by Calculated Risk on 9/01/2007 05:45:00 PM

The Economist has a free special report 'on the turmoil in the world's financial markets': Heading for the rocks (hat tip Mike)

The tremors in financial markets have gone far beyond their beginnings in the US subprime mortgage sector, and indeed far beyond the borders of the US. The full impact on the markets, and the repercussions on the global economy, remain unclear, but we can sketch out three broad scenarios:

• Scenario 1. The Economist Intelligence Unit’s central forecast, to which we attach a probability of 60%, sees the impact being contained by timely monetary policy action, with only a modest effect on the global economy.

• Scenario 2. Our main risk scenario, with a 30% probability, envisages the US falling into recession, with substantial fallout in the rest of the world.

• Scenario 3. Should the US enter recession, another, darker scenario arises: that corrective action fails, and severe economic repercussions cascade from the US into the world economy with devastating effect. We attach only a 10% probability to this outcome, but the potential impact is so severe that it warrants careful consideration.

Since scenario 1 informs our regular output and Scenario 3 has a low probability, the bulk of the report focuses on scenario 2.

The full special report is here.

by Anonymous on 9/01/2007 12:43:00 PM

This is funny. Via Barry.

Discuss.

by Anonymous on 9/01/2007 07:46:00 AM

Oh, man. Tanta's rockitorializing again.

Deal with it.

The thing I like best about the following video is how it provides a compelling visual metaphor for the hearts and minds of those who wish to convince themselves that business cycles are a secular morality play in which the Elect are rewarded and the Damned punished, and "we" is a meaningless pronoun because the only valid point of view is "I." In a time of war, no less.

The lyrics, of course, need no particular exegesis. At certain historical moments there is something quite aesthetically sufficient and necessary about stark and unsubtle metaphor.

Translation: yes, apparently we do sometimes need to be beaten over the head with it.

And it's still a great song, after all these years. There is a legend that the composer came up with the main rhythm while working on a piano with partially broken action. You find the music that a failing instrument will play. And then you play it.

CR, my friend, crank it up. After the week we've had, we deserve something with a better beat. Dance, dance, but try not to step on the cat. That's my motto and I'm sticking to it.

by Calculated Risk on 9/01/2007 02:19:00 AM

From Bloomberg: Fed Gets `F' for Failures on Housing, Leamer Says

Federal Reserve policy makers underestimated the role that housing plays in triggering recessions and merit an `F' grade for their failure, said Ed Leamer, director of an economic forecasting group at UCLA.
...
Housing is vulnerable to ``persistent'' trends that, once under way, are difficult to restrain, Leamer wrote. The Fed ought to have raised interest rates more aggressively to head off the ``bubble'' in home prices that grew from 2003 to 2005 and should have lowered rates by now, he said.
...
Leamer said in an interview today at Jackson Hole that some former ``hot markets,'' such as pockets of California, may see declines of 30 percent to 40 percent.
...
He added that there's ``very little possibility that a rate cut would make much of a difference'' at this point. ``Once the wave has peaked and is crashing, there is not much that can be done to quiet the waters.''

Leamer still thinks a recession is unlikely.

by Calculated Risk on 8/31/2007 06:23:00 PM

From the WSJ: U.S. Auto Market Shows Signs Of Softening, Honda Official Says (hat tip jg)

The U.S. auto market is showing signs of softening ...

"The initial dealer pulse from across the industry is that mix is a little bit soft," said John Mendel, executive vice president auto operations for Honda motor Co.'s U.S. sales arm.

Mr. Mendel ... said Honda expects U.S. sales for 2007 will range between 15.9 million to 16.3 million light vehicles.

A Reuters article puts the Honda estimate at 16 million.

Auto makers sold 16.56 million vehicles in 2006.

Asha Bangalore at Northern Trust suggests (hat tip Steve):

The “timeliest indicators” we think are weekly initial jobless claims, August nonfarm payrolls, August retail sales, the August ISM manufacturing survey, and August industrial production. Each of these reports will be published prior to the September 18 FOMC meeting.

Click on graph for larger image.

Graph from Northern Trust. Note: Scale doesn't start at zero to change monthly changes.

And Bangalore on auto sales (due Tuesday):

The CEO of AutoNation has indicated that his company’s sales have been suffering. Auto sales have dropped during each of the seven months of the year. The sales tally for August will be published on September 4.