Alarming Report from ECRI

Given the free-fall decline in worldwide equity markets, any new insight into the global economy is particularly valuable right now. The Economic Cycle Research Institute (ECRI) published a report last week with the rather innocuous title "A Shrinking Trade Pie." Despite the innocent sounding title, the contents of the report were particularly disturbing, especially in light of recent market events.

The report highlights decreasing growth in export volume and plummeting export prices, both of which coincide with past recessionary environments. Effectively, all "economies are trying to grab a larger share of that pie through competitive devaluation" and "export price deflation had become almost as intense as in the depths of the Global Financial Crisis (GFC)."

"Many economies are all effectively circling the drain. The last time export price deflation was this intense, not only was Chinese GDP growth even weaker than it is today, but also every G7 economy was in recession. It is ominous that the global trade pie is shrinking so rapidly today – with none of the G7 economies in recession – yet."

Conclusion

ECRI missed it's last recession call badly, and was very slow to acknowledge their mistake, but ECRI is a highly respected organization with unique insights into economic cycles and recessions. Their proprietary leading index is weakening, but they have not yet made a new recession call.

The Trader Edge recession model forecast (based on data through August first) will be posted tomorrow, but the data will not reflect recent economic and market events. As a result, I am particularly interested in seeing the recession model results through September first. The next few monthly recession forecasts will be very instructive.

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About Brian Johnson

I have been an investment professional for over 30 years. I worked as a fixed income portfolio manager, personally managing over $13 billion in assets for institutional clients. I was also the President of a financial consulting and software development firm, developing artificial intelligence based forecasting and risk management systems for institutional investment managers. I am now a full-time proprietary trader in options, futures, stocks, and ETFs using both algorithmic and discretionary trading strategies. In addition to my professional investment experience, I designed and taught courses in financial derivatives for both MBA and undergraduate business programs on a part-time basis for a number of years.
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