planning activities, the financial markets, or anyone else for that matter.

Snippet #2:  As I see things, what were holes in the U.S. economic dyke in October 2008 are now ‘bigger holes’, and there are more of them.

Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at .(JavaScript must be enabled to view this email address)

Note: The Commentary and information above is provided ‘AS IS’ and solely for informational purposes, not for trading purposes or advice.