I should stop watching CNBC. There is always a person that says the next recession is upon us. So, that got me thinking about the effective Fed rate, in the longer-term context where are we?

Above is the Effective Federal Reserve Rate Index for the past 25 years. You can see in the time frame we have seen a big decline in rates. Note the blue lines I put in. They show when the RSI dropped past the 50% line…. rates were dropping. Each of these declines occurred directly before a recession.

Look what happened next. We had pullbacks in 2001, 2008, and 2020 that averaged roughly 40%.

Now look where we are as of Friday morning, RSI if off the low and rising. I will get more concerned about a deep recession after the next year of rates hikes… and then a pullback in rates. When RSI is rising… markets generally perform well.

Also, take a look a look at the chart of credit spreads below. Normally credit spreads rise directly before a recession. See the past three and then look as where we are right now. These may change to be more concerning, but they have not changed yet.

This is not a prediction. I do not forecast. But, we use a lot of history, ratios, and probabilities and this is certainly one possible path we could follow.

Of course, all of these changes if they occur, will show up in our math. We will manage it like we always do by staying focused on the numbers in front of us.

Hope this helps your thinking.

Our V2 Model tracks over 120 asset class ratios to assist us in deciding how and when to allocate our holdings. No single indicator, chart, or list gives market clarity. They each give a point of view that we factor into our model. We do not forecast. We follow the math. It has led us to remarkable long-term performance.

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Chris

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Chris Vig is president of The Vig Company and is an investor, artist, author, business consultant and former CEO living in Monona, WI. This article is for entertainment purposes only. We may own, buy, or sell any security listed here at any time. Do your own diligence when investing your hard-earned cash. Follow The Vig Company on Facebook.

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Recession Right Now? (Stop Watching CNBC)