If the goal is to accurately predict economic recessions you’ll want to keep a close eye on sunspot activity, advises Cycles Research Ltd. Founder and CEO Bill Meridian in a recent issue of the company’s newsletter.
“Once again, scholastic research has confirmed the link between planetary activity and the economy here on earth,” he observes.
Meridian quotes an article by Dutch economist Cees J. Prins from the Global Conference on Business and Finance Proceedings. It is Prins’ idea that the probability of a recession taking place depends on a number of variables, some obviously more important than others.
In his work, Prins examined several variables and determined their value in forecasting recessions using three models estimated for six time periods. He began with the inverted yield curve (when short-term interest rates are higher than long-term rates) because it is well known that this situation has led to a recession each time it has occurred.
Meridian says Prins then added variables such as stock prices, the leading indicators of the Organization for Economic Co-operation and Development (OECD) and the Conference Board, which provides information on consumer confidence. He also looked at the price of gold, new building permits, new job creation, corporate rate spreads, long-term rate spreads – and sunspots.
“The Sun has direct and indirect influence on the economy. To the first category belong damages to electronic networks. The indirect effects are the influences on human emotions and, in the end, also to the economy,” Prins said.
“The inverted yield curve, stock market returns, and sunspots were the consistent variables in economic forecasting,” he added.
Prins says it is clear the model has one interesting and significant long term variable: the number of sunspots. And the number of sunspots as an indication of the activity of the sun “appeared to be a highly significant variable in explanation of a recession during all periods investigated.”
Meridian says it is noteworthy that only one traditional variable, inverted interest rate yields, consistently exceeded sunspots as a forecasting tool. Sunspots led all the other traditional tools.