What We're Reading

Given today's big GPS miss (-2.9% vs. expected -1.8%), I felt we should take a look at the historical performance of the S&P500 when it comes to recessions.  For all of those who harp that the stock market is not the economy, past reactions to recessions is certainly interesting.

Click image to enlarge.

Chart courtesy of ElliottWaveAnalytics

If so, blame Mother Nature.  I dread seeing my next heating bill and will most likely be selling a kidney on Ebay to cover the cost.  A 2011 research paper by James Hamilton highlighted how historically, recessions occurred after a spike in crude oil prices.  Well what do you think we're witnessing in nat gas here?  Sure, it's an enormous short squeeze but what will the record snowfall, cold temperatures AND a spike in natural gas do for revenues, earnings and consumer spending? 

I'm surprised MSM media isn't talking about this more.  Sure, they're mentioning the slow down in the retail sector (charts already showed that) but what about the "R" word?  Oh wait, their job is to prop up and distract "entertain".  I almost forgot.

"I've just completed a new research paper that surveys the history of the oil industry with a particular focus on the events associated with significant changes in the price of oil. Here I report the paper's summary of oil market disruptions and economic downturns since the Second World War. Every recession (with one exception) was preceded by an increase in oil prices, and every oil market disruption (with one exception) was followed by an economic recession."

The table above itemizes the particular postwar events that are reviewed in detail in my paper. The paper also provides the following summary discussion:

The first column indicates months in which there were contemporary accounts of consumer rationing of gasoline. Ramey and Vine have emphasized that non-price rationing can significantly amplify the economic dislocations associated with oil shocks. There were at least some such accounts for 5 of the 7 episodes prior to 1980, but none since then.

The third column indicate

Lately I've heard a lot of people sounding off about the possibility of a double dip recession. Among the most cited statisitics is present GDP growth slowing compared to the end of last year. Yet I had not seen one ounce of empirical data on GDP growth coming out of the most recent recessions regardless whether it proved or disproved slowed growth as an indicator of a double dip recession. Below you will find a chart of the last three recessions including the most recent. The chart was taken from the St. Louis Federal Reserve website.

As you can see it is common for growth to slow, even signifcantly, after the accelerated growth from the bottom of the trough of a recession.

While I will not argue that there are headwinds hindering the economy. Housing still is in the dumps, China may be slowing, and the dreaded Euro-credit-crap could all sink the ship in a worst case scenario. However the slowed domestic GDP growth is in no way indicative of a double dip recession if the two prev