A Recession Fear Indicator

By RecessionALERT on March 6, 2012 in Reflections

An analysis of Google global search volume for the term “recession” reveals a promising new recession indicator that nailed the official NBER start of the 2008 great recession to within 2 week lag of its peak.

It is also interesting to note the spike in mid-to-late August 2011 (around the time the SP-500 bottom that was forming), and subsequent fall in the SuperIndex around the time new recessionary fears peaked.

It is unfortunate we do not have history going further back on this indicator but it looks very promising as a “fear gauge” worth monitoring from now on.

About RecessionALERT

Dwaine has a Bachelor of Science (BSc Hons) university degree majoring in computer science, math & statistics and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.

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IMPORTANT DISCLAIMERS: Although many of our models rely heavily on back-testing, optimisation and probability methods, please note that past performance is NO GUARANTEE for future returns. No system devised by man can predict the future, let alone the future of the markets and economies. What we have are sets of mathematical models that use historical data and varying theories to pinpoint places in time when the STATISTICAL LIKELYHOOD of calling the start and end to recessions is the greatest. In the midst of all the best mathematical models, you can have geo-political events, wars, terrorist attacks, natural disasters and even nuclear accidents that tip everything upside down. This is always a risk factor you need to factor in on any recession call no matter how confident you are in a signal. The SuperIndexes are created through mathematical and statistical optimisation techniques that best fit the historical NBER data. There is no guarantee that out-of-sample performance will match that of prior in-sample performance.