RE: The Fed cut the rate .5; DOW is up; last quarter of 2007 showed slow growth not contraction

First of all, the NBER definition (the accepted definition) of recession is not two consecutive quarters of contraction, but contraction in some other anecdotal indicators along with GDP. It's the delta or rate of change that matters most, and we are seeing some swift moves in employment figures. We won't know whether we are actually in a recssion for another year. Secondly, advanced GDP releases are notoriously incorrect and subject to multiple revision (advance, preliminary, final). Thirdly, whether or not GDP contracted in 4Q, it was anemic at best and lower than expected. Fourthly, the recent bear market bounce has been on very weak volume, which is a red flag. We got the pop today off the Fed announcement and then, once volume dried up, the path of least resistance was down, just as I warned Flagpole it would be on the stock thread Peeps started yesterday. Hopefully he heeded my advice. If not, well, then he's the guy that bought my short position earlier this afternoon.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

You are correct about 2 quarters vs. 6 months. I usually let that slide either way, but your definition is the correct one (one that I JUST also said). My issue with Yep is that recession is NOT defined as zero growth. MUST be negative, and for 2 consecutive quarters as you said.

If the economy grew at a 0.6% annual rate in QIV, that doesn't mean that it grew uniformly at a 0.6% annual rate accross all three months.

If you look at other data besides GDP (industrial production, retail sales, employment, etc), its reasonably clear that the economy was stronger in October & November than it was in December. Recessions sometimes start in the middle of a quarter.

I would also add that the Fed tends to be late to the game in cutting rates. By the time they start cutting, downward momentum in the economy is already profound. And the rate cuts do not have their effect for 6-18 months. The September '07 rate cut at earliest will start impacting the economy in March, but more likely will not help until well into the summer. The 125 points of easing this month will not have an impact until late '08 and early '09.

jekyll island wrote:

meanwhile, gold shoots up to 935.

but no, everything is hunky dory.

Yep. You realize there's a difference between a market and the economy? It's a good thing that the economy is not as volatile as the market.

Wishful thinking Flaggy. Its either upon us or definitely headed our way, I see no way out of this one.

Ask Greenspan:

http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyid=2008-01-30T102127Z_01_BEB002004_RTRUKOC_0_US-USA-RECESSION-GREENSPAN.xml

GDP by quarter:

http://www.newyorkfed.org/research/directors_charts/pi_9.pdf

Yes, it is the worse since 9/11.

Historically speaking...

http://www.bea.gov/national/xls/gdpchg.xls

Bush II has had an avg. GDP gain of +2.4% per quarter.

Clinton had an avg. GDP gain of +3.6% per quarter.

Bush I had an avg. GDP gain of +2.1% per quarter (at least Jr. is doing better than daddy).

Reagan had an avg. GDP gain of +3.6% per quarter.

Carter had an avg. GDP gain of +3.3% per quarter (he had the bad luck of ending his last year with 2nd and 3rd quarters in the red, thus getting his ass beat by a dumb actor from Cali). A good president screwed by the oil crisis.

Nixon/Ford had an avg. GDP gain of +2.8%

Kennedy/Johnson had an avg GDP gain of +5.2%

Eisenhower had an avg GDP gain of +2.6%.

So, historically speaking Bush Jr is one of our worst presidents EVER! (as far as economics go).

Also, if you look our only recession have occured in:

90-91 (Bush I)

81-82 (Reagan)

80 (Carter)

74-75 (Ford...3 quarters!)

69-70 (Nixon)

57-58, 53-54...3 quarters! (D. D. Eisenhower)

What is interesting is that nearly all of the recessions have taken place during the winter (4th quarter-1st quarter).

In recent history, only Clinton and Kennedy/Johnson have gone through without a recession.

Alan

Flagpole Willy wrote:

Yep wrote:

Wrong!

What the hell? Go do a google search for "recession definition" then get back to me.

2 consecutive quarters of negative GDP is the definition.

How could you hit exactly 0 growth?

You're wrong brother.

The only debate is how you determine negative growth, but ZERO growth is NOT the definition. It has to RECEDE, hence the term "RECESSION".

Wrong!

Ok, Alan, some of what you write I actually like. But this is utterly useless diatribe. It's tantamount to providing a list of how the stock market fares better under Democratic Presidents than Republican presidents with no mention of monetary policy, the constituency of the Congress, or credit crises preceding administrations. Association does not equal correlation. It's spurrious and meaningless, and yet, this crap gets peddled in the mainstream media everywhere. Why don't you get a chart of average GDP growth in the early 1930s, when the nominal interest rate dropped dramatically, but the real rate of interest was still way too tight because we were in a deflationary trap?

For clarity's sake, put away the Wikipedia, and read the following for definition of a recession:

http://www.nber.org/cycles/recessions.html

Flagpole Willy,

You're my new hero, You give out sound advice and I enjoy reading it. Don't let the man (letsrun board)get you down.

It shows a poor understanding of economics & business cycles to associate presidencies with recessions as you have done below. If you look at the causes of the below recessions, most have nothing to do with who was president. 90-91 recession: caused by the fallout of the S&L scandal and the Fed raising interest rates aggressively81-82: caused by the Fed cranking up short-term interest rates to 20%80: same as 81-82, also add the tripling in oil prices74-75: tripling in oil prices + aggressive tighening by the fed69-70: tightening by the fed which was forced to raise rates to counter the inflationary effects of fighting a war with the economy already operarting at full capacity53-54 & 57-58: fed tighteningAnd don't forget the 2001 recession - caused by a combination of fed tightening, tripling of oil prices and the bursting of technology bubble (all of these things happened in 1999-00 before Bush was even in office, in case you are trying to blame him).

Runningart2004 wrote:

Also, if you look our only recession have occured in:

90-91 (Bush I)

81-82 (Reagan)

80 (Carter)

74-75 (Ford...3 quarters!)

69-70 (Nixon)

57-58, 53-54...3 quarters! (D. D. Eisenhower)

What is interesting is that nearly all of the recessions have taken place during the winter (4th quarter-1st quarter).

In recent history, only Clinton and Kennedy/Johnson have gone through without a recession.

Alan

Tommy2Nuts wrote:

Ask Greenspan:

Another two-handed economist. No thank you. I'll sit and wait for the opinion coming from a one-handed economist.

Unfortunately, this is what the least educated, lowest common denominator in this country really believes. As I said, unfortunately any breathing human being with an opinion, however economically illiterate, gets a vote. Sad.

It's there. For the entire decade of the 1930s the growth was .6%. There were 4 years straight of negative growth.

A good or bad economy is never fully blamed on a president but it can very much be partially blamed (pointless wars, etc).

Alan

Californian wrote:

81-82: caused by the Fed cranking up short-term interest rates to 20%

80: same as 81-82, also add the tripling in oil prices

Caused by the cranking of Fed rates? You do realize that interest rates and inflation was in double digits early 1979 and continued unabated until late 1981/82? Commercial and home construction was at a standstill, unemployment through the roof, nothing about the 81-82 recession is similar to today. (except perhaps oil prices).

Recessions are over before anyone knows about them. All you can do is get the number of the bus that ran over you.

malmo wrote:

Caused by the cranking of Fed rates? You do realize that interest rates and inflation was in double digits early 1979 and continued unabated until late 1981/82? Commercial and home construction was at a standstill, unemployment through the roof, nothing about the 81-82 recession is similar to today. (except perhaps oil prices).

Recessions are over before anyone knows about them. All you can do is get the number of the bus that ran over you.

http://www.schwabinsights.com/2008_01/strategy.html

Interesting that you would quote Liz Ann Sonders. Are you a client or an employee?

Neither, I was actually looking for another another article from a year ago when I found that one.

Those were some down days in the US. The country was down because of a recent loss of a war, hostages held up in an embassy, run away inflation and a president who clueless as and did not know what to do. When Reagan stepped in, the country was at the lowest morale I can remember. Carter, nice guy but bad president - the worse I have seen (including the present). When the Fed ran the rates up it was to curb run away inflation that was killing us, particularly the retired fixed income community. Double digit inflation and double digit unemployment resulted (briefly. It was a painful but the inflation stopped and then the employment returned. A very painful price to pay but necessary at the time.

I remember the days of getting a point a month in a regular savings account yet knowing I wasn't even keeping up with inflation.