My forecast of bettering “animal spirits” is confirmed in the pop of the Michigan sentiment series today. With the bally-hooed unemployment rate—still the headline variable, even though just about everyone knows U6 and what’s going on with the labor force matter much more—now below its adaptation level, “animal spirits” are positive for the first time in the current “recovery.” I am showing my freehand forecast of the unemployment rate and its implications for “animal spirits” below. As I mentioned a couple of posts ago, the situation today most resembles early 1973, at right about the time of a stock market peak and about a year before the onset of recession. [This is research, not investment advice. You invest at your own risk, unlike the Wall Street banks, who also invest at your risk.]
Technically, my model shows “animal spirits” going negative, and the next “recession” (collapse of confidence accompanied by accelerating losses of income and product) beginning in mid-year 2013.
However, Europe’s recession and deceleration of Chinese growth may quicken things a bit.
It’s 1973 all over again, the year before a major social and economic crisis. Watch my brother Marvin sing about it.