Best Recession Forecaster: Robert F. Dieli

Since last May I have been reviewing the record of those who forecast the business cycle. I developed a stringent list of requirements, "Jeff's Acid Test," and I frequently invited nominations. Here were the stated requirements:

• Openness -- with the potential for peer review
• Small number of input variables.  Most people do not understand that "small is good."  If you have a lot of variables, it is easy to do back-fitting on a few cases.  Beware.
• Real-time performance.  This means that you do not go back in history doing any data-mining.  You create an indicator and live with it through time.

I received a number of suggestions in the comments and by email. I very much appreciate the help from readers.  One result is that I am monitoring a number of new and promising forecasting methods. I plan a later article on the honorable mention winners.

Somewhat to my surprise, there was only one candidate who met all three criteria:

RDLB was started in 2002.  My clients consist of three main groups: money managers, companies that make things, and individual investors.  I send my monthly reports, which are available by subscription on my website, to all of these groups. I am available to all my subscribers for additional interpretation of the report contents. I also have a consulting practice in which I function as their economic research department.  The assignments are as varied as the firms themselves, which makes the work very interesting to me.  I also do public speaking before trade groups and gatherings arranged by and for my clients.

Q: Why do you call your site "Nospinforecast"?

Because the forecasts and viewpoints expressed there are completely data driven.  I talk about what is on the charts.  I don’t rant and I don’t take sides.  I report the information and provide complete access to my forecasting methods.  While I do talk about possible future outcomes, I do so within the context of numbers themselves.  My objective is to provide my readers with information they can use to assess other views and forecasts as well as information they can use to effectively manage their business and financial affairs.  One of the reasons I do this is because of lessons I learned while working with the trading desks at both the Continental and the Northern.  The same piece of economic information might be reason for one desk, say short-term fixed income, to buy and another desk, say foreign exchange, to sell the instruments they traded.

Q:  Thanks, Bob, for your helpful and informative comments.

Thank you for the chance to talk about Mr. Model.

Conclusion -- Part 2

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There is plenty more to discuss.  I will get into the workings of Mr. Model in Part 3.  We will revisit the comparison with the ECRI in part 4.  These are tentatively on the agenda for next week.

Meanwhile, everyone should note that a "cycle event"  -- aka recession -- is not expected for at least nine months.  Unlike those who ascribe 0% or 100% chances of events, I understand that bad things can happen.

Nevertheless, you should keep this in mind:

In the 50-year history of Mr. Model, when the indicator is at current levels, there has NEVER been a recession within nine months.  In fact, we are not even close to the nine-month signal.