Most people assume that there are only two stages in the economic cycles: “Boom” and “Bust” – referred to as “expansion” and “contraction” by economists.
This two-stage assumption is refuted by some economists who argue that we actually go through five stages:
- Early Expansion
- Middle Expansion
- Late Expansion
- Early Contraction
- Late Contraction
The above image may not show these stages as properly as I wish but one thing is clear. The stock market’s cycle turns down (or bearish) before the economy itself does and vice versa. The economy in a way lags behind the stock market’s cycle. This was evident in 2009 when the stock markets “bottomed out” in March of that year, but economists later said that the US economy came out of a recession in June 2009.
As to which Stage of the economic cycle we are in, here is a very informative article that argues we are in the early contraction stage of the economic cycle.
Let me know what you think and whether you found this or the article useful. Leave me your comments below.
Read the article which was interesting for me as that type of material is not covered in the beginners material I am using. I want to learn as much as I can before coming on a course so that I get more out of a course on trading. The website was clear and offers a lot of stuff for free. Thanks
It´s the bubble of a market, as explained here
http://cornucopia.cornubot.se/2011/06/marknadsbubblans-anatomi.html
(use Google Translate to read)
It´s was used by http://people.hofstra.edu/Jean-paul_Rodrigue/
and has an english graph here http://money-watch.co.uk/5053/house-prices-will-fall-further-graphs
Keep on goin!
/Jakob, Uppsala, Sweden
yes i like SO..frome the natyra or better DARWIN evrything in life born..developed..die but not desepear.. a truth we are in Long depression economi globaly..and this start how i remmember 1878–(i am not sur is exacte the time )but now we are in top….for me this situation have bad and good wayes…and i don’t mean how smart is someone ..i mean one big crisis make the world mor smaller in (popolariation)..others you understand i am sure..thank you iam practice not exstrem..
We never got out of the recession. Our economy was propped up like a dead cat bounce from all this government spending. Our economy is now in stagflation. All of this government spending created a flatline economy with inflation. Once this debt crisis blows up the current stagflation will get much worse as econonomic activity will drop and inflation will go up. Stagflation is once of the hardest economic environments to get out of!
Thanks Alessio for keeping your articles always updated. I am checking your page daily, very useful information.
I think the volatility on the markets will continue for a feel years before it completely collapses. There are no clear solutions for any of the current problems the world economies are facing. I don’t trade but I think that if you know what you are doing, you can make quite a profit with these constants ups and downs in the markets.
I have to agree with Allessio, mostly. The world economy was in a fragile recovery, but I believe the Japanese earthquake killed any chance of us growing our way out of the worldwide debt issues. Its still hard to believe that the markets held on and made new highs after the spring.
Diablo, I completely agree, fake growth over the last few years due to massive QE. Once they decide they can’t QE anymore start short selling…
Despite market lack of consensus and false signals, equity downtrend still indicates it wants to resume.
NASDAQ megaphone pattern on daily chart also indicates big move ahead.
USD weekly chart remains bullish and as predicted for some time further dollar upside expected.
Totally Agree Alan! They can’t keep printing money without consequences.
Thanks Kabeer. Do you have financial ties in Japan? Interesting insight.
Afraid not, I am as amateur an investor as they come.
I just try to take the macro view and be patient. The world economy faces headwinds for years to come. The markets have been propped up and eventually reality must bring them to true value. I think the market cycles will be shorter and more volatile. Your BBC interview was great because it reinforced my opinion on the state of the world economy and my investing strategy since early March. (“Protect your assets”).
Considering the end of QE2, drying up of stimulus spending in the US, an ailing European economy and a major natural disaster in Japan (still the world’s 3rd largest economy), we were due for a shift in market sentiment this summer.
I like your comment about why awe can’t keep printing money forever! That is exactly what Europe is proposing this weekend. Perhaps that is why two rechnicians I have followed for decades Ralph Acampora and Louise Yamada both recently, and seperately, came out with prognostications that Gold will move higher in coming years! You can research my blogs on Bostonwealth.net
Thank George – very informative comment. Best wishes.
What do the numbers (1-11) in your chart stand for?
What’s the best way to own gold without stock piling it ?
Hello Alessio, your fans are waiting for a newer post from you 🙂
How long can this retrace continue Alessio? The Dow MACD (43,20) is turning positive! Is it the start of a bull run or a temporary bounce? RSI vs. price is showing negative divergence, this market is confusing …
Hi Sam – I am not sure which numbers you were referring to on my chart, but if it was the ones at the top I would ignore them. Thanks, alessio