A clearer vision with fog-lights

Banque SYZ & CO SA has developed FOG-LIGHTS, a set of quantitative macro-economic forecasting models that deliver clear and reliable signals to provide a clearer vision amidst the fog generated by the financial information overflow.

Fog-lights provides monthly forecasting tools on key macro-economic and financial variables, such as interest rates, currencies, stock markets. Fed by public data, fog-lights gives unambiguous directional indicators in the form of buy or sell signals with a time horizon of between four and six months.

Latest Summary

The models were updated on the week of Monday 16 to Friday 20 March 2009.

• First of all, it’s worth stressing that given the current exceptional environment, our models should be taken with a greater pinch of salt than usual. Indeed, our models, which have been constructed on historical data of the last 20-30 years, haven’t any experiences of such circumstances. In other words, they aren’t well suited/particularly designed for this economic and financial crisis. However, it’s still interesting to confront their results with the real outcome as divergences often outline structural changes or point to specific new exogenous factors, which may then be integrated in new models version. The main conclusions that can be drawn from our last update are quite straightforward...
• Our indicators on business cycles, interest rates, inflation, relative performance of cyclical versus defensive stocks all point to extreme downward pressures. There are still no indications of any tentative signs of stabilization. Furthermore, our leading indicators haven’t been so leading recently... outlining the sharp and brutal shock of the financial crisis on the economy, which is literally falling from a cliff. Please see also the chart of the month.

• As far as currencies are concerned, the Japanese Yen still appears to be a screaming sell according to our fundamental gauges, while our model on USD/EUR continue to give a buy signal on the greenback. Obviously, the Japanese Yen strength has only been due to carry trade unwinding, while the recent pullback of USD/EUR from 1.25 to 1.35 has been triggered by the Fed’s decision to push quantitative easing ahead. We can’t rule out further dollar weakness in the short to medium term as the Fed and US Treasury could only be happy to see the dollar falling in an orderly manner in their desperate attempts to reflate the economy. When these unconventional and exceptional measures will start to work at some point (probably latter this year), the USD may regain ground.