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« Individual Investors and the Information Barrier | Main | And That's the Way it Was »

July 17, 2009



DaBears -- I have portrayed the Fed model as a gauge of long-term sentiment, which has been negative for many years. I am also more interested in forward earnings than most, based upon data showing them to be better forecasts for many years.

As circumstances change, you should change your opinion. I have also written that the Lehman fall and the refusal of the government to follow through on TARP or address mark-to-market issues changed the investment landscape. I had a lot of company.

Any client who has been with me through the Long-Term Capital crisis, the 2000 bubble, and the latest collapse and partial rebound has done extremely well versus the markets. I share this information with any qualified potential investor.

Briefly put, I have methods that have worked very well throughout my career, and I plan to keep using them. I understand that there were many who "called" this collapse. Each investor should ask whether the methods used for that "call" are relevant for the future.

As to the ECRI, my recollection is different. Perhaps I'll go back and take a look, but I think they were pretty accurate in the call of the recession.

Please note that until the Lehman collapse, it was not clear that the NBER would make a recession call. They go back and find the trough once the evidence is there.

I appreciate your question and comment, but I think you are putting too fine a point on your observation. Anyone who is offering commentary should and will adapt to new evidence. I try to do that.




As I recall you were touting how cheap the market was, the value of the Fed model or a similar interpretation and generally oblivious to the market dynamics before you as the world was building up for a major dump. And, quite frankly so was ECRI. They finally called a recession after people had lost their ass and that is because the ECRI model is just that. A model. One prone to fail in this type of volatility. They are measuring the wrong dynamics in the economy. Just as the Conference Board does with their "model". They work until they don't. A firm grasp of fundamentals points to the fallacy of ideology and belief in some type of model that worked in the past.


jbr -- Yes, I do think that there is exceptional potential in some stocks and sectors if we get an economic rebound. This may happen even if employment lags. There were a lot of differences in the 2000-01 cycle, including an all-time peak in labor participation from the Internet and Y2K. You never hear anyone talk about that, so maybe I should follow up on it.

Right now, many stocks that I follow got down to near-depression levels. Most of the rebound is in those related to foreign growth. Another good idea for a more comprehensive article. Think CAT for example.

Thanks for a thoughtful question.



- There seems to be an implicit message (as indicated by the title) that a turn in the economy implies a turn in the markets. Note that the ECRI indicated a recession end in 4Q '01 but the market bottomed a year later.

- Regarding your ending message, if you could share insights regarding asset allocation during different phases of the business cycle or lag effects between business cycle turns (as per ECRI) and the markets it would be much appreciated.


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