The Bonddad Blog: Slim Chance of a Double Dip Recession

Tuesday, September 7, 2010

Slim Chance of a Double Dip Recession

My latest column at the NY Times/538 Blog.

9 comments:

Jimdotz said...: My comment awaiting moderation at the Times:

Your hypothesis of why recessions occur includes bursting finanacial bubbles and high interest rates. The Housing Bubble has NOT yet finished bursting, and according to the Taylor rule, the ideal interest rate is now about NEGATIVE 5%, but of course, that's not possible at the Fed.

By your own criteria, you should be expecting a double-dip.; September 7, 2010 at 3:21 PM
Jimdotz said...: Here's the link to my Times comment:

http://community.nytimes.com/comments/fivethirtyeight.blogs.nytimes.com/2010/09/06/potential-for-double-dip-recession-seems-small/?permid=56#comment56; September 7, 2010 at 3:28 PM
bonddad said...: Jim -

I disagree about the housing bubble. The sales pace of new home sales has been pretty consistent since the beginning of 2009. It moved lower as a result of the housing credit going away, but I don't expect that condition to last.

The same situation exists for the existing home sales market. Sales were pretty consistent in 2008, moved a bit lower in 2009 and then zig-zagged as the market tried to figure out about the future of the tax credit. But I expect that number to settle down in the 4 million/year range give or take over the next six months. Simply put, a certain amount of houses have to sell simply by default; I believe the 4 million/year is about that level.

Now, prices have not finished going lower, which I wrote about over the last few months. But the pace of sales I think has gotten as low as it can.; September 7, 2010 at 3:39 PM
Jimdotz said...: Bonddad... When I said that the Housing Bubble has not yet finished bursting, I meant that the FIRST derivative of housing prices is still negative and I expect it to remain so for at least another year or two, and maybe even longer.

As for how fast, well, we can quibble over the nature of the SECOND derivative of housing prices, but still have the FIRST being negative.

The mainstream media won't care about the SECOND as long as the FIRST is negative, and that will help keep consumers in a tightfisted funk, leading, I think, the march to a double-dip recession.; September 7, 2010 at 3:51 PM
Michael said...: One new way to fall into recession is a decline in consumption led by public sector spending reductions at the same time the business investment moves from domestic to foreign. Not predicting this will happen, but it might be enough to change the trend from slightly positive to falling once again.; September 8, 2010 at 8:26 AM
Tony Wesley said...: Jimdotz said " I meant that the FIRST derivative of housing prices is still negative "

Upon what are you basing that statement?

I'm not seeing that in Case-Shiller.

Either comparing June 2010 vs May 2010 or June 2010 vs June 2009, using either Composite-10 or Composite-20, all show increases. I.e. positive first derivative.; September 8, 2010 at 11:29 AM
Jimdotz said...: Tony- The current uptick in home prices is a Homebuyer's Tax Credit illusion and will have no lasting effect on the downward trendline once its influence has waned.; September 8, 2010 at 7:46 PM
Tony Wesley said...: Jimdotz,

I'm not sure if I'm following you. Are you saying the first derivative is negative. Or it's positive ("The current uptick") but it's temporary due to the credit?; September 8, 2010 at 9:20 PM
Jimdotz said...: I don't count blips in my thinking about this. The long-term trend is down and will remain down despite the very temporary illusion of improvement. Zoom your view out beyond the last couple of months and ignore the noise. The first derivative of home prices is negative.; September 9, 2010 at 6:59 AM