Friday, July 29, 2011

Market Timing with ECRI

I like these guys. Their announcements are clear and straightforward. And if they don't know something, they say it.

They do not make predictions, they just observe changes in their indicators. Their Weekly Leading Index (WLI) tracks short term changes in the economy. It has an average lead of 10 months at business cycle peaks and three months at business cycle troughs. The stock market is one component. Their Long Leading Index (LLI) is proprietary and leads about a year. It does not include the stock market.

We don't interpret the results ourselves, but wait for ECRI to make news releases. There is a lag, firstly because they are predicting the economy, rather than the stock market, and secondly because they alert their customers first. Too bad it seems they are not interested in individual subscriptions.

Lets see how useful their results have been:

They firmly called the recovery at point 1, in early April 09:
  • 03 Apr 09: WLI Edges Up: "With WLI growth rising to a 23-week high, an upturn in the U.S. growth rate cycle is now in clear sight". [Note: Good call. Would have doubled my profit.]
From late 2009 to late 2010 (at 2), there was talk of a "double dip recession". ECRI generally discounted this. [I started following their releases here]:
  • 31 Oct 09: No Double Dip: Growth is "broad based". "On the issue of double-dip recession, we do not see a real downturn in the next few quarters".
  • 27 Nov 09: Sharp Recession Sharp Recovery? WLI is "consistent with a steady economic recovery."
  • US Yearly growth gauge down, double dip unlikely (6th Feb 10): trends pointing to a double-dip recession are "nowhere in sight."
  • 28 May 10: WLI Growth Tumbles: "The downturn in WLI growth evident since early 2010 has recently intensified, so it should be no surprise when U.S. economic growth slows noticeably in the months ahead," [Note: we must distinguish between a slowdown in growth and a slowdown]
  • 19 Jul 10: Slowdown Call came long ago: "For now, ....the data indicates slowdown, not recession"
  • 01 Sep 10: Recession or Soft Landing? Currently in a slowdown. Historically, slowdowns result in a recession more than 50% of the time. Inconclusive, will make a call by end Nov.
  • 18 Oct 10: No Double Dip recession but Jobs Growth to slow: "We categorically rule out a double dip recession." GDP/production/jobs numbers will go weaker, but not negative...may feel like a recession.
  • 06 Mar 11: Big Picture Outlook: Cyclical expansion is speeding up. Growth will continue at least till Sept.
In Mar 11 (at point 3), they signal a slowdown in growth rate (not a recession):
So far, their calls have been spot on. Lets see how the latest one turns out.

1 comment:


Interesting post on market timing.