Don’t Spend Too Much Time Thinking About GDP

So, the trouble with all economic data is that it is lagging information. By the time you get a data, that event has really passed a few months ago. Let's see what this looked like on the charts. So, again, the market peaked over here, and that was the bottom of the market. The market dropped about 56%. Now, like I said earlier on, the recession started here in December 2007, but you wouldn't know it because by the time the data came out and they officially announced that we are in a recession, that came in December 2008, which was 12 months later, which means that by the time you read that it's a recession, you are already here. So, if you read that it's a recession and you sell your stocks, what's happening? You are actually selling here after the market has already dropped more than 50%. And then, the recession ended here, June 2009. But, you wouldn't know that. You only know that when they gave the data, when the data came out. By the time the data confirmed that recession is over, the news comes out it was 20th September 2010, which was 15 months after it was actually over. So, by the time you read the good news and you bought stocks here, what would have happened? You would have essentially sold near the bottom, and by the time you buy it back, you'd have bought back much higher. And that's why reading economic data, whether is it yield curve, interest rates, GDP, it's a horrible timing tool. Now, then you may ask, so is there a better timing tool that is more of a leading indicator rather than such a lagging indicator, or at least a coincident indicator? The answer is yes, and I'm going to show it to you in a short while.