Intrade market indicates a 70% chance of recession in 2008

Trading on the Intrade Prediction Market indicates a 70.8% chance (up from 60% last week) of a U.S. recession in 2008.

In other words, people are not only quite worried that a recession is possible, but that they consider it to solidly be the likely scenario. Conviction is still "medium", but has been growing strongly on a weely basis. Oh, and this is in the face of all the chatter about a $150 billion fiscal stimulus.

Personally, I do not feel any different about the chances of recession and put them down around 25% (1 in 4.) Actually, I think that any fiscal stimulus (any amount at any time) is likely to further reduce the chance of recession.

The so-called weakness in the economy is simply not profound enough to suggest an outright recession. For example, the weekly initial unemployment claims number has remained well below 400,000 even recently and even decline for the past three consecutive weeks, while traditionally that number tends to spike well above that 400,000 in recessionary times.

Nonetheless, the Intrade indication is probably a good proxy for overall market sentiment.

OTOH, if I were to try to synthesize the chance of recession from the overall tone of commentary, it would be a near 100% chance of recession in 2008 and in fact indicate that the U.S. was probably in recession back in December. In other words, much of the commentary that attracts the interest of the press grossly misleads people about what the actual overall data suggests.

FWIW, Intrade trading current pegs Hillary at about 57% chance of being the Democratic presidential nominee (down from 60% last week) and Barack has a 41% chance (up from 40.8 last week.) OTOH, Intrade showed Barack having a 67% chance of winning going into the New Hampshire primary, so that just illustrates how tentative and subject to change these number really are. And I would suggest the same for the recession trading.

So, relax and try to think about creative ways to spend your rebate check and maybe even spend it before it arrives!

-- Jack Krupansky