What I find particularly interesting that there is a large number of patterns of price
actions that people use to argue that we actually in midcycle, that the economy is strong.
But all of those things have been present at the end of the last two cycles.
I will start with one, which was particularly interesting and decisive-- is the price-action
oil.
Well, we currently have oil made a low, a very significant low, a couple of years ago.
And that's been running very strong.
And many people argue it is a argument for inflation or indication of strong global growth.
But if you look at the previous two cycles, oil did exactly the same thing.
It made a low, a local low, one or two years before the recession arrived, and was strongly
running up right into recession.
It is actually a very, very distinctive pattern by itself.
And in here, just as with everything else I will say further, the rise of oil price
itself is not an indicator of recession coming.
Very often, it goes up, and the recession doesn't come.
But it is consistent with late cycle.
Like, current price-action oil is consistent with late cycle.
So what are the things that people-- what are consistent with late cycle?
One of them is the arrival of stock-market volatility.
And what is interesting is that when this volatility arrives, like it did in January
of this year-- end of January of this year-- or it arrived in March 2000, or it arrived
in July and August of 2007, neither of those actually marked the absolute top of the stock
market.
For example, NASDAQ, even this year, made another high recently, I think in March.
Similarly, the stock market highs were actually December 2007, much closer to actual recession.
So this arrival volatility, but not the top, is very consistent of late cycle.
And also, divergent performance.
This is might be a little too technical, but divergence performance between various stock
indices.
In 2000, there was a period when NASDAQ started to sharply outperform Dow.
And then it sharply underperformed.
And we had this on a smaller scale, this type of price action, this year as well.
In fact, arrival of strong earnings and unambiguously-strong economic numbers is also consistent with late
cycle.
This all happened in other cycles.
The arrival of very strong inflation concerns that people claim was the argument that rates
will continue to go up-- like the very low unemployment, strong job growth, or growth
in average hourly earnings, all this stuff actually which people see as an indication
to higher rates-- in the past led to much lower rates, because that marked the end of
the cycle in the past.
Particularly interesting it is that I observe the pattern in bonds.
What I look at is all adjusted, classical bond futures.
They're long-- total return chart.
Both of them had protracted back up.
So in both previous cycles, there was a protracted backup in bonds, not just a sharp-- there
are many bond corrections over the last 25 years, probably at least nine.
And most of them are sharp corrections for sharp recovery.
Towards the end of the cycle, there is more of a protracted correction often with double
bottom, like recently, for example, in our market.
And that is usually a precursor for a huge rally in the bonds.