Its Official: National Bureau of Economic Research Says US Recession

Recession in U.S. Started in December 2007, NBER Says
By Timothy R. Homan and Steve Matthews

Dec. 1 (Bloomberg) -- The U.S. economy entered a recession in December 2007, the panel that dates American business cycles said today.

The declaration was made by the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to NBER.

We feel vindicated in our prediction of this in February of this year.

Here is the chart we used at the time to mark the top, and to forecast the coming decline.



Here is a chart with the monthly actuals added to it. The decline has progressed more quickly than anticipated.



If you start reading the blog entries in 2007, one can see how the case for recession was carefully built up based on the indicators, and the probability steadily increased from an estimate of 65% in early December.

Although fundamentals don't work in the short term, in the longer term the markets work, and the fundamentals count, probabilities pay off, and there is a reversion to the means. The trick in trading is not to be trapped by leverage, timeframes and capital risk.

Once again a special thanks to our friend Elvis_Knows for his excellent graphics.

Pimco Cancels Dividends

Pimco cancels dividend payments for 6 funds
December 01, 2008: 10:03 AM EST

NEW YORK (Associated Press) - Pacific Investment Management Company Inc. on Monday canceled announced dividend payments for six of its funds, saying the weak market has pushed the value of those funds below legal thresholds.

The dividends declared Nov. 3 that were scheduled for payment Monday will not be paid for Pimco New York Municipal Income Fund, Pimco Municipal Income Fund II, Pimco California Municipal Income Fund II, Pimco Municipal Income Fund III, Pimco California Municipal Income Fund III and Pimco New York Municipal Income Fund III.

"Continued severe market dislocations and recent further erosions in the municipal bond market have caused the values of the Funds' portfolio securities to decline," the company said. As a result, the funds' asset coverage ratios have fallen below 200 percent, it explained, and federal law prohibits a fund from paying or declaring common share dividends below that threshold.

The funds intend to resume paying and declaring dividends as soon as possible, Pimco said. The company said it may consider options including redemption of a portion of its auction rate preferred shares in order to resume dividends in the future.

Pimco is an affiliate of Allianz Global Investors Fund Management LLC, which serves as the funds' investment manager.

Armageddon Trade: Credit Default Risk Premiums on 10 Year Treasuries Hit Record

US Treasury 10-yr CDS hits record high
By Emelia Sithole-Matarise
Dec 1, 2008 6:19am EST

LONDON (Reuters) - The spread or risk premium on 10-year U.S. Treasury credit default swaps hit a record high on Monday, extending a recent trend as market participants continued to fret about the scale of the government's financial rescue programmes.

Ten-year U.S. Treasury CDS widened to 68.4 basis points from Friday's close of 60 basis points, according to credit data company CMA DataVision.

Five-year Treasury CDS widened to 52.5 basis points from 46 basis points at Friday's close, it said.

Looks like the Paint is Peeling

In case you missed the hint we posted last Wednesday, the Wall Street wiseguys were painting the tape into the fiscal year end of many of their funds.

Chicago PMI Worst Since 1982

This week is a return to reality as we digest more ugly economic statistics showing without a doubt that the US is heading into a deep recession.

If only predicting the course of the markets was simple, reducible to glib one-liners and simple courses of action and perpetually safe investments.

There is plenty of hot money drifting around, and at some point a terrible inflation is going to appear. But when? We simply cannot know this in advance.

Trading in a monster bear for the short term, with leverage is a fool's game unless one is a seasoned professional. And a fool and his money are soon parted.

If you look at the previous blog entry the best store of value for your wealth is quite obvious, if you have patience and do not succumb to leverage, and keep in mind the principles of diversification and portfolio management. But, even that is no certainty, for there are none in this world except death, change and the unexpected.

For the punters, its most likely we will muck around and set some sort of a bottom, in fear and trembling ahead of the Jobs Report which has expectations set extremely low.

At some point we will get a monster retracement rally, but that will be difficult to predict in advance, and its extent may be dependent on the trigger and how low we go first. Lots of variables. Afraid you'll have to stay tuned for updates.