Economic trend

When you consider waves of any sort they fluctuate. Now I'm not going to talk about any specific financial wave theory but in general the economy exhibits significant wave characteristics over time.

The reasons for this behavior are complex but there has to be a point when the wave rebounds from an upper level and starts to fall. By the same token there has to be a bottom to the wave at which point it will turn upward.

The economy is exhibiting signs that it has reached a bottom and is starting to rebound upward.

This would be characterized by a slowdown in the rate of downward acceleration until it gets to zero after which we should see some upward acceleration. Now there is a point, the trend line about which a wave will fluctuate. This trend line can obviously trend in either direction and the wave will follow it.

When you consider a complex system, such as the economy, it is normally composed of many feeder systems, each of which influence the top level. Further the feeder systems are themselves composed of their own feeder systems. Placing too much emphasis on any one system as a way to predict the top level, even if past correlations have been strong is usually a mistake since the complex interactions will change over time.

There was a time when the rise and fall of Auto production in this country was a strong indicator of how the overall economy would do. Clearly, that indicator has lost value as a predictor as the percent of the economy represented by Auto manufacturing has fallen in relation to other areas. It still exhibits its own wave characteristics and still influences the top level, just not as much.

Other areas that were at one time insignificant or even non-existent i.e. the Internet, now play a prominent role.

One of the factors that has greatly influence our economy over the last 60 years has been the baby boomer generation. Now, this generation has been a bulge moving through the economy and had you simply played the market based on where they were demographically you would have done fairly well. This generation is now entering retirement. What is the impact of this. Well, clearly health care will become more significant to them. Also, in the past this would have boded well for retirement areas and leisure activities that cater to older Americans. It is possible that this generation will retire in place more than prior generations, partly because the areas that were popular retirement destinations have gotten much more expensive and the selling of a house in the North and purchase of a house down south is not as profitable. Also, this loss of housing wealth may have a significant impact on their ability to pursue leisure activities. However, it is more likely that as the economy rebounds these two areas will also rebound and will grow with the baby boomers over the next 10-30 years.