Why Nobody Wants to Forecast the Business Cycle

COMMENT: It is fascinating how your work has been so accurate on forecasting the business cycle, yet you are probably the most ignored by the mainstream media. The only possible reason for this is that they are not interested in someone who can forecast the business cycle when the general belief is that governments can manipulate it.

Keep up the great work

HS

REPLY: You are correct. They are not ready to accept that the business cycle can be forecast. That undermines politics as we know it today.

The OECD’s leading indicators on the global economy are still declining with the latest numbers marking the 19th consecutive monthly decline. The global economy is at its weakest point since July 2008, and the probability of a recession is still elevated and not fully reflected in equity valuations. South Korea, one of the world’s economies most tuned to globalization, is showing significant weakness with its leading indicators declining for 25 straight months to levels not seen since early 2012. The South Korean economy has historically been one of the best indicators for the global economy, so we expect more pain to come in the second half of the year.

The only major economy that has turned positive among the OECD’s leading indicators is China. This is not a big surprise, given the recent major improvement in the credit impulse, although it is still negative. But China’s improved industrial sector is driven by a major national push from the government and is likely driving domestic demand more than global demand. Meanwhile, the country’s car sales (which serve as a proxy for the consumer sector) remain weaker than at the bottom of the financial crisis, highlighting elevated uncertainty among Chinese consumers. In fact, May data shows that sales growth weakened again.

The problem is the entire Keynesian-Marxist agenda whereby governments believe their own propaganda. Nobody is willing to publicly look at our model because it highlights the entire problem with the assumption that governments are in control when they are just aggravating the trend.