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This is a story that I'm sure will have legs. Though not an earthshaking development, given all the emotion that the PPT evokes, it's a fact worth knowing. Even Chanos -- who is quite bearish on structured finance and who pointed out many of the absurdities that readers are familiar with, such as Level 3 accounting, otherwise known as mark-to-fantasy -- didn't seem overly bearish. However, I did not specifically question him as to his opinion.
Bottom line: For what's often thought of as a bear's conference, I did not detect much bearishness. Perhaps it's right not to be bearish. But it does strike me that perhaps to be quite bearish about the economy and the stock market might be one of the most contrary thoughts of all.
Recession sightings ratchet up
To me, it seems obvious that we are headed to recession and that lower stock prices will ensue. On that score, the Liscio Report noted its recession index, which tracks newspaper articles that contain the word "recession" -- and which has an excellent history of calling downturns in near-real-time fashion -- has shown a sharp spike:"The reading for September is 104 articles, which is the highest since the index was coming off the recession highs in 2003. It's also 2.9 times the trailing average of the previous three months -- the second-highest reading since the series began in 1980. The only sharper spike was in October 1987. That is a warning.
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"If the recent mortgage turmoil remains localized to the financial markets, as that crash did, then the spike is likely to decay quickly. But if it continues to rise in the coming months, we may be on the cusp of recession. One interesting note: When we did the index on September 14, the daily average was 2.8 articles a day. Over the last 11 days, however, the average is 4.4. So it's picking up speed to the upside."
That viewpoint ties in precisely with mine. I am unshaken in my belief, shared by Grantham, that housing prices are headed lower and that we are headed to recession. Though it's not possible to pinpoint the "when" -- because once a market gets a head of steam, it stops only when it stops -- I continue to keep looking for clues.
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