When the Going Gets Tough…


New York – In the current economic environment there is a much greater than usual need to get the overall market right. This raises the profile of the Economic generalists and Investment Strategy research groups. In our taxonomy, the former encompasses the economic forecasters, while the latter takes these forecasts and allocates investments among asset categories. These categories can be Equity, Bonds and Cash; International allocations for one asset; or international asset allocations and portfolio strategy in each country.

Studies indicate that as much as 70% of the potential return in the markets relates to getting the market cycle right. Therefore the stakes are high in getting the cycle right this time. A Wall Street Journal article in this morning’s paper discusses a survey of 52 economists on the odds that the economy is heading towards recession at 49%, compared to 40% from the January survey.

Another article in the Wall Street Journal his morning reflects upon the forecasters that had the best read on the economy in 2007. Of the 59 participants the WSJ economic outlook Lehman’s Ethan Harris was first, followed in order of rank by Dean Maki of Barclays, Maria Fiorini Ramirez of MFR Inc, Robert McGee Of US Trust and, Neal Soss of Credit Suisse.

In the Integrity Research knowledgebase, we have a total of 67 economic generalists, 30 investment strategists, 7 that specialize in capital flows analysis and 10 that specialize in policy, and three that specialize in political risks.

As the coming year unfolds we will see exactly what the story brings. At Integrity we have done a quick and dirty analysis of the January effect. One of quasi-theories about the stock market is that whatever happens in January to the stock market reflects what will happen to the balance of the year. More specifically, if the markets are off in January, they will be off for the year. We did a regression of this effect as well as divide the results in quintiles according to the results in January. According to our analysis–remember this is Q&D–the decline in January points to a decline in the Dow for entire year of between 8% and 10%. If so, we are nearly done with the downside.


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