No, that headline is not a typo. This interesting fact comes to us courtesy of The Global Macro Investor:
“Oil prices are always a precursor to recessions. We hit the magic 100% YoY rise in November 2009 and went on to hit the third highest YoY% rise in the history of oil markets…
“The magic 100% level in the YoY change in oil gives us a 100% chance of a recession in the succeeding twelve months. This indicator suggests that ISM will fall to 40, or even 35, in the coming months before recovering…”
Source: GMI
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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Man the 70′s must have been tumultuous.
Looks like we may find out for ourselves if things keep up at this rate…
Another one of my secret indicators goes public. I guess that’s a good thing However I do use a threshold lower than 100 % otherwise the signals come during the recession and are lagging other leading indicators. Do you think you could post a chart
TPC, nice little mention by Alphaville today. You’re coming up in the world!
He was cited in Hussmans letter yesterday. It’s always sad to me when a great resource goes mainstream. I’ve been reading this site sine early 2009. It’s one of the best.
Also made the Daily Crux. Cheers dude!
The New York Federal Reserve Bank has an indicator for gauging the probability of a U.S. recession in the next twelve months. Since 1968, the signal from the spread between the ten-year treasury bond yield and the three-month treasury bill rate has ALWAYS BEEN NEGATIVE BEFORE A RECESSION OCCURED. The current spread for June, 2010 was a positive reading of 3.08. Their gauge for the likelihood of a recession by June of 2011 is 0.19 percent.
The short rate is being pinned at near zero by the Fed rendering the NYFRB’s indicator useless.
hmmmm
There was a recession during 1981 that they conveniently forgot to include in this chart (presumably because that would make it clear that the claimed track record of 100% is inaccurate.)
The chart references a peak in oil prices in November 1999, but the recession didn’t begin until March 2001, some 17 months later. That is beyond the 12 month window referenced above, so it shouldn’t be included, either.
Meanwhile, oil prices peaked in July 2008, but the recession started in December 2007. Oil was a lagging indicator in that case, not a leading one.
On the whole, it’s not a horrible chart, but they’re really overselling the theory. The hunt for perfect leading indicators continues…
here is something to take into consideration based on the chart given by the author.
In every situation shown in the chart where the oil YoY gain of 100% lead to a recession, the oil level at the start of the spike was around the 0% level (the exception being 1999 recession, which was preceded by a 35-40% drop in oil YoY prices). There are 2 shown scenarios where the YoY numbers went to near 100% from a greater than -50% YoY drop in the preceding period. The first was 1986 to 1988, and the second is 2008 to 2010. One did not lead to a recession, and the second is still to be determined.
Thus, it seems to me that the correct statement that should be made is, when YoY oil prices reach 100% gain after a period of relatively stable prices, then a recession is looming.
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No, that headline is not a typo. This interesting fact comes to us courtesy of The Global Macro Investor:
“Oil prices are always a precursor to recessions. We hit the magic 100% YoY rise in November 2009 and went on to hit the third highest YoY% rise in the history of oil markets…
“The magic 100% level in the YoY change in oil gives us a 100% chance of a recession in the succeeding twelve months. This indicator suggests that ISM will fall to 40, or even 35, in the coming months before recovering…”
Source: GMI
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
Post Footer automatically generated by Add Post Footer Plugin for wordpress.
Man the 70′s must have been tumultuous.
Looks like we may find out for ourselves if things keep up at this rate…
Another one of my secret indicators goes public. I guess that’s a good thing However I do use a threshold lower than 100 % otherwise the signals come during the recession and are lagging other leading indicators. Do you think you could post a chart
TPC, nice little mention by Alphaville today. You’re coming up in the world!
He was cited in Hussmans letter yesterday. It’s always sad to me when a great resource goes mainstream. I’ve been reading this site sine early 2009. It’s one of the best.
Also made the Daily Crux. Cheers dude!
The New York Federal Reserve Bank has an indicator for gauging the probability of a U.S. recession in the next twelve months. Since 1968, the signal from the spread between the ten-year treasury bond yield and the three-month treasury bill rate has ALWAYS BEEN NEGATIVE BEFORE A RECESSION OCCURED. The current spread for June, 2010 was a positive reading of 3.08. Their gauge for the likelihood of a recession by June of 2011 is 0.19 percent.
The short rate is being pinned at near zero by the Fed rendering the NYFRB’s indicator useless.
hmmmm
There was a recession during 1981 that they conveniently forgot to include in this chart (presumably because that would make it clear that the claimed track record of 100% is inaccurate.)
The chart references a peak in oil prices in November 1999, but the recession didn’t begin until March 2001, some 17 months later. That is beyond the 12 month window referenced above, so it shouldn’t be included, either.
Meanwhile, oil prices peaked in July 2008, but the recession started in December 2007. Oil was a lagging indicator in that case, not a leading one.
On the whole, it’s not a horrible chart, but they’re really overselling the theory. The hunt for perfect leading indicators continues…
here is something to take into consideration based on the chart given by the author.
In every situation shown in the chart where the oil YoY gain of 100% lead to a recession, the oil level at the start of the spike was around the 0% level (the exception being 1999 recession, which was preceded by a 35-40% drop in oil YoY prices). There are 2 shown scenarios where the YoY numbers went to near 100% from a greater than -50% YoY drop in the preceding period. The first was 1986 to 1988, and the second is 2008 to 2010. One did not lead to a recession, and the second is still to be determined.
Thus, it seems to me that the correct statement that should be made is, when YoY oil prices reach 100% gain after a period of relatively stable prices, then a recession is looming.
Notify me of follow-up comments via e-mail
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