• Investors use the IR to predict market cycles.
• Executives use the IR to predict business cycles.

The Investment Rate predicted the Great Depression in advance, the Stagflation period of the 1970's in advance, and the up-trends in between, in advance.  It tells us that the Economy has already entered the 3rd major down period in US History.  This proves long term cycles.  From there, further analysis proves economic conditions and market direction for the next handful of months.  Learn how to use the IR by reading this page.

Buy and Hold Investments no longer work, because the down period has just begun.  As a result, we need to be proactive with our investments.  Business owners must also make careful decisions  The IR measures consumer based liquidity levels over long periods of time.  Specifically, it measures demand levels.  Not demand for goods and services, but demand for Investments.  This measure effects the entire economy.  All investments classes are influenced by the change in these demand cycles.  Investments in stocks, retirement accounts, real estate, private business, and anything else that relies on a steady inflow on money to grow will be influenced by the IR and what it says about the future.  Since 1900, it is the most accurate leading longer term economic and stock market indicator ever developed, according to Thomas H. Kee Jr.

Understanding the Investment Rate:

A Better look at the Return to Parity:

The blue line is not drawn to scale, but it shows the relative change in actual demand for investments in the United States Economy between 1994 and 2010.  Use the relationship here to observe the relative periods of strength and weakness during that time.  Furthermore, use it to understand how to rationalize the next leg of direction, by comparing actual demand levels to normalized demand levels over time.

Tip: In 2000 and 2007 demand was too high.  In 2002 and 2008 demand was too low.  Each of those was an opportunity.

The Return to Parity Anomaly - October 8, 2008:

This is an example of how our longer term analysis, the Investment Rate, has been used to identify short term economic cycles.

Because The Investment Rate measures normalized demand we can rationalize ebbs and flows in demand which are driven by non centralized variables.  Recently dissolved external variables fostered, for example, the ‘cheap money’ conditions of recent past, and increased demand ratios beyond their norm.  When the current level of demand exceeds normalized demand we can rationally assume that overall demand for investments in our economy will wane at some point, and come back into parity with The Investment Rate.  An unusual increase in demand is indeed what took place in recent years, and the predictable parity oscillation lower, to The Investment Rate, has already come full circle.

On the other side of the coin, if a void in demand is present we can rationally assume that demand will eventually improve until such time as it comes into parity with the Investment Rate as well.  Coincidentally this is the unique condition that faces our economy today. 

In simple terms, the correction to parity has been overshot. 

The Investment Rate tells us that demand levels wane gradually until about 2010, and then the declines get serious.  Yes, 2007 was defined as a peak in demand, but the major declines don’t start immediately.

The incentivized cheap money conditions have created a void in demand today, and therefore an anomaly in The Investment Rate.

Reasonably, investment demand that would otherwise have been slated for 2008 or 2009 was incentivized by cheap money to find a ‘home’ in 2005, or 2006, for example.  Now, much of the demand that would have otherwise existed in today’s Market is absent. 

This void is causing serious immediate concerns, but it is not likely to last long. 

Eventually the current level of demand which is ‘void’ will return to parity with The Investment Rate.  Translated, in the next year or so demand will appear robust compared to today’s levels.  Quarterly comparisons by Market Analysts are likely to draw conclusions of future prosperity as well. 

Not so fast!

The reversal to parity might seem compelling at first glance, and that is likely to be opportunistic from this point in time given the current levels of the Market, but the amount of new money available for investment into our economy declines for the next 16 years, so follow through is unlikely.  A return to parity is not a return to prosperity.  Therefore, don’t be fooled by the headfake that lies ahead, but expect one to come.  

Apply the IR to your activities:

Application of the Investment Rate Model:

2007 was a major transition year and from here the Market will decline over time.

1. In 2007, the slope of the IR transitioned from upward to downward sloping.
2. When the slope of the IR is negative liquidity levels decline progressively
3. For the next 16 years consumer liquidity levels will decline.
4. This has only happened twice before in history.
5. The First time was the Great Depression
6. The second was the Stagflation period of the 1970's.
7. The Economy is now officially in the 3rd major down period in US History.
8. Buy and Hold Investments will not work.
9. Proactive Investments are the only way to go.
10. Timing is now very important.
11. Risk Controls are very important.
12. All longer term investments in stocks, real estate, and private business should already have been sold per our recommendations.  The most recent sell signal was as the Dow was approaching 10750. 
13. Now, strategic trading and investing is the only way to make money.
14. Your mindset needs to change from buy and hold, to trading, and risk control.

Business decisions also need to reflect this ongoing weakness.

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