A few weeks back I expressed to my associates that this week we might see a new low made in the markets, perhaps near 1200 on the S&P 500. I thought there would be lower lows after this one with a rest near 1200. I also voiced concern that we had entered the panic stage of disorderly declines in securities and currencies.

Why has the Active Indexer remained bearish? Economic fundamentals support technical trends. In spite of the Federal Reserve Bank's (Fed) three-quarter point cut in the Fed Funds rate and its massive liquidity backstops, the economic fundamentals are not ripe for monetary policy interventions, and the technical read is to sell rallies.

Last week, Martin Feldstein, president of the National Bureau of Economic Research (NBER), expressed his own dire views on the economy.[1] Mr. Feldstein has been recognized as one of the 10 best economists in the world according to IDEAS/RePEc. He served as chairperson of the Council of Economic Advisers and as chief economic advisor to President Ronald Reagan (1982-1984). He also was on President George W. Bush's short list to succeed Alan Greenspan as the Federal Reserve Chairman. He is not shy about expressing his views. Although Feldstein's views are his own, NBER is the arbiter of recessions, so his outlook gets a lot of attention.

Last week, at the Futures Industry Association meeting in Boca Raton, Fla., he said we are in recession and that this one will be the worst since the 1930s.

"The United States is in a recession that could be 'substantially more severe' than recent ones," Feldstein noted. "The situation is very bad; the situation is getting worse. There is no doubt that this year and next are going to be very difficult years."

Sound market views are founded by one's own research. To do so, we need to weigh evidence from credible sources. Mr. Credible has forewarned.

Below is a link to a recent video interview with Mr. Feldstein, found at www.theglobeandmail.com. The clip is titled, "The r-word - are we there yet?" Please watch and listen to form your own view.

Mr. Feldstein thinks that our current contraction will be different from most recessions, which have been usually fostered by Fed-tightening cycles that attempt to rein in inflation. The current cycle was born from the collapse of excessive debt used to finance mal-investments in home building, real estate and corporate buyouts. Debt-induced business cycles do not respond as well to lower interest rates as inflation-led cycles do. Our economic cycle is more recognizable after drawing distinctions from past recessions, depressions and the Great Depression.

Feldstein is concerned that we may have entered the worst U.S. recession since the Great Depression. His caution also got the attention of John Williams, the founder of Shadow Government Statistics (SGS), at www.shadowstats.com. Mr. Williams thinks Mr. Feldstein's utterances make this a worthy moment to review definitional differences of economic contractions. Below are his definitions of contractions that have been recognized by his friends at the Bureau of Economic Analysis and NBER as unofficially sound.

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