Exploring The Economic Cycle
As a recognized expert and leader on investment issues, John Mauldin has more than 1 million readers for his weekly e-letter, “Thoughts From the Frontline“. He was voted 2nd only behind Warren Buffett as the ”Investor of the Year” by The Motley Fool’s readers in 2007.
The following chart from John Mauldin’s mid-2006 e-letters divides the economic cycle into four major stages:
Where are we now?
As we can observe from the chart, during the time between peak and early recession, stocks decline excessively, bonds go from mild gain to mild loss, and hot commodities eventually cool off.
I’m hand picking three ETFs to represent stocks (SPY), bonds (TLT), and commodities (DBC), and extracting their performances for my non-scientific analysis below:
Since October 2007, when the stock market last peaked, to date, stocks have dropped somewhat, bonds haven’t moved much, and commodities have been flying high:
Peak to Date
- S: -14%
- B: +1%
- C: +62%
We can safely assume that we’ve been somewhere in an early recession. To determine if we’re near the end of the early recession, let’s divide the time period between October 2007 and today into two halves:
Peak to February
- S: -12%
- B: +5%
- C: +31%
February to Date
- S: -3%
- B: -2%
- C: +20%
As we can see, bonds turned from positive to negative, and commodities slowed down a bit, despite stocks gave us an illusion that we might be out of the wood with the latest rally that indeed faded. Both bonds and commodities signaled that we’re still fairly early in the early recession phase. The overall picture should be clearer as we continue to keep an eye on stock movements.
