Wednesday, January 05, 2011

NY Fed Model: 1-in-175 Chance of 2011 Double-Dip

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" this week with treasury yield data through December 2010, and the Fed's recession probability forecast through December 2011. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (3.29% in December) and 3-month Treasury bills (0.14%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here).

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 37-42% (see chart above), and has been declining since then in almost every month.  For  2010, the recession probability is only 0.28% and for December of next year the recession probability is slightly higher, but still less than 1% (0.57%). According to the NY Fed Treasury Spread model, the odds of a double-dip recession through December of next year are about 1 in 175.

6 Comments:

At 1/05/2011 5:03 PM, Blogger VangelV said...

What nonsense. If the Fed were that confident it should allow us to bet against it and give us 1:175 odds. If you want honesty look at the bookies, not the Federal Reserve.

 
At 1/06/2011 9:42 AM, Blogger juandos said...

"If you want honesty look at the bookies, not the Federal Reserve"...

LOL! I agree vangeIV...

I think the Fed is doing a 'bit' of a spin job here...

Consider this seven minute YouTube clip for some 'downer' entertainment: The Day the Dollar Died...

 
At 1/06/2011 10:04 AM, Blogger VangelV said...

Consider this seven minute YouTube clip for some 'downer' entertainment: The Day the Dollar Died

Good clip but it may be too optimistic. It imagines that the COMEX can keep the precious metals fraud under wraps for another two years? How does that happen?

 
At 1/06/2011 12:32 PM, Blogger juandos said...

"It imagines that the COMEX can keep the precious metals fraud under wraps for another two years? How does that happen?"...

Well vangeIV if I'm not mistaken the guys who put this clip together (they have more clips) from the NIA were involved with massive silver purchases in the not to distant past...

Hence 'if' I'm remembering correctly the video clip could also be considered a 'sales pitch'...:-)

Then again these guys could just be monitoring the Baltic Dry Index...:-)

 
At 1/06/2011 3:00 PM, Blogger VangelV said...

Hence 'if' I'm remembering correctly the video clip could also be considered a 'sales pitch'...:-)

There is little doubt that it is a sales pitch. The trick is to identify if what they say makes sense or not.

My problem with stuff like this is not the predictions that are made because they fit in with sound theory. It is the timing that is a much bigger problem because macroeconomics is not real science. There is no way to understand how long an unsustainable condition can persist or which catalyst will trigger a collapse. While the simple things can work for a while (sentiment suggests that the USD should strengthen and some commodities decline for the short term) there are other, less predictable factors that can be material. For example, we have no idea how the system would react to a major city or a state bankruptcy. We have no idea what happens if there is a major failure that is allowed to go through or is prevented by intervention. Then there are all kinds of geopolitical risks that could all conspire to make our lives very interesting and very miserable. We could be one incident away from a huge decline or increase in the price of oil, gold or in the USD. That makes it hard to predict anything about the short term and to have any certainty about the timing of events that we know will happen. And that is why we have to use strategies that will still have us hanging around when the final outcome that we expect comes to be.

 
At 1/06/2011 3:01 PM, Blogger VangelV said...

Then again these guys could just be monitoring the Baltic Dry Index.

Chinese New Year celebrations are upon us. It could easily fall for another six to eight weeks.

 

Post a Comment

Links to this post:

Create a Link

<< Home