A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.



Post-Attack Outlook

DOBBS: And I'm joined now by MONEYLINE regular, Lakshman Achuthan. And Lakshman, I just want to ask you one first question. As Kathleen pointed out, we've got a lot of negative events here to kind of go over. But just in positive terms, in positive days, we don't talk about trends being made of one month or one week's evidence, but a lot of that's going on right now. People are focusing on a lot of negatives and saying well, that's the trend. Do you buy into that?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Well, you're having some of these negative developments come on the heels of earlier weakness. So I think that they're kind of extending the trend. And we're looking for signs that there is a break in this downtrend and that we're going to see some kind of upturn. And we're seeing just a few, but on balance it doesn't add up, yet.

DOBBS: The last time you and I talked, you were talking about the weekly leading indicators.


DOBBS: And that was a focus of your forecasting. What does it look like now?

ACHUTHAN: Well, you see, these are important. They're going down. They continue to go down on balance. And we're looking at a couple of weeks of data in the post-attack period. And we're seeing most of them going down. We're seeing one indicator shooting up. And that's the one that the Fed is pushing. And that's money supply and liquidity.

DOBBS: Let's talk about that.


DOBBS: Some positive news. Let's focus on that one.

ACHUTHAN: But it's jumping. If it wasn't for that, this weekly leading index would be down quite a bit more. It's down about a point right now. Offsetting the jump in money supply is the weakness in the commodity prices...

DOBBS: Right.

ACHUTHAN: ... the rising jobless claims and things of that nature.

DOBBS: How much weight do you give commodity prices in this?

ACHUTHAN: We don't give an exact weight. What you're doing is you're looking for signals from a whole host of indicators. So what we're looking for is an inflection point. And it's important. It's a critical indicator.

Fundamentally, if the world economy is going to be bottoming, we're going to need to see commodity prices slow their decline. That'll be a very easy way to take the temperature of the world economy.

DOBBS: You're suggesting it hasn't happened yet?

ACHUTHAN: Well, not yet, not yet, but we're seeing the tug-of-war happening here. And when we see this finally turning up, it'll come from the money supply. That's leading it right now. We have to see it spread to other indicators.

DOBBS: Why don't we put up the graphic of these indicators. There they are. The weekly leading...

ACHUTHAN: Index there. And this is just -- what's happened here is it's come down to the lows that it was hitting in terms of the level, back in the spring.

DOBBS: Now what's interesting here, Lakshman, as we look at this, in June we're seeing this thing rise pretty nicely. At the same time, you thought during that period that the country was in recession.


DOBBS: What...

ACHUTHAN: Because this leads the economy itself. While the economy may be in recession, this is a leading indicator. So it's supposed to anticipate a recovery. We were having some signs of recovery, but those have evaporated in the summer. More recently, they've evaporated even further. Look to the money supply. That's going to start leading us out. We want to see it spread.

DOBBS: We're talking about the money supply, the federal open committee meeting tomorrow. Do we ninth rate cut? How much?

ACHUTHAN: You definitely get a cut. It's a positive. I don't know that it's going to do that much immediately. We already have a lot in the pipeline which is going to hit us fairly soon.

DOBBS: We'll take all the help we can get.


DOBBS: Lakshman, thanks a lot.

ACHUTHAN: Thank you.