Saturday, December 29, 2012

’Animal spirits’ update

Industrial Production had a nice bounce in November, putting the probability that we are currently in recession (according to my recently developed model) at about 8 percent.

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However, the essence of this model is that any six month decline in the exponential moving average adaptation level used is a 100 percent accurate indicator of being in recession.  The average made a new cyclical high in November, at 96.8, which is bullish, while the index was at 97.5.  Subsequent values of Industrial Production falling below 96.8 will increase the likelihood of recession, and a May value falling below that level will be confirmatory.

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