Thursday, March 26, 2020

Beware Roundphilia!

Beware Roundphilia!

William Rapp, Director Leir Center For Financial Bubble Research, © 2020

Often when there is boom, bust or crisis, experts appear with their prognostications as to how high or low the market or other economic factor might go. Not-to-be-out-done if one expert says the market will go to 40,000, as happened with the Nikkei Index in the Fall of 1989, a rival forecaster will say no it will go to 45,000 and the next one says 50,000. These always round number predictions are often indicators of tops and bottoms. In the Nikkei it actually topped out in December 1989 below 40,000 and has never come close to recovering its high of around 38,000. These round numbers generally mean the experts are relying on feel or intuition rather than hard analysis based on actual data. Frequently that feel gets caught up in the emotion of the moment. There is also an element of competitiveness.

While it may not indicate a bottom, recent pronouncements by economic experts at major financial institutions on the coronavirus and second quarter GDP seem to be following a similar playbook. When JP Morgan says it may decline 14% on an annualized basis or 9% above the then consensus view, Goldman then says 24% or 10% more to be followed by Morgan Stanley at 30%. Then to top it off the President of the Saint Louis Fed pronounces 50%. Each escalation must be significant and easy to remember as otherwise the Media would not pay attention. If JP Morgan had said 7% or 8% no one would have paid attention. In this manner they began a worst-case scenario arms race. My own view is more sanguine, though I do expect a recession and a decline for 2020 as a whole. 

The reason for this is that many people are still getting paid and spending money even if working from home. Further companies in the delivery business are adding employees in dramatic numbers and these workers want to stay employed, even maybe if they are not feeling well. Unemployment numbers will tell the net loss or addition story first, but I think the Treasury Secretary’s 20% unemployment declaration was more to scare Congress into action than a realistic number. While I am just another forecaster with a few awards and should thus be no more believed than anyone else, I think based on what we know now a case can be made for unemployment rising to a 5-6% range with some mild abatement in the fourth quarter. 

I currently expect GDP growth should be 1-2% negative in the first quarter, minus 5-7% annualized in the second quarter, zero in the third quarter with a 3-4% pickup in the fourth quarter. It will therefore be negative for the year as a whole but end on a somewhat positive note

Using the Chicago Federal Reserve Forecasting Template, I have set forth my own view of the US Economy for the year 2020 for anyone that might be interested. This forecast will be updated regularly as the situation evolves and will be available on this website.

Thursday, March 5, 2020

Prof. Rapp on

Prof. Rapp was recently featured in a piece on SALT. He offered insights on the following questions:
  • Do people consider property taxes when deciding to move? 
  • Should they?