"No warning can save people determined to grow suddently rich" - Lord Overstone

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Business Cycle Primer: A Primer

  • Typically at a peak, the cycle for share certificates leads the business cycle by some 8 to 12 months. In so many words, the stock market turns down while the economy continues up.

  • Then at the trough the stock market exhausts itself on the downside and turns up. This usually leads the business recovery by some 8 to 12 months.

    In so many words, stocks will climb as the economy continues to generate bad news.

  • Anyone experienced in the markets knows this, but it is worth outlining the exceptions.

  • These have occurred at the end of a great financial mania and two previous examples happened in 1929 and in 1873. Long contractions followed.

  • The determination of the business cycle is by the National Bureau of Economic Research (NBER).

  • The 1873 Bubble and consequent contraction occurred while the US was experimenting in fiat currency.

    - The final surge of that bull market concluded in early September.

    - The peak of that business cycle occurred in November.

  • The 1929 Bubble and consequent contraction occurred as the central bank was running an experiment in an "elastic" currency.

    - The high for the stock market was set in early September.

    - The peak for the business cycle occurred in August.

  • The 2000 Bubble was a magnificent example of a mania, but the link to the recession was typical.

    - The high was in March.

    - The recession did not officially start until the following March.

  • The 2007 Bubble seems to be followed by a more immediate contraction in business.

    - The peak for the stock market was set in October.

    - Nothing official on the start of the recession.

  • Wrap: Often the start of the recession has not been decided until a year after it began. The NBER is not in the forecasting business.

    However, recently Frank Veneroso has noted that a number of countries, including US, China, Germany, Japan, Spain and the UK, are reporting a dramatic turn down in economic reports.

    Veneroso used the phrase "several blockbuster negative reports".

It is going to be interesting!

Link to the August 7th "Bob and Phil Show" on Howestreet.com: http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/920


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