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Daily Traders Edge

Is The Economy Heading Into A Recession?

December 06
10:39 2018

Recently, one of my members of Elliottwavetrader was in attendance at the 32nd Economic Outlook Symposium hosted by the Federal Reserve Bank of Chicago. On the first day, he sat in a room with 150 economists. When asked how many see a recession in 2019, all of two hands went up.

So, let me ask you a question: When was the last time the majority of economists correctly called for a recession? (I think we all know the answer to this one).

In fact, economists are the last people to see recessions coming. And by the time they identify that we are in recession, especially mild ones, they are often just about over by the time they recognize it.

I have often quoted Professor Douglas (a former Luksic Scholar at Harvard University, former Deputy Research Administrator at the World Bank, and former Senior Economist at the IMF) many times in the past, but it certainly is worth the repetition:

“Financial markets never collapse when things look bad. In fact, quite the contrary is true. Before contractions begin, macroeconomic flows always look fine. That is why the vast majority of economists always proclaim the economy to be in excellent health just before it swoons. Despite these failures, indeed despite repeating almost precisely those failures, economists have continued to pore over the same macroeconomic fundamentals for clues to the future. If the conventional macroeconomic approach is useless even in retrospect, if it cannot explain or understand an outcome when we know what it is, has it a prayer of doing so when the goal is assessing the future?”

Why does this happen?

Well, I have tried explaining this in detail in a past article, and you can always read it here if you want the further detail.

But, in summary, markets are driven by mass sentiment. When mass sentiment changes direction, the most immediate effect is investor buying and selling of stocks. That is why everyone recognizes the stock market as a “leading indicator” for the economy. But, it is not due to some form of omniscience. Rather, the most immediate manner in which investors can act upon their changing sentiment is by buying and selling stocks.

Continue Reading at Nasdaq

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