Starting last August I made my out-of-consensus recession  predictions about the US and global economy in a series of two dozen or so notes and analyses (all these forecasts were well consistent with the same bearish views about 2006 that I had expressed much earlier since last fall):

1. The economy will sharply decelerate in H2 (1.5% growth in Q3 and 0% by Q4)
2. The housing market will experience its biggest bust in decades and home prices will sharply fall
3. The US will enter into a recession by Q1 of 2007
4. Inflationary pressures will fizzles away as the slowdown and recession will reduce commodity and oil prices and will create slack in the labor market.
5. The Fed will not just pause but stop hiking and then cut rates in the winter (by December or at the latest February). Markets were way behind the curve in their assessment of Fed policy as they were still debating the next hike rather than discussing when the Fed would ease.
6. The Fed ease will not prevent a recession as there is a glut of housing and consumer durables
7. Employment growth will slow down sharply starting with outright employment fall in housing and housing related sectors
8. The world will not decouple from the US recession; there will be a sharp global slowdown
9. There will be a suckers’ rally in the stock market as investors will wishfully delude themselves that the Fed will rescue them and prevent a recession
10. Eventually the stock market will fall sharply when it is clear the recession is coming (it falls an average 28% in a typical recession)
11. Commodity prices will fall as the recession risk becomes more likely
12. Fixed income will rally as the slowdown and recession risk increase
13. The dollar will start falling as the US recession become more likely while the US current account worsens
14. China will surprise markets and let its currency appreciate
15. The world will not decouple from the US slowdown; and global markets will not decouple from the US slowdown
16. Hard landing from consumer burnout will lead to hard landing from foreigners’ flight from US assets as the US current account is worsening.
17. Emerging markets – currencies, equities, fixed income -will come under pressure once the recession is ongoing.
18. Credit risk will increase and volatility will be higher
19. There are risks of a systemic banking crisis given the housing bust and the amount of mortgage risk in the system
20. There are systemic risks in the financial system around MBS/Housing, credit derivatives, the risk of a stock market 1987-style rout and the risk of a hard landing of the US dollar. 

After the latest ugliest housing starts figures and today’s even uglier Philly Fed report I am increasingly convinced that my calls are all right; I would even increase my subjective probability of a US recession to a figure higher than 70%. As I discussed earlier this week, my prediction of a 1.5% GDP growth in Q3 – a collapse of growth relative to H1 – is well supported by the recent flow of data. Oil and commodity prices are falling, fixed income is rallying and the stock market suckers’ rally has continued for a while but there are signals that the coming recession is finally making equities nervous. The Fed pause is a now a full stop and markets are starting to debate and price whether the Fed cutting rates will be in December or rather February. The global business cycle looks peaky based on many forward looking indicators. The housing market is in free fall and prices are already falling sharply (considering generous seller side subsidies and incentives). Banking stress is already evident in the sub-prime lending segment. The dollar is under weakening pressure; the US current account deficit is getting worse, net factor income payments are negative and foreigners’ purchases of long term US assets are faltering. I can thus comfortably argue that almost all of my predictions are well under way to become reality.

No wonder perma-bulls are going now into a perma-freeze as the markets are starting to price in a now inevitable US recession. Of course such perma-bulls will keep on deluding themselves that lower oil prices and lower long rates and a Fed cut will rescue the economy, not understanding that those price movements are bad news – rather than good news – as they reflect the severe US and global slowdown; they are systematically biased in their forecasts. But the reality check is coming soon as the onslaught of bad macro news make the reality of a real, ugly, severe and protracted US recession more likely than ever.

In the last three months I have been called all sorts of names and insults: “Dr. Strangelove of Global Macro”; “Eeyore”; “Doomsday Cult Central”; “Dr. Gloom & Doom”; “A combination of Count Dracula, Dr. Frankenstein and Godzilla together”; a lot of this from folks whose comparative advantage is in insults rather than in the serious and detailed economic analysis that I have performed in these pages. We have heard only wishful delusional dreams and insults from such perma-bulls. 

To conclude, until now I have said that the only thing orderly and soft about the comatose housing market landing will be soon the undertaker carrying the coffin; I can now comfortably also say that the only thing soft or orderly about the economy landing is the undertaker carrying the coffin.