well good morning what's happening options traders well what is the misery index that doesn't sound too fun but it's a term you'll hear a lot especially around when you get a new president you get a new administration it's a very popular economic indicator and it's one that i happen to bump into on an article that i was reading and i thought it might help everyone to understand this index so the misery index as i said is an economic indicator sometimes you'll hear it called the edi the economic discomfort index but whatever name it goes under it was developed by economist arthur oaken who is a professor at yale university so it was popular this index back in the 70s when the u.s was experiencing stagflation where you get it's a combination of unemployment and high inflation which makes the economy stagnate so it's an index that's designed to measure a country's economic welfare and again it's usually during a president's term which is why it came up in this article you'll start hearing about it and it's sometimes used to help to see if maybe the administration's policies are putting the economy on the right track but arthur oaken is also the same person responsible for oaken's law which many of you might remember if you've had an econ class and what it says is that for every one percent increase in unemployment a country's gdp its gross domestic product will be 2 percent lower than the potential gdp so in his view unemployment was certainly a key variable in a country's welfare now with the misery index the assumption is that higher unemployment and higher inflation lead to a worsening economy so based on these two ideas here with unemployment and inflation the calculation is actually quite simple he says take the unemployment rate you're going to add it to the inflation rate and that's going to give you the misery index now admittedly you are adding apples and oranges but what's nice about it is that it's simple these are actually technically seasonally adjusted rates that you should be looking at but it's still a fairly simple number to determine and it also makes it possible to do fairly quick comparisons with other countries so let's take a look first across different presidents this is for the u.s so here we can see number one was under truman from 48 to 52 the biggest peaks six and seven were with ford and carter from 74 to 80. this one we had the really high inflation rates and then we've been steadily working our way down got a little bump up here at number 12 which was during obama's term and then a little decrease here number 13 for trump so if you look at the average since the beginning here at 1948 it's been about 9.9 just a shade under 10 for this misery index so right now we're at about 6.6 so i know we all think the economy is falling apart and in a lot of ways it is i'm not saying that it's not or that we don't have problems but i'm just saying over this long period here since 1948 it's not all that bad compared to what it has been in some periods in the past now of course this measure is not without its criticisms and one is because of the super low inflation and low interest rates right now which are have been kind of the standards here lately so that's also going to bias the data as well but it's still a nice way to at least try to make comparisons across time now where it gets really interesting is when you start comparing countries so take a look at this number one on the list argentina at 136.1 and then they kind of slowly taper off here but still pretty high all of them are looks like at least above 25. so all of these look bad compared to the u.s with a longer term average at about 10 down here but it gets really interesting if we include venezuela into the mix so if we put venezuela in they move to number one look at these others they just get flattened right off the graph so what do you think venezuela is right here seven thousand four fifty nine so yes extremely high numbers there ones you could say that are off the charts so if you hear something about the misery index you'll know what it is and what it means and for anyone who'd like to learn more about the art and science of options trading please check out the alpha trader course strategy lab and a brand new technical analysis course all at optionsataz.com also please join us on the facebook trading group options a to z and you can find a link in the description below