Personal Wealth Management / Expert Commentary

Ken Fisher Explains the Leading Economic Index

Is the economy headed toward recession? Ken Fisher says there is a reliable way to check: Just look at the Conference Board’s Leading Economic Index (LEI). Between 1959 and 2020, only two US recessions started without being preceded by a falling US LEI trend.

Transcript

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you can see and people ask regularly
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whether the economy is about to tip over
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go down
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is this going to be a big problem that's
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immediately ahead going to make the
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economy go south
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these questions have been asked forever
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and there's a fairly easy answer for all
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of them which is that the conference
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board's leading economic index
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will tell you over
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about the next six months whether the
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economy's headed up or down
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it doesn't necessarily tell you how much
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but it basically will point you the
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direction
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when you
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go to the conference board's website
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just do a simple google search on the
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conference board you'll see leading
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economics indexes for the united states
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and a dozen leading countries and eu
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and
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they're constructed uniquely for each
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country
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out of
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indexes that have a long history of
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when put together
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telling you the intermediate term
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direction the economy
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the
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us lei is comprised of
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10 sub components
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that are
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many of them what you might view as
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relatively obtuse but they're
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things
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like the ism manufacturing index
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things like initial unemployment claims
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things like the spread between short and
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long-term interest rates also known as
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the yield curve
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which i've
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talked about near endlessly over the
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course of my life
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and
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these when put together in the formulaic
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construction of the index
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which is based on how this has worked
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over a very long time and these are
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changed slowly over time but very very
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slowly it's a very stable index series
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they do a very good job of telling you
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the intermediate term of where the
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economy is headed
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so when you read some
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um
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pundit telling you that things are about
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to go south here and now
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or this that or the other of the reverse
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at a time when we've had recession
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the lei is a really good way leading
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economic index is a really good way
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to see is that all wet or not
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and again just do a simple google search
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conference board leading economic index
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lei
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it'll take you right to it you can see
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it in a graphic form and whenever it is
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high and rising the economy
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you can see it it's a wiggle chart
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whenever it's high and rising don't get
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too precise with it don't try to
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micromanage it so to speak if it's high
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and rising the economies can be fine
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if it's
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falling
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and low the economies can be bad
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if it's looking like it's turned and
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going down you might have some concerns
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but it got a turn to go down for a while
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like three months before you actually
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begin to see signs of impending
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recession
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so ironically in conclusion
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ironically of the ten
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and this is sort of my punchline for you
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the best one of them the most powerful
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one of them
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the one that's right in front of
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everyone's eyes all the darn time that
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people don't kind of get in their brain
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this way
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is the stock market itself in america
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for the us
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lei the s p 500
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it's one of the ten
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it's been there as long as they've
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created this thing since the days that
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the leading economic index was first
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created by wesley c mitchell a long long
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time ago
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when the gdp series was actually almost
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brand new shortly after simon kuznets
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created it
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in the 1930s
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and from that
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you get this
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really simple concept that probably if
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the stock market's doing okay you check
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the lei if you want but if the stock
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market's doing okay it's already telling
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you the economy is going to be okay
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stock market's doing badly
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maybe check the lei to see what's going
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on with the rest of the components and
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how they total together
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that's my story and i'm sticking with it
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subscribe to the fisher investment
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youtube channel if you like what you've
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soon as we publish new videos
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[Music]
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you

 

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