What Is This Is – Part2

Last Friday we discussed the difference between factual data (we called this “WHAT IS”) and “everything else” (which we called “static”) or the entire sum of all interpretations, extrapolations, and forecasts that inevitably follow the publishing of every data point.  And we promised to provide an example of the latter, so here goes.

At our last pie party, Jerry introduced a 12-page paper from Wells Fargo, a fine example of static.  To Atlas, it seems the authors needed to produce something to meet their monthly publication quota and chose to discuss several accepted ways of forecasting recessions.  Substantial verbiage, citations, and charts ultimately delivered a conclusion that a specific signal (yet to happen) can provide an advanced warning that a recession is approaching.

Atlas is concerned with investments and market cycles, and while recessions are not synonymous with such vagaries, they do generally parallel each other, so we examined the details more closely.  The paper’s conclusion was that if a proper signal is produced then (on average) a recession will likely follow in 17 months, hardly a time frame conducive to investment strategies.  Making matters worse, the method was able to forecast 14 of the last 9 recessions with a leeway spanning anywhere from six to 34 months!  That is static par excellence.

Interestingly, some market analysts have pointed to a signal called the Super Dow Theory which generated for the first time in three years just a few weeks ago.  Since 1970 it has preceded a stock market top by at least six months 21 out of 22 times.  Well isn’t that swell.  Nevertheless, Atlas can’t hang our hat on that bit of good news either; it’s still just static.

So where does that leave us?  We will continue to concern ourselves with WHAT IS, leaving the reading of tea leaves and crystal balls to the experts.                (by J R and Christopher)