Visually the chart looks like a W. It follows the Gross Domestic Product (GDP) growth rate through an economic cycle. The chart also depicts the Federal Reserve’s standard response of either raising (tightening) or lowering (easing) interest rates based on GDP growth. The chart has no explicit relation to time, but these cycles typically take about 7 years or so.
The meat of the chart is Cramer’s suggestions for which types of stocks (or sectors) to buy based on where we are on the chart. So where are we right now?
GDP growth has been rising over the past few years. Estimates for 2006 are in the 4-5% range1. This puts us right at the center peek in Cramer’s chart. At around 3.5% GDP growth, the chart suggests one “sell financial, housing, retailer, and auto stocks”. Just before the peek, it suggests one “buy metals and minerals stocks”. (If you track Jim’s radio or TV shows, you’ll know that this is exactly what he is advocating now.) Right after the peek (maybe 6-12 months from now), the chart suggests you “sell paper and chemical stocks”.
I hope this helps those of you out there who have been struggling with the chart. It really is a useful tool. I’m going to email Jim to see if we can post an image of it for the benefit of people who haven’t bought the book (yet).
 GDP Growth at Two-Year High by Dan Arnall