Charts are not good forecasters for the future.
Unless it’s this one.
Chart Guy Hates Charts
Yes, I’ve made my name teaching others how to use charts in a unique way to trade markets and get a leg up on where price is going in the short term.
But I’ve also gone on the record many times saying that using charts in investing to determine where price is going to go long term is a fool’s errand.
I can tell with better-than-average accuracy where price is likely to go the moment I get a signal.
But I have absolutely no freaking idea how far and for how long.
This is where so many technical analysis hacks on social media get it wrong almost every time.
Yet somehow it doesn’t ruin their reputation (they just keep going like it never happened, and by golly, it works every time on you people).
Anyway I digress. But you’ll never see me say “This chart is looking really bullish”, or “If this breaks, price could go as high as…” or some foolish nonsense like that.
But what I’m about to show you isn’t a price chart. It’s a FED behavior chart.
And it’s quite telling.
Here Are Your Tea Leaves
I’ve actually put this chart up before, on Twitter.
Right before the Covid crash.
Anyone remember? Probably not, but that’s fine.
This is from the St. Louis FED, a database of charts where the Federal Reserve is required to post everything they do over time.
This particular chart is very simple. Its shows the FED interest rate over the last 80 years or so.
Then they added a shaded in gray area to show recessions in the US.
If it’s not showing up well on your screen, just go here to see it.
What can we see?
Before 1974, interest rates would drop in response to a recession.
During the 1974 crash, and the insane inflation run in the early 1980s under Paul Volcker, rates and recessions did not seem to follow any kind of logical pattern as inflation was raging out of control, and the only way to fight fire was with a lot more fire.
But after that it became super easy to predict because….
Rates would peak, flatten, begin to drop, and only then would we enter a recession.
Every. Damn. Time.
And it also shows you have a little bit of time to act before it happens.
Why Does This Occur?
In my oversimplified monkey-brain terms, I would say…
- Rates go down
- Everyone has a great time
- We fuck it up somehow
- Rates need to go back up again
- This puts a strain on the economy, easy money evaporates
- FED reacts by dropping rates to save the economy
- Everyone seems to always forget that the effects of interest rates hikes are LAGGING, and those real effects take time to play out
- The dominoes from all of this finally start to fall hard
- We get recession
You watch, the same thing will probably happen again.
Fed will finally drop rates. Dumbass media will think everything is good again, we’ll get one last pop in the S&P.
What will the “catalyst” be? What will that “lead domino” be (even though they’ve already been falling)?
It’s always something. Some boogeyman we can all point to as the reason everyone is suffering again.
When the real reason could have right here in front of our noses the entire time.
This chart may be responsible for all the people saying that Q3 or Q4 of this year we’re getting our recession, who knows?
Again, they’re trying to nail the timing, and this is dumb.
If this chart is right once again, it will probably come later than that. We haven’t even gotten to part where it flattens out for awhile (I think we have just arrived at that part).
But I act way before this happens in case I’m wrong, or in case the price of the things I like to invest in starts to move heavy before the next recession occurs.
After all, these same people also say how gold, silver, and Bitcoin are going to slingshot higher the moment rates do begin to drop again.
We’ll see if they’re wrong about that too.
But you can’t win it if you’re not in it.
And although this chart could very well give us the blueprint as far as timing goes, once again…
I’d rather be years early than a day late.
There is no actual financial advice given in this blog post. The author is not legally allowed to give you any. This blog post is for informational and entertainment purposes only.