This is one of the most fascinating charts that I have ever created. It is an incredibly accurate recession indicator, and it should not be ignored. Let's take a look.
This chart is a comparison of the initial jobless claims in the US, to the E-Mini S&P500 futures contract. Unemployment claims are in blue and the S&P500 is in pink. You can see that there are two moving averages that are following the unemployment chart. They are the 25 MA (in orange) and the 100 MA (in green.) FYI, I began with the 50 and 200 MAs, but I cut them in half to shorten the crossover time. Now that you all know what each line represents, let's begin the analysis.
Looking at the chart, we can see that each time a bullish crossover occurred (red vertical trendlines) between the 25 MA and the 100 MA unemployment skyrocketed, and a recession kicked off at the exact same time. The first bullish crossover on this chart occurred in October of 2000. From there, unemployment ripped higher, and the S&P500 collapsed as a result of the dot com bubble. Then, we saw another bullish crossover of the 25 and 100 week moving averages for the unemployment chart, and unemployment skyrocketed again. That occurred at the exact top, just before the stock market melted for the 2008 recession. Now, here we are today, with unemployment at historically low levels. You can see that the 25 MA is curling up toward the 100 like it wants to cross over. It hasn't crossed yet, but we could see a bullish unemployment cross in the near future. That means that we may soon see a deadly accurate indicator, that the market is about to melt to the downside, just as it has each time this has happened in the past several decades.
I have published countless analyses showing how the current market condition is technically similar to 2008. The technicals are there, and the fundamentals are far more grim than anything we have ever seen in the history of modern day finance. Sure there is a bunch of fluffy economic data that gets touted around on mainstream media, but under the hood, is the largest debt bomb the world has ever known. The US unfunded liability debt is over $123 Trillion, yet all of our assets as a nation are only valued at $138 Trillion. The Fed has interest rates at a tiny 2.5%, which is less than half of the 5.25% that it was before the great recession. So, their ability to rescue the economy by cutting interest rates is severely diminished. Additionally, they have trillions of dollars on their balance sheets. So, their ability to buy assets and stimulate with QE4 is also questionable. Let me put it to you like this. There is only ONE thing that is currently preventing the greatest financial collapse in the history of the world, and that is the fact that we still have control of interest rates. As soon as the Fed and other central banks lose control of rates, these multi-trillion dollar debts will balloon out of proportion, currencies will collapse, and we will have a complete meltdown of global financial markets. Did I mention that is part of the reason that I love Bitcoin? This next recession will be epic, and it will probably always be remembered as The Global Debt Crisis. So, yes, I believe that this market is on very thin ice, and I shall be underneath it when it breaks.
I'm the master of the charts, the professor, the legend, the king, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
This is not a recession indicator, it is a coincident indicator. This lags a recession, not leads, all you are highlighting is the negative correlation between the two that's all. A recession indicator would be things like the yield curve, manufacturing, and non-manufacturing, building permits, etc. Once again what your highlighting is just the effect of leading indicators which would have predicted this months before this ratio even moved. So if you're following this, you're the last person to the party.
beavis
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The beauty of TV is you can go backtest a strategy. If you go and backtest this you will find, like most strategies that look amazing at first glance on a fancy chart, it is largely a dud, and you should not be buying into the FUD that this bum (and others like him), who do no real in depth analysis, espouses. Starting from when the 100W MA was available, this strat underperformed SPX B+H by 100%.
N-Bluth
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What are your thoughts on Bitcoins performance during this recession?
ZoltanBalogh
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@N-Bluth, Bitcoin has its own cycles, not sure it's related.
N-Bluth
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@ZoltanBalogh, While I agree, we have also never been through a recession while bitcoin existed. Will people view Bitcoin as a speculative asset that is too risky when they loose their job or will they hold on to it for dear life?
MagicPoopCannon
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@N-Bluth, If we look at other countries that have recently experienced financial crises, such as Cyprus, Greece, Venezuela, etc., and assess the Bitcoin usage in those areas during their respective financial crises, we can see that Bitcoin usage grew dramatically in each case. That is evidence that people have used Bitcoin as a tool for protecting and controlling their wealth during recessionary periods.
To be more specific, if we see a recession in the US, I believe people would definitely turn to Bitcoin. One reason, is that the Fed is likely to push rates into negative territory, which means they would allow banks to charge people for their deposits. The Fed may be forced to enact such a policy, because they have little room to cut rates, because they are only 2.5%. People could easily sidestep depositor fees by simply putting their money into Bitcoin.
Personally, I believe that we could see a currency crisis if the debt situation gets out of control. In such an event, I think Bitcoin would explode in value, partly due to deflation in fiat currencies, but also because of an enormous amount of adoption.
Ultimately, I believe that Bitcoin's network will continue to grow, and it will continue to improve as a technology over time. As that takes place, Bitcoin adoption will also increase. Therefore, I believe that the future is bright for BTC, with or without a recession.
N-Bluth
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@MagicPoopCannon, I never even considered negative rates. Interesting times.
Trendbeat
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@MagicPoopCannon,
Very helpful reply and perspective related to crypto.. Thanks MPC!
Market_Manipulation
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@MagicPoopCannon, I don't agree with the negative rate... If that happen, then there would be a run on the banks. Imagine a million people (because some people are going to do nothing) running to withdraw their savings and the banks only keeping a small portion of their savings on hand. It would be stupid of the Fed to do that.
This crisis was created by the world getting drunk off of cheap money. So the solution is not to keep the party going. I do think people will seek other safer options, and Bitcoin and precious metals are where they will run to .