After living through a few recessions, all I have to say is prepare for the "worst case". There are always some people who seem unaffected by these little financial panics and just go on living life. However, there are always those who do not get a chair when the music stops. I might be wrong, I hope Im wrong, but the evidence seems like its "all there". The next recession is coming soon to a theatre near you...lets hope you are not the star.
Look at the 2.5 line. What happened each time in the past when the line went under 2.5? So its in the odds. Each data point is a month of time so this is a slow moving chart...
The trick of this chart is that it is truely a slow moving chart so it gives you no immediate edge. There is also the possibility where the line turns around and moves upward. Take this chart for what you will, but I simply use it as a warning sign and temper my lifestyle accordingly.
Where it is important is if you are engaged in any private business activity, where months are like days to traders... I am engaged in such an activity and there is value in thinking about this. If we do hit a rough patch for whatever reason, capital will be king.
If your still part of the millions that lost their jobs recently, the old recession has not ended yet. Current underemployment data does not take into account those that have given up, retired young because they could not find a job or the vast number of graduating college students that either never found a job so are not initiated to unemployment, or the group of graduates that stayed in school to further their education because they could not find one. More school, more debt, still feeling hopeless.
Actually, for the last hundred or so years there have been recessions every 4-7 years. Only occasionally is it where its more like 7-10 years between recessions. It may not happen this year, but it will happen. The only time you can be sure there is no recession right around the corner is during or after a recession. Notice how Warren Buffet types usually make their big buys during or right after a recession. Right now they are probably doing a little selling and waiting.
This isnt a chart pattern Im describing, but a simple observation. When the line went under 2.5 in the past then it usually meant a recession wasnt too far away. Again though, this chart is updated monthly so there is no way to get an immediate edge. I got this from listening to the ECRI spokesperson on television talk about this issue.