of work as the ' economy and financial markets much escapes us. Something, however, it is known, such as the following cycles. In an expansion followed by a recession and after a bull market is a bear market , a bit 'as night follows day. The regularity, of course, is not the same. Economies and markets are expressions of human social, historical events marked by an inherent unpredictability . On the other hand, are not even totally unfathomable, irrational and chaotic. There are constants, possibly unstable, perhaps not precisely measurable, however, that can help us to orient ourselves. Among these, the cyclical nature is one of the most obvious.
observe, for example, the following graph , edited Federal Reserve Bank of San Francisco. Shows the evolution of GDP American since 1946 in early 2008. The gray bands indicate recessions.
Over the past 62 years have alternated with 11 expansions and recessions 10. Rapidly growing economy that has characterized the last couple of centuries of human history, the expansion last much longer than recessions . In fact, since 1946, the U.S., the first one lasted for an average of 57 months, the second only 10. Summing up, we obtain the average duration of the economic cycle American, who was 67 months, which is just over 5 ½ years.
It is, as I mentioned, a series of rather irregular . Recessions are between 6 and 16 months (the shortest was that of 1980, longer, like those of 1973-75 and 1981-82). While the expansions have a duration between 2 years (1958-1960) and 10 years (1991-2001).
To predict a recession, therefore, do not just look at the calendar!
A thought experiment
On the other hand, have an idea of \u200b\u200bthe economic cycle, even with all its instability, and its average size we can help. To understand this, let's do a little experiment mind.
Imagine us at seventh year of an expansion that followed one of the shortest recessions history (8 months), which in turn came after another phase of growth even ten years, the longest in history (at least since the war to date).
also imagine that these 204 months (17 years) of growth interspersed with only 8 months of a lackluster fall (remember, the average ratio between expansions and recessions is 57 to 10, not 204 to 8) were the result not much of the technological revolutions and "miracles" of unprecedented productivity, but in the prevailing measure of a 'junkie economy excessive availability of credit (and consequent accumulation of debt).
A questa lunga onda espansiva, va infatti aggiunto, si sono accompagnate la più grande bolla azionaria della storia, la più grande bolla immobiliare della storia, e infine la più grande bolla del credito della storia – tutti fenomeni che hanno fortemente squilibrato e indebolito l’economia oggetto del nostro esperimento mentale.
Immaginiamo, infine, che i prezzi del petrolio aumentino del 600%, superando a spron battuto quei livelli che in passato hanno invariabilmente provocato delle crisi economiche. E che contestualmente, una dopo l’altra, scoppino tutte le bolle, provocando una corsa a vendere asset, ridurre i debiti, contrarre il credito.
At this point, after 204 months of expansion, interrupted only by a brief pause for 8 months, the indicators of growth abrupt turn for the worse, down from annual growth rates above 4% to near zero.
We are at the end of the experiment. You, at this point, about which outcome to bet? recession, yes or no?
The conclusion, for now, I have to pull it alone. I bet much on the recession, and I will add that I do not see how a reasonable person could have done otherwise. The weather, of course, certainty does not exist. But according to the framework I have outlined, the odds seem too biased in favor of the negative outcome for there not to bet their chips .
Forecasts of the Federal Reserve
Well, as I think everyone will understand, to imagine what I proposed is actually the situation in - a bit 'of time - the' U.S. economy.
The world of economics and finance is full of talented people. Someone, imagining, think: Well, certainly will not be forgotten that the U.S. economy is already in recession or is it falling. I have figured out the most experienced and made it clear long ago. Let's see if
In this form, returning a little more than a year ago, and building the Federal Reserve, the U.S. central bank, which is a concentration of skills and gray matter orchestrated by President Ben Bernanke , one of the most talented economists to world. In
May last year most of the ingredients that I described in my experiment had already occurred to some extent. GDP, for example, had recorded a time of particularly weak growth in the fourth quarter of 2006. The price of oil had not yet certain multiplied 7 times from those listed on that $ 20 a barrel at the end of the last U.S. recession, in the fall of 2001, but had touched $ 80: still soaring by 300%. The housing market was already in sharp decline and the crisis of subprime mortgages was under everybody's eyes.
I, in my small way, I alerted my readers of the apparent dangers economic crisis (not only in America), one profits collapse and a dangerous bear market share in three posts in rapid succession, it might be worth rereading: "record earnings and normalized earnings " "Strategic Analysis of the cycle" and " The first truly global bubble .
In that same May, in Chicago, Bernanke gave a speech entirely devoted to the analysis of problems in the subprime mortgage market .
The conclusions, in substance, were as follows:
- there are no signs of spillover , ie a negative impact on banks. The banking groups involved are marginal operators, "largely" not covered by the Federal which insures deposits.
- the economic fundamentals should support the demand for housing. The growth in jobs and income should ensure the sustainability of the outstanding debt of households. Therefore, the critical situation in the subprime mortgage industry will have "limited" real estate market. The vast majority of mortgages continue to perform " well."
As we now know, these findings could not be more misleading and wrong.
At that time, the Federal Reserve was referring to a framework of macroeconomic estimates (published in February), which provided a GDP growth of 2.5% -3.0% in 2007 and 2 75% -3.0% nel 2008, un tasso di disoccupazione stabile al 4,5% e un’ inflazione poco sopra il 2% nel 2007 ma in calo l’anno successivo.
Seguire l’evoluzione di queste stime è istruttivo.
A luglio , nel tradizionale rapporto semestrale consegnato al Congresso, la Fed si fece un po’ più cauta nella sua previsione di crescita per l’anno corrente (2,25%-2,5%) ma conservò l’assunto che le cose sarebbero andate meglio nel 2008 , quando il Pil sarebbe cresciuto del 2,5%-2,75% e l’inflazione sarebbe tornata sotto controllo.
In merito a quest’ultimo punto, la Fed notava in particolare come “alcuni dei fattori che hanno esercitato pressioni sui prezzi in anni recenti già hanno cominciato ad attenuarsi, o sembrano comunque in procinto di farlo. L’andamento dei prezzi dell’energia e delle altre materie prime , implicito nei contratti future, suggerisce che le pressioni sull’inflazione core da essi derivanti dovrebbero diminuire .”
Di conseguenza, conclusero allora diversi analisti di spicco, tra cui ad esempio quelli di Goldman Sachs , era ragionevole attendersi che i tassi a breve (i Fed funds ) Remained unchanged at 5.25% for quite a while '.
Right? No, pathetic wishful thinking, one would comment today, brandishing without mercy our hindsight . In fact, growth was about to implode, explode and inflation rates were about to be cut, in rapid succession between September and April, from 5.25% to 2%.
From then on - innovation introduced by Bernanke - the Fed's macroeconomic estimates were published on a quarterly basis, instead of six months. We continue to follow them. A
November the central bank cut back the growth forecast for 2008 to ' 1.8% -2.5% , citing the deteriorating housing market and credit as reasons for concern.
In a hearing before Congress, whose contents were generally described by the media as "depressing" ( gloomy ), Bernanke, while not eluding a risk analysis, said it still believes that the growth , however slow, would have remained positive in between late 2007 and early 2008. Then, he added , "We think that since the spring (2008 ed) , hand to hand that credit problems are resolved and, hopefully, the housing market begins to touch the bottom [...] the economy recovers. "
We now know that during the last quarter of 2007 of U.S. GDP growth was negative ( -0.2%). In March of this year, then, the Fed was dealing with the rescue of Bear Stearns and since the problems were not solved at all, indeed. In July there was the rescue of Fannie Mae and Freddie Mac, and just yesterday JP Morgan has announced fresh losses citing a marked deterioration spreads and conditions of the credit market in the last month (that news should not surprise those who, for example, has followed the recent surge in prices of credit default swaps, derivatives used to insure against the risk of insolvency).
E 'also easy to see that the housing market has so far not given any sign of wanting to touch the bottom (they come back to later) and that the indicators of growth After a fleeting rebound in the second quarter of' year, due to $ 170 billion of tax incentives approved hastily by Congress and the White House earlier this year, have returned in recent times to turn for the worse (even I will speak more of this later in this post).
In retrospect, the ads for the month of November Bernanke, then how labeled as "depressing", appear marked with an unrealistic optimism. A
February, with the new macro quarterly update of the forecast, the Fed reduced the estimated GDP for 2008 to ' 1.3% -2.0%. And yet another, more drastic cut was announced to May, this time in a fork of 0.3% -1.2% . We will see, a few days, what surprises us through estimated in August.
risk management, statistics and lampposts
a disillusioned observer at this point, you may see in history that I have rebuilt a thread of continuity.
Excluding systematic incompetence, would be natural to assume a risk management technique (I think about the risks of negative feedback and reputation) structured as follows: in front of the high probability of occurrence harsh and potentially traumatic and destabilizing deny until you can do it without destroying its credibility , admit quello che non può più essere negato, ma prestando bene attenzione a condire ogni annuncio negativo con delle rassicurazioni positive di prevalente portata (ad esempio, “stiamo attraversando un trimestre, al massimo due, di congiuntura bassa, ma già si vede la svolta e l’anno prossimo le cose andranno progressivamente sempre meglio”).
Forse, in questo approccio, ci sono diverse cose da salvare. Ma non dal punto di vista dell’investitore , il cui interesse non è quello di coltivare illusioni , ma di interpretare lucidamente la realtà .
Nella seconda parte di questo post cercherò di illustrare altri esempi di " castles in the air," built a little 'everywhere, in America as here in Italy, by members of different categories (constant sources of pitfalls for an investor) among which often dwells in the interest deny, as far as possible, as long as possible, the approach of a ol'instaurarsi recession : financial analysts, representatives of government , journalists average close to the institutions.
will also try to show how some apparent "inconsistencies " ambiguity and statistics, to some extent, continue to conceal the evidence di una recessione che dall’America si sta ormai estendendo all’Europa siano facilmente decrittabili, solo che lo si voglia.
Purtroppo, tale lavoro interpretativo è attivamente ostacolato da un fenomeno che già aveva scatenato l’arguzia di uno straordinario osservatore delle vicende umane. Diceva Mark Twain : “La gente di solito usa le statistiche come un ubriaco i lampioni: più per sostegno che per illuminazione”. Certa gente, mi permetto di aggiungere, in modo particolare.
