Definitely, just followed and added 2 RSS RT @tylercowen: Sober Look is an underrated, underdiscussed economics blog, http://t.co/aewQejQX Jan 17, 2012
DOL Makes Nice on Investment Advice http://t.co/1PDeFbDg Offers defined contribution plan sponsors new options 4 participant invt advice $$ Jan 17, 2012
How will the world live with $100 oil? http://t.co/xW7LofrK Demand destruction begins at a level north of there $$ Jan 17, 2012
Marc Faber Favors Equities, Forecasts World War III http://t.co/A9V0rC2E Middle East will blow up; new regimes will be less Western-friendly Jan 17, 2012
Heads I win, tails you pay http://t.co/ZXCklpAw State DB pensions gamble on high risky asset returns; need >10%/yr to meet 8% targets $$ Jan 17, 2012
Natural Gas Prices Are Plummeting http://t.co/RBljqGIM Fracturing shale leads to a temporary glut of natural gas. $$ #shalestorm Jan 17, 2012
Market Shrinks First Time Since ?09 on U.S. Buybacks, Sales http://t.co/p1VyvjXi Bullish for equities if debt levels stay in check. $$ Jan 17, 2012
@BloombergGov Sorry about last tweet deleted. BRK has large deferred tax liabilities. Let it stop avoiding having GAAP income taxed $$ Jan 17, 2012
@BloombergGov I will agree after Warren Buffett sells his BRK shares, and pays tax on the capital gain. $$ Jan 17, 2012
Low interest rates keep exchange rate down &imports asset bubble RT @edwardnh: Robert Shiller: “Sweden has a bubble” http://t.co/K1pFg300 $$ Jan 17, 2012
Supermarkets Cater to Food Stamp Recipients http://t.co/q9pcJSoc Demand surges when food stamps arrive, requires planning $$ #dependency Jan 17, 2012
Electricity Prices Decline 50% as Shale Spurs Glut http://t.co/4CzVKh9n 2nd order effects of the shalestorm grow, power plants deferred $$ Jan 17, 2012
Investors Ignore Nordic House Bubble Risk http://t.co/hX8aDAgB Low interest rates keep exchange rate down & imports asset bubble, until $$ Jan 17, 2012
Wiring the Brain, Literally, to Treat Stubborn Disorders http://t.co/sx2QOipi Welcome to the cyborg era. New meaning2 “All in your head” Jan 17, 2012
Mapping My Genome, Peeking Into a Scary Future http://t.co/ajxT6zmp A nervous reporter decides to peek behind the curtain of his DNA $$ Jan 17, 2012
Fitch Examines Global Credit Growth Figures http://t.co/Yqw7Vci4 Question marks over mid-sized banks in Russia, Brazil and Turkey $$ Jan 17, 2012
A New Weapon in the Fight Against Superbugs http://t.co/bSCq5DNS Use viruses 2 invade bacterial cells & make sensitive 2 antibiotics $$ Jan 17, 2012
A Gut Check for Many Ailments http://t.co/Ot0DTY0p Growing body of research shows gut affects bodily functions far beyond digestion $$ Jan 17, 2012
What if the Doctor Is Wrong? http://t.co/JpbbVXOS Some Cancers, Asthma, Etc., Can B Tricky 2 Diagnose, Lead 2 Incorrect Treatments $$ Jan 17, 2012
The Rally That Wouldn’t Die! http://t.co/pAOfwrqu Only thing that bothers me about owning the long bond is that it is getting popular $$ Jan 17, 2012
@davidgaffen I’m not sure, David. Economics is never linear. Fits and Starts. As for the end, simply that someone leave the Eurozone. $$ Jan 17, 2012
More US Catholics take complaints to church court http://t.co/hYOvEncF As a kid I wanted to study canon law, now it’s interesting $$ Jan 17, 2012
The Unintended Reformation http://t.co/EyCGC1FG A good review of what seems to be a lousy book. My comment presently is the last one $$ Jan 17, 2012
S&P Cuts Rating on Europe’s Bailout Fund http://t.co/ki7arbBr The collapse of leverage backed by leverage continues. End is coming $$ Jan 17, 2012
Greek Default Fears Grow as Debt Talks Stumble http://t.co/0Zmmp63w Enough debt held by private investors hedged by CDS to stymie it $$ Jan 17, 2012
Sarkozy Dealt Rating Blow 100 Days Before Poll http://t.co/693BKrTb He is more in trouble for defending the Euro than losing the rating $$ Jan 17, 2012
China: Get Ready for Turbulence http://t.co/1qShQatv Much Investment in China is a waste, because there is no demand for what is created $$ Jan 17, 2012
China Investment Boom on the Edge http://t.co/EQT2tdt7 Shadow banking and other types of leveraged lending are reaching extreme levels $$ Jan 17, 2012
China Data, Part 2: Slowing Growth http://t.co/b9JiEEw6 Deceleration in China’s GDP growth is almost certain, but how deep will it be? $$ Jan 17, 2012
Iran to Give ?Firm? Reply to Scientist Murder http://t.co/S3Wk495D Bluff and Counter-bluff. No one will do much of anything here. $$ Jan 17, 2012
I’ve long admired ECRI for their timely and accurate forecasts, and their willingness to stick by their models when things don’t seem to be immediately going their way.? I have also appreciated their lack of willingness to divulge their model elements; my thoughts were, “Hey, it’s probably a simple model that no one has ever thought of.? Would I reveal the model if I were in their shoes.? No.”
But I’m not in their shoes, and I know one of the ECRI pair, so I asked for some insight into the models, which he coldly refused.? Okay, fair enough, I’m not a paying subscriber, but we had had good conversations in the past, so I thought I might have some relational capital, but no.
Tonight, I bring you my kludge that should be close to the ECRI Weekly leading index.? I am not saying that I reverse-engineered it because in econometrics there may be many fits with equal probability that explain the dependent variable well.? But here we go.
Yesterday, I read a post at the Bonddad Blog that said it had all of the variables for ECRI’s Weekly Leading Index.? I decided to gather the data, or reasonable proxies of it, and I ended up using the following variables to estimate the ECRI WLI:
M2 YOY % increase, SA
AAA yields from Moody’s
BAA yields from Moody’s
S&P 500 price YOY % increase
Initial Jobless Claims SA
Real Estate Loans from all Commercial Banks, SA YOY % increase
PPI for Industrial Commodities
I realized the the independent variables had to go up and down because the WLI does as well.? I normalized the variables against their long run averages, which would have no impact on the fit if the regression, but would enable sorting out the size effects.? Anyway here are the results:
That’s a really high R-squared (normalized F), with highly significant t-coefficients.? What is more, the coefficients sum to materially one in this regression that constrains the intercept to zero.
So, we have a good guess at what drives the ECRI WLI: two items, Corporate interest rates and industrial commodity prices.? The other items are significant, but less material.?? BAA bond yields could be expressed as spreads against AAA yields, but the mathematical results would be the same.
So how does my model fit against the ECRI WLI:
If anything, my estimated model is more sensitive than ECRI’s model.? I could have a new business here, except that I have given the model away for free.
