Loading...
Symbols:
Authors:

Bets On A U.S. Recession Receding

by: Larry MacDonald June 06, 2008    
Larry MacDonald

Larry MacDonald

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

The likelihood of a U.S. recession occurring in 2008 has significantly receded in recent months, according to trading in Intrade.com's prediction market. It has dropped to 32%, way down from 75% in March. A recession is defined by Intrade.com as two successive quarters of negative real growth in GDP.

Prediction markets are a forum for placing bets on some event occurring. They are thought to provide better forecasts than other approaches such as opinion polls and panels of experts. People are putting down real money on their opinions, so there is an extra incentive to try and get it right.

Related Articles

This article has 12 comments:

  •  
    Jun 06 12:44 PM
    We're going to be lucky to avoid a depression. Deep recession for the next two years is a given based on my numbers. Inflation shocks, housing Alt-A liar loans blowing up, job losses and lack of a new asset class to replace the previous bubbles.

    I could go on and on but it boils down to the fact that the Laffer theories on liquid economies and why deficits don't matter has been now proven to have failed. That means we are going to go back to save and invest economy and the transition will be quite painful and Washington is not helping and in fact, they are making it worse.
    Reply
  •  
    Jun 06 01:04 PM
    I think today's stock market action is saying you are wrong on no recession. We are in for a rocky economic future, I am afraid.
    Reply
  •  
    Jun 06 01:32 PM
    The US may dodge the classical definition of a recession, but the economy has some major issues right now. NYMEX WTI going up $9 today to $137, after dropping to $123/bbl on Wednesday, only showcases how big the problem is
    Reply
  •  
    Jun 06 01:47 PM
    If indeed consumers are 70% of the economy how can they ignore all those who are underwater on their homes.... and now on their cars as well..... and who subsidize fuel costs with their credit card.??

    If the consumer is "broke" the economy "ain't fixed"....... or have they all been lying and the consumer really isn't important???
    Reply
  •  
    Jun 06 01:52 PM
    Fundamentally and technically all players are in place for a recession, a depression, for inflation and hyperinflation. This is the 'crack up' and the Credit Crunch that Ludwig von Mises has described so well. Fractional Reserve banking and the creation of money out of thin air cannot go on impunished. In the end, a correction becomes unavoidable....
    Reply
  •  
    Jun 06 02:57 PM
    There is no point arguing here. If you are sure about a recession, or its opposite, intrade.com lets you cash in on your opinion. The price spread is not pretty though.
    Is there a market for CPI predictions?
    Reply
  •  
    Jun 07 02:19 AM
    prediction markets may be better than opinion polls, but that's about it. if groups of people who place money on their opinions were usually right, casinos and race tracks would be bad businesses to own. maybe the concensus is better than any one individual and that might certainly be helpful, if we are asking how many jelly beans are in a bottle.

    however, when we are asking people to predict the results of the actions of all the elements in an entire economy, we may as well be asking when the next asteroid is going to hit us. personally, i'm not going with the aztec prediction just because a group of indians invested in calendars. i'm going to guess that they got tired of counting at 2012.

    likewise, i'm going to guess that anyone who goes to that site and invests their money on whether we are having a recession is exactly the kind of person who should not be making that bet.
    Reply
  •  
    Jun 07 10:55 AM
    I agree there is little or no chance of recession. I put my money where my mouth is. I own lots of US stocks.

    Run you frightened rabbits.
    Reply
  •  
    Jun 07 12:08 PM
    The distinction between two consecutive quarters of plus 0.5% change in GDP versus two consecutive quarters of negative 0.5% change is trivial. The American consumer is going to be stressed for the next several years at least, and the pertinent question is how many federal "stimulus packages" will be needed to minimize the amplitude of the inevitable correction at the cost of extending its duration? Most of my money is invested in energy companies (both carbon-based and alternative) and emerging markets, either directly or indirectly through US companies deriving most of their growth from those overseas markets that are discovering the virtues of capitalism at the same time that we are moving toward the illusion of state-sponsored cradle-to-grave security. In general, stocks linked strongly to spending of American consumers will be losers in the next few years.
    Reply
  •  
    Jun 07 11:22 PM
    We are going to be alright. A bull market is coming.

    Do not fight the fed.

    beanieville.blogspot.c...
    Reply
  •  
    Jun 08 12:31 PM
    Yes User 203879, I agree. We may have dodged the classical definition of a recession. However, the life realities I see daily indicate we have already been there for awhile. LarryH you need to check yourself. If you are making predictions (and bets) on where the economy and markets are headed long term based on 1 or 2 days of trading, you are setting your self up to be on the losing side of the equation (but maybe you are a short term or day trader). The danger to our (US & world) economy is real due to Fed manipulation, but there are much demand/supply imbalances in areas other than fossil energies. As fossil energies top, there are other areas that can and are beginning to take over. In the next 10-15 years we are in for a massive change in our markets. When the damage from the Fed hits full tilt is anybodies guess due to so many factors converging. It will take some time for the Medicare/Social Security issues to become full blown. I expect the long term uptrend (read all time trend) to remain up for awhile longer. When the fiat dollar is crushed, the debt in SS/Medicare finally hits full tilt, and if oil is exploding at the same time, I will be watching very closely. Just to give some of you a heads up, smart investors/traders look to buy when fear peaks. When everyone says the sky is falling is when I look to be long. When everyone says something will go up forever, and the whole world is piling in to investments in a certain area, I look to be short or elsewhere.
    Reply
  •  
    Jun 08 05:57 PM
    Larry,
    Did you publish this to stimulate an incredulous response? How many could perceive a six-sigma event ? It is hard to separate percecpetion from the crowd even agaist a-historical circumstances unfolding, the classical conditioning of more cheap credit is presumed to work. At this point, with the US economy gasping for breath, more credit is as good as snake oil. Truly this isn't a recession - it's a Japan-style depression.
    Reply
More by Larry MacDonald

Investment Resources
Money Management 

Research 

Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Economy 

Bonds 

Dollar/Currencies 

Earnings