Letting the Market Forecast the Economic Condition
The market consistently anticipates the future. Numerous studies suggest that historical price performance can signal future expectations. Publications like Value Line and Investors Business Daily have employed past price performance, or a look-back period, to assess a security relative to others or the broader market. This Relative Price Strength ranking may offer insights into short-term performance prospects. Securities or markets are ordered based on their price performance during the look-back period, with market leadership determined by comparing Relative Price Strength across the same timeframe.
Using this same concept, this site will be measuring 4 markets to determine the current economic conditions. Harry Browne, the author and Permanent Portfolio advocate, used 4 markets for diversification in his writings. The markets are short term bills or cash, the stock market, long term government bonds, and gold.
These four market’s relative price strength, compared with each other, can also give us the current economic market condition as measured by the market. T-Bils or cash leading in Relative Price strength indicate a recession or tight money. The stock market is the indicator for economic growth. Gold measures inflation and long term government bonds price performance measures deflation. Our economy is always in one or predominantly one of these economic states. Recession, growth, inflation or deflation.
Preferably you would want to be positioned in investments to take advantage of the current leading market condition.