Data on the Markets

I've been interested in the markets for some time, but only recently have begun reading about methods for selecting investing ideas in earnest. One of the books I got was JJ Cramer's Real Money. Overall, I found it a great book; extremely enjoyable and pragmatic. Of particular interest was a graph on page 115, which shows a nice graph of GDP annual growth. The purpose of the graph is to demonstrate the cyclical nature of established economies.

In a nutshell, GDP growth as a percentage is an indicator of which phase our economy is in, waxing or waning, etc. In Cramer's graph, a sine wave is shown oscillating between 4-5% and -1%. At different phases of the economy, different sectors come in and out of favor. As an example, as we move from -1% to 5% (coming out of a recession) paper and chemicals come into favor as medicine and supermarkets go out of favor. On the reverse side we sell the chemicals and paper and pick up those staple stocks again.

Pretty simple, we should all have a picture of this on the wall and use this as a base mid-risk strategy for a portion of our portfolio. So lets get started....where are we on the graph?

First thing is to find some data. After poking around the Internet for a while I came across http://www.bea.gov/national/index.htm. From there I was able to get some data into excel, and graph out 2000 chained dollar annual GDP. Being a bit naive I eagerly anticipated my nice sine wave with a little maker for "You are Here".

Instead, I got the following:

Eh, crap. So the next step is to take the baskets of stocks that should represent the correct cycles and map them against this curve. Hopefully it'll smooth things out, but that's an excercise for another day.

On the plus side, I think this is was worth doing, and something I'll continue to do. Without looking for myself, I might have been tempted to believe things were a lot simpler, and because of that, be a lot more willing to take someones statement "we're on the up side of the curve".

Now a reasonable and informed response will be, "Really? Why do you think that?"