Golly, maybe we don’t have a recession.

Foreign Currency Exchange Outlook : The calendar is rich today, with Q2 “advance” GDP probably the one with the potential to move the Foreign Exchange market. The consensus is a real 2.3% y/y, based in part on $78 billion in stimulus checks, so a bad number (under1.5%) would be dollar-negative. Bloomberg reports that the survey range is a wide 0.9% to 4.2%. Obviously, 4.2% would be dollar-favorable. Market News has a forecast range of 1.7% to 3% and a median of 2.1%, and notes that “The lowest GDP estimate is still far higher than the 1% final seen in Q1 2008 and +0.6% seen in Q4 2007.”

More interesting is the question of how you can have a recession without getting the conditions that define a recession—two quarters of negative GDP.

There is a sense that you can have a recession without meeting the definition if everyone agrees it feels like a recession.

We do not agree. Definitions count. If GDP is not doing the job, get another definition. How about falling employment or rising unemployment? We think employment is probably lagging and not leading, but let’s say for the sake of argument that it’s a good indicator. Today we get first-time unemployment claims— with the forecast for a 9000 drop instead of the usual rise. So that one doesn’t work, either, at least not this week and not if you have a bias to find recession somewhere, anywhere.

Golly, maybe we don’t have a recession.

Economists, according to a Bloomberg survey, put the odds of a recession down at about 50% from 70% in April. The NBER is the arbiter and sticks to the idea that recession is a “significant” drop in activity over a sustained period of time, usually taken to mean 2 quarters. Decline should be visible in GDP, payrolls, production, sales and incomes. Well, we’re not getting it except in employment, where job losses are about 500,000 so far this year, according to Bloomberg. A lot of time is being wasted looking back at the 2001 recession, which was over before the NBER had decided on using the word. Merrill Lynch’s Rosenberg, however, points out that Q1 2001 GDP was originally reported up 1.2% and only later revised down to a 0.5% drop.

The world is gradually changing cyclically. Emerging markets like China and India are in more trouble than they are admitting and can be expected to slow down. Western economies are stable and not as weak as some headlines would try to scare us into believing.

A commodity bubble bust would be healthy for everyone and help restore some balance, but the status quo before the oil crisis was not exactly stable and balanced. With various factors in a topsy-turvy condition, including the Fed lending buckets of money practically to all comers on questionable collateral, we are having a hard time believing in the US dollar rally. Oil simply must resume its downmove for the dollar to hang on to gains, let alone make new ones.
Weirdly, we have two medium-term technical analysis systems.

One has a strong sell signal and the other has a strong buy signal.

This is maddening. Watch out.

If you are risk averse, this is a good day to get square and stay that way until Sunday night.

Buy for Now

Barbara Rockefeller