Econometric Modeling is one the many ways we analyze macro trends to gain a better understanding of our economy and how its behavior is likely to impact global financial markets. We currently have two major series that have been developed in-house and have proven most useful at analyzing different areas of the macrosphere. The first is our Economic Distress Index, which measures stresses on the consumer from various factors, and is explained in more detail below.

The second is an Interest Rate Forecasting Model, which has turned many heads in recent years by providing accurate signals on the direction of 10-Year Treasury Note yields. By analyzing the middle to long end of the yield curve we’re able to quantify the pressures our economy will face from increasing rates. This model is available to our advisory clients as well as our premium newsletter subscribers. The model is run each week and the results (represented graphically) are available either by request or through periodic client/subscbriber dispatches. For more information, please contact us.

Also available is our alternate reconstruction of economic output (GDP) based on the Cobb-Douglas Production function. Many financial decisions are driven by an understanding of aggregate economic output and whether it is growing or contracting. The headline numbers released by the Commerce Department have proven themselves time and time again to be irrelevant fabrications driven by politics and opinion shaping rather than anything factual. Our alternate measurement gives investors, business people, and the general public a view of output that is untainted by hedonics and government spending that arises from borrowing activities.

Our Internal Economic Distress Index – Suspended 10/2014 due to lack of accurate input data

This index was created to give individuals a measurement of the economic pressures that face the US consumer. Similar to the ‘Misery Index’ of the 1970’s, the EDI is a weighted index that considers unemployment, consumer price inflation, purchasing power parity of the US Dollar, and the burden of consumer credit. Wherever feasible, we have used reliable alternate data to eliminate hedonic adjustments to the greatest extent possible. For the sake of simplicity, the visual chart will be updated each quarter to avoid clutter, but the index itself will be calculated and updated on a monthly basis. The formulation is as follows:

SA-EDI= 0.136925 * (CPI-(in-house)^0.15*USDX(trade-weighted)^-0.15*U-6 Unemployment Rate^0.3*Cons. Credit Outstanding^0.4)

October 2014 Misery Index- 164.289 (January 2000 baseline = 100)