GDP growth and Cramer's Cyclical and Investing Chart

In Jim Cramer's Mad Money he references an economic cycle based on Gross Domestic Product and the Federal Reserve's positon on interest rates. It has been said through various other souces that the cycle typically runs on seven year intervals. However, Cramer does not put a timeframe on his chart, but simply puts forth the idea that the Market will react a certain way given cetain circumstances or conditions.

Currently the GDP report is due Thursday and it's consensus estimate is for GDP growth of 3.3%. So let's take a look at where we are and what we should be doing based on Cramer's playbook.

Yearly Chart:


Quarterly Chart:


It is plain to see that the cycle bottomed out in the last quarter of 2007 and GDP has actually risen in 2008. Yes I know, "We are in a recession". Well, not according to the governments data. Given, we may be in the financial crisis of a lifetime, but the data does not lie. Anyway, who cares? The question is how do we make money on what is going on?

Well according to Cramer's playbook if GDP is rising and between 3-4% we should have already bought "smokestack" stocks like DE, IR, CAT, MMM and begin selling financial, housing, retail, & auto stocks like BAC, WFC, LEN, TOL, PHM, CTX, WMT, TGT, F, GM. As GDP tops 4% we should be buying metals and minerals such as: NUE, AA, NEM. Since this was published in 2006 I wonder if he would add Gold stocks like GLD, AUY, & ABX? Oh, was that Monday's show?

The Fed shold be tightening rates based on the growth, but we all know that they are in no position to cut or raise rates based on current commodity price instability and the global financial crisis.

Bottom-line folks is that when this housing/financial mess is cleared according to the market there will be a HUGE upward rocket type swing. Perhaps now is the time to be looking at long leap calls on the majors SPY, DIA, QQQQ, & IWM.