All Forum Posts by: J. Martin

@Clay Smith,

I agree that we are probably in the latter phase of this expansionary cycle, based on the economic data I have seen.

BUSINESS LEVEL VS MACRO

@Arlen Chou,

Don't pretend you can't see a chart going from upper left to the lower right Arlen! I love your "canary in the coal mine" though. How bad is it right now? And actually, what you are talking about is basically the Institute of Supply Management's PMI. They call a bunch of the major manufacturing companies and ask them what their backlog of work is like, current orders, delivery times, inventory excess - what's coming down the pipeline. So someone is out there collecting this data from people like you, to see how many canaries in how many coal mines are getting sick!

@Jeff B.,

CAUSATION VS CORRELATION - Super Bowl Winner vs Unemployment Claims

I understand what you are saying about confusing correlation with causation. "Correlation is not necessarily causation," classic from econometrics. Do you think a comparison of Christmas Time and the winner of the Super Bowl on job growth is a fair comparison to the components of the Leading Index, suchas nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing and wages and salaries, state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill. I love your posts (and your first name! lol), but I'm going to have to disagree with you on this comparison.

Do you think higher unemployment, less hours worked, fewer housing permits, higher unemployment insurance claims, and the such, have no causal effect on the economy, or likelihood of a recession? I think they do ;) But we can disagree on this one..

@Jennifer Quigley,

Get your license and take the 25% of the commission!!! :)
All the rest is going to be skating around it..

 And the master lease was born ;)

The index is called "Smoothed U.S. Recession Probabilities," and is available here:

It is calculated and published each month, with about a 3-month lag, by professors Piger and Chauvet from University of Oregon and UC Riverside, I believe. Here is more info if you are interested. I sent them both an email to get their feedback on my analysis. I'll post back when I hear from them..

Academic papers on the index methodology

Different Recessions, but Same Decline in Leading Index

@Clay Smith

“I like this J. As for Joe's comment, I think other factors contributed to the severity of our last recession but don't necessarily discredit this graph. I can see how these indices would be good measures. They appear to have correlation and make sense...”

Thanks Clay. The fact that each of the last 3 recessions were very different in both their cause and result, yet the leading index declined before each recession, is even more credence to its predictive ability, IMHO. I appreciate Joe’s point either way. I have always been skeptical of economic data’s predictive ability, but have come around more as I stopped studying economics / statistics / econometrics in school and started working in the banking world and RE investing lol. I used to be in search for meaningful R-squared’s, P-values, the best statistical transformations, etc. But none of that does better than looking at a line going across a chart, when things are always different than last time. (and believing can even be dangerous!!) See below for my on my skepticism of the stats world. Are you seeing any softening in Louisville ? I agree, we can always shift our focus..

Good Predictor of Job Gains and Losses!

Futility of Econometrics / Statistics vs The Line on the Graph

@Lane Kawaoka

“J, these little FRED charts you've take a liking to lately are intellectual masturbation fodder par execllance! Definitely not meaningless or worthless, if taken as part of your analysis eco system.”

It may be masturbation, but that’s part of growing up, right!? Lol I seriously plan to utilize this data to make RE buy/sell decisions, especially if the RE market is departing from the economic data, and to avoid poor risk/reward parts of the cycle (like I am now). I think in another post you agreed its time to take our foot off the “acquisition accelerator.” I love that quote. If I would have had this info and knowledge in the last cycle, I would have pushed the accelerator a little harder last time ;)

Different Recessions, but Same Decline in Leading Index

@Clay Smith

“I like this J. As for Joe's comment, I think other factors contributed to the severity of our last recession but don't necessarily discredit this graph. I can see how these indices would be good measures. They appear to have correlation and make sense...”

Thanks Clay. The fact that each of the last 3 recessions were very different in both their cause and result, yet the leading index declined before each recession, is even more credence to its predictive ability, IMHO. I appreciate Joe’s point either way. I have always been skeptical of economic data’s predictive ability, but have come around more as I stopped studying economics / statistics / econometrics in school and started working in the banking world and RE investing lol. I used to be in search for meaningful R-squared’s, P-values, the best statistical transformations, etc. But none of that does better than looking at a line going across a chart, when things are always different than last time. (and believing can even be dangerous!!) See below for my on my skepticism of the stats world. Are you seeing any softening in Louisville ? I agree, we can always shift our focus..

Good Predictor of Job Gains and Losses!

Futility of Econometrics / Statistics vs The Line on the Graph

@Lane Kawaoka

“J, these little FRED charts you've take a liking to lately are intellectual masturbation fodder par execllance! Definitely not meaningless or worthless, if taken as part of your analysis eco system.”

It may be masturbation, but that’s part of growing up, right!? Lol I seriously plan to utilize this data to make RE buy/sell decisions, especially if the RE market is departing from the economic data, and to avoid poor risk/reward parts of the cycle (like I am now). I think in another post you agreed its time to take our foot off the “acquisition accelerator.” I love that quote. If I would have had this info and knowledge in the last cycle, I would have pushed the accelerator a little harder last time ;)

Thanks Lei! All the "secrets" that you wonder about are all right there in the links on the first thread! I've bought in lower-end areas that produce more cash flow, used FHA for 4plex and made some sacrifices to live in a "less than ideal" location, helped with and partnered with others, started a meetup group, held a Summit to meet other investors doing great things, took calculated risks, borrowed a lot of money, and studied the economy to try to determine when there was a good risk reward payoff.

Then just like that! Here we are! ;) You can do it where you're at. Or Chicago. Or wherever. You just need to find what works there.. :)

Joe, your point is actually why I like it! Here's why:  True, many different factors played a role in the last recession that were not present in prior cycles. Yet in EACH of the last 3 cycles (which were totally different), the index (which includes several economic indicators) declined before each recession.

So it appears that it's capturing a broad enough array of economic indicators to indicate trouble, regardless of the specific nature of the economic "upset."

Take a look as the line goes down, then the grey area (recession). Does it decline every time before a recession? Does it look completely uncorrelated to the economy? For sure not perfect. But something more valuable than worthless?.. No?..

@Jason Schneider ,

Welcome to BP! I also like Mr. Money Mustache! Congrats on living cheap! It's a great way to get the investments going. Here's a post about how being frugal led to my success (before I had found the Mustachians..)

https://www.biggerpockets.com/forums/223/topics/152828-being-frugal-paid-off-in-re--1k-car--1mm-in-re--140k-yr-gross-rents-and-free-couches

You sound like you would be interested in tiny homes, storage container homes, or other interesting things like that. Search the forums! There are a bunch on there!

Is that how you plan to change the world? Tell us more about it! I'm sorry to hear about your father passing away. It's fortunate that hopefully that will open the door to you achieving your ambitions to change the world :)

The Leading Index of Economic Indicators has been a pretty good indicator of a decline in economic activity, since it was published.

The index uses nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing and wages and salaries, state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill.

Declining trends in the leading index for the US tends to precede a recession. Currently, it is not exhibiting any real downward trend, although it's longer-term upward trajectory from 2010 through 2014 appears to have ended.

However, many US states, including larger states like New York, Texas, and Washinton have significant downward trending leading indeces, along with many energy-producing states, dropping into what is historically recession territory..

Select States with Declining Leading Indeces

Doesn't it look sort of like it did at the beginning of the last recession?
Here's the longer term..

What do you think?
Some informational or predictive value here..?
Anyone seeing anything in the declining states above? NYC, Dallas, San Antonio, Seattle, Columbus, Louisville, Tulsa, Juneau, New Orleans, or Chicago? Any softening?