The Economic / Market Cycle
A very interesting depiction of the Economic cycle, via Matt Blackman's EquiTrend Weekly Market Watch:
Original Source: Matt Blackman, the EquiTrend Weekly Market Watch
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Note the bullseye center states the Market Cycle is 3 - 9 months agead of the Economic Cycle. This raises only one question: Where are we in Blackman's cycle?
~~~
Source:
A Kinder, Gentler Mr. Market?
John Mauldin
Thoughts from the Frontline, September 15, 2006
http://www.frontlinethoughts.com/article.asp?id=mwo091506
Saturday, September 16, 2006 | 08:24 AM | Permalink
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One needs to ask the question. Where in the economic cycle are we? Late expansion.....energy stocks and basic materials are going down. Early contraction.....commodities are going down. Late contraction.....bonds and financials are rallying. Early expansion.....technology and transportation is rallying. It would appear to me we're at a market top and market bottom. I guess the Fed has orchestrated the perfect scenario. Goldilocks and the three bears sharing breakfast together. Have our markets become politically correct?
Posted by: yertlert | Sep 16, 2006 8:54:34 AM
As you know, BR, Mauldin thinks we are positioned at 3:00.
Posted by: Leisa | Sep 16, 2006 9:21:26 AM
We do seem to be in economic denial as we are exhibiting signs anywhere between early and late contraction. One thing he didn't add to the list was housing. If he had placed housing in the circle, pinpointing where we are would be much easier. Housing is where the flood of money is going in this cycle and is painting a much clearer picture.
I think housing would say we are mid contraction. The further we get away from the beginning of the pause in rate hikes the greater the chances we have of soft landing. I don't think rates will go down very much here though. I think we will go flat for the next little while until the market adjusts to the new floor in rates before heading up over the long term when they economy can start making (big)money at these rates again. After all, Greenspan's housing boom was artificially low and Bernanke may just be bringing us back to normal again
If you were to juxtaposition the above chart with a housing economic cycle chart Barry that would do wonders
Posted by: DavidB | Sep 16, 2006 9:24:05 AM
this approach, while very good, is based largely on the old four year cycle that has been dead for about a quarter century.
Now we seem to have more frequent mini-cycles and more rapid corrections rather then the massive economy-wide swings of the old four year cycle.
that means in the market we often see industires that use to have strong negative correlations now moving together.
Posted by: spencer | Sep 16, 2006 10:34:16 AM
Between Late expansion-Early contraction IMO.
Posted by: Franco | Sep 16, 2006 10:42:13 AM
I always find the Barron's Sandra Ward's interview incredibly excellent. Today's interview with Rudolph-Reiad Younes is no exception. He thinks that real inflation is 5-7% and we do not see it in real wages because of the following:
"The reason we don't see wage inflation is not just because of China, but more importantly, because people used their houses as ATM machines, basically refinancing their houses and withdrawing equity. If your wages are not enough to support your spending, your house bills or your education, but you manage to get an additional loan against your house and use that loan to refurbish your house or pay for your children's education, then you are not going to complain and you are not going to go on strike and you are not going to be militant because you are not being paid enough money. Wages, plus equity withdrawal from your house, was enough to support your living standard. Once that sort of financing dries up for the consumer, we will see significant wage pressure"
Thought folks might find that interesting, and certainly supportive of many of the inflationary/wage pressure comments posited in this space.
Posted by: Leisa | Sep 16, 2006 10:58:58 AM
Hey, I like this picture.
Makes me think my decision to pile into bonds over the past few months might pay off.
Please post more images that support my worldview, thanks.
Posted by: ac | Sep 16, 2006 11:04:19 AM
I agree with DavidB. Here is what I wrote on SI:
http://www.siliconinvestor.com/readmsg.aspx?msgid=22818592
Posted by: YanivBA | Sep 16, 2006 11:07:30 AM
As you know, BR, Mauldin thinks we are positioned at 3:00.
I just ran a detailed computer simulation which confirms that they are in fact correct.
Posted by: ac | Sep 16, 2006 11:09:56 AM
Comstock Partners:
"As we end the month of August most investors seem to be assuming that the heavy hitters will return after Labor Day and add some real volume to the listless rally we’ve seen this month. We recall hearing the same reasoning in August 2000. Back then the Fed had also finished its rate hikes and investors were similarly looking for the elusive soft landing. The market topped on September 1."
Food for thought.
Posted by: blam | Sep 16, 2006 11:11:13 AM
All this reminds me of when I was getting my number for the draft. It was at the tail end of the Vietnam war. I was at a party and I was certainly a few sheets towards the wind. The television is on. I notice that the draft numbers are being called on the tv. I yell "shut up" and holding the set on either side with my hands I stare at the picture. My number is announced. It's 165. Then I start to yell at the set "But what does it mean?" It meant that I was not drafted.
Actually at least the number was a set thing. Now we get to debate where we are on the economic clock, then we get to debate what to do under the circumstances. A great macro debate. Is there a reliable tell? If you knew which way the market was going you would take appropriate action. I often feel two things, you can tell which way the wind is blowing and a stopped clock is right twice a day.
Meanwhile I am getting more and more inclined to work on a value basis with a bit of technical analysis to see which way the wind is blowing. In other words find soemthing that does not totally depend on a macro picture.
By the way the housing stocks appear to be making a base, many of which have been trashed to the tune of 50%. This does not disregard any of the arguments made on housing and debt (most of which I cannot fault) but rather just looking at the visual behavior of the group in terms of charts. I have not put my money down on this so do not take it to heart. Just my two cents.
Posted by: alexd | Sep 16, 2006 1:55:42 PM
As you know, BR, Mauldin thinks we are positioned at 3:00. «I just ran a detailed computer simulation which confirms that they are in fact correct.»
In theory probably, without considering the political factor; but the political factor is impredictable.
My take is that it all depends on what Bernanke will do: because a contraction now might be politically intolerable.
Posted by: Blissex | Sep 16, 2006 3:20:40 PM
Let me try on the cycle chart for size.
What is the time scale here?
Is time linear on this chart?
If we are at 3PM -the tail end of the late expansion, is minutes away - begining of the early contraction. Is that three months later, 9 months later?
Was the market top (begining of May) 2PM and now we are are at 3PM, almost five months later? So, is the scale one hour = 5 months?
4PM is where commodities are down. It feels to me like that now(check out etf OIH). Looks like we just cut below the collar line.
Nu? Vus dus?
Posted by: Robert Ben Kline | Sep 16, 2006 7:10:23 PM
Interesting Chart... It seems like we are at 3 o'clock for stocks, 4 o'clock for commodities, and 6 o'clock for bonds.
Posted by: Zephyr | Sep 17, 2006 12:19:51 AM
I'd say we are around 7 o'clock, judging by what I think is a top in utilities, strength in financials and bonds.
I also think the coming "expansion" phase looks like it is shaping up to be a rather poor showing.
Posted by: Jack | Sep 17, 2006 7:53:30 AM
One of the posts does remind me of a refrain for very senior market strategists at the time back in 2001 or whenever that you "don't fight the Fed" and people who listened rode stocks all the way down. It's "conventional wisdom" but the example proves that nobody knows during times like these.
Posted by: Kris | Sep 17, 2006 11:20:17 AM
The internet, the raging growth of hedge funds (and all the derivitives they employ), emerging economies maturing, and markets/economies truly becoming global have all contributed to smashing these "old" cycle maps. There are too many cross currents now for this to be an effective investment tool, imho. I actually think one can game against this "conventional" thinking.
You'd need a 4 dimentional model now.
Posted by: JGarcia | Sep 17, 2006 12:49:34 PM
Why was “Middle Contraction” omitted from this Economic Cycle schematic (2 periods for Contraction and 3 periods for Expansion)? The contraction will last longer this time and “Middle Contraction” period will be the longest. Lower energy prices should support more gradual decline of consumer spending and hopefully will dampen the touch down shock during “Late Contraction” landing. Currently, we are in early “Middle Contraction” or at 5 o’clock. Financials (9-12 months ahead of Economic Cycle) have been supporting current market short term mini uptrend.
Posted by: V L | Sep 17, 2006 1:34:29 PM
Looks to me like we're at 4:30 -- the beginning of a meaningful decline in commodities. Stocks topped out in May, which is 2:00. If we extrapolate from the chart, we can expect the stock market to bottom at 8:30 -- around eight months from now, in March/April.
Posted by: speedlet | Sep 17, 2006 5:06:31 PM
I think we are at 2:30 but I also think we won't see a big drop in stocks until after the election. So make it 2:45 and the power went out! This reminds me of trying to predict next week's Dow closing over at Ticker Sense. I'm not very good at that either...(11000)
Posted by: Tom in Indy | Sep 17, 2006 11:20:53 PM
I think we're at 420..... but I have no idea what's going on.
Posted by: Towl | Sep 18, 2006 12:48:54 PM
per JGarcia:
"The internet, the raging growth of hedge funds (and all the derivitives they employ), emerging economies maturing, and markets/economies truly becoming global have all contributed to smashing these "old" cycle maps. There are too many cross currents now for this to be an effective investment tool, imho. I actually think one can game against this "conventional" thinking."
Ah, so it's different this time? Sweet!
ROL,LMFAO.
Posted by: whipsaw | Sep 18, 2006 8:19:47 PM
Some things did change with the internet. One of my early stock market strategy tests was determining the performance of assuming the market would do what it did the previous day. Through about 1998, this worked really well. Since 1998, this lost money very quickly. I don't remember the exact date where things switched, but it happened very quickly. The equity curve went up with only a few minor corrections until it peaked, and then it went down with only a few minor ups. Something changed around 1998 to make stock market trends shorter. My guess is that it was daytrading and increased market data availability. Whatever it was, it may have also changed other things.
Posted by: jkw | Sep 19, 2006 3:11:59 AM
Where's the Military/Industrial War Machine sector? That's a $-hog that's screwing up the wheel, as usual...
Posted by: pete | Jun 5, 2007 7:40:05 AM
How about now? where are we in July 2008?
Posted by: Luisa | Jul 19, 2008 8:12:58 AM
