Market prediction based on macroeconomic indicators - page 49

[Дмитрий]

Vladimir:
How about predicting fundamentals (economic indicators like GDP) without the money supply, can you? And what is money supply, specifically?

M1, M2, MH and L

Real GDP is possible. Nominal of course not

[Дмитрий]

Vladimir:

As part of the quantitative easing programme since 2009, billions of dollars have been injected into the US economy every quarter, some of which has gone straight into the stock market, boosting stock market indicators of course.

How can this be reflected in the model? Only through money supply indicators

[Vladimir]

Дмитрий:

M1, M2, MH and L

Real GDP is possible. Nominal, of course, is not.

There is such data and it is analysed by my code:

https://research.stlouisfed.org/fred2/series/M1SL

https://research.stlouisfed.org/fred2/series/M2SL

https://research.stlouisfed.org/fred2/series/MABMM301USA189S

[СанСаныч Фоменко]

Vladimir:

Are you saying that stock indices can rise during recessions (negative GDP growth)? I am not talking about daily or even monthly index values. I am talking about quarterly data. That's not enough of a chart to convince:

Amazing!

Look at the beginning of the chart - GDP growth and the drop in the index.

The fall in 2008 of the index has nothing to do with the GDP movement at all. The bourse collapsed because of internal financial market reasons - it's a blatant fraud in the real estate market. The fact that you have singled out a correlation (comparing a fall of two times and a fall of a few percent) on quite a specific and convenient area for Your thought proves nothing at all, as one should not mechanically link two economic indicators, but look at the root of the country's economic problems, in particular at that moment on the real estate market, where rubbish papers were packed up, with the help of analysts and rating agencies explaining that rubbish is no longer rubbish because of beautiful packaging and trading with that rubbish.

As far as I'm concerned US GDP has NOTHING to do with stock indices. There are much more serious things.

For example.

• Take the top 5 US banks and look at the ratio of equity to futures on the balance sheet. I once saw a figure of 25. That is without any doubt the collapse of the banks.
• The Fed has poured either $4 or $16 trillion into the banks during the "easing" period. And there is no inflation. Why. If we compare the increase in money supply to the turnover of money, we see that turnover has fallen more than the money supply has risen. This means an actual fall in the money supply. When turnover falls to zero, the economy will come to a halt altogether.

What does this have to do with the relationship between GDP and the index?

[Дмитрий]

Vladimir:

There is such data and it is analysed by my code:

https://research.stlouisfed.org/fred2/series/M1SL

https://research.stlouisfed.org/fred2/series/M2SL

https://research.stlouisfed.org/fred2/series/MABMM301USA189S

M0, M1, M2 are not so important, it is actually cash.

The most important thing is the M4.

[Дмитрий]

СанСаныч Фоменко:

The performance of the stock market index is a leading indicator for GDP.

Indices are psychology and GDP is the real economy, which is very inertial

[Дмитрий]

Vladimir:

But I don't believe in 'eternal' models - the relationships between factors change.

[Vladimir]

СанСаныч Фоменко:

Amazing!

Look at the beginning of the graph - GDP growth and the drop in the index.

The fall in 2008 of the index has nothing to do with the movement of GDP at all. The bourse collapsed because of internal financial market reasons - it is a blatant fraud in the real estate market. The fact that you have singled out a correlation (comparing a fall of two times and a fall of a few percent) on quite a specific and convenient area for Your thought proves nothing at all, as one should not mechanically link two economic indicators, but look at the root of the country's economic problems, in particular at that moment on the real estate market, where rubbish papers were packed up, with the help of analysts and rating agencies explaining that rubbish is no longer rubbish because it has beautiful packaging and selling that rubbish.

As far as I'm concerned US GDP has NOTHING to do with stock indices. There are much more serious things.

For example.

• Take the top 5 US banks and look at the ratio of equity to futures on the balance sheet. I once saw a figure of 25. That is without any doubt the collapse of the banks.
• The Fed has poured either $4 or $16 trillion into the banks during the "easing" period. And there is no inflation. Why. If we compare the increase in money supply to the turnover of money, we see that turnover has fallen more than the money supply has risen. This means an actual fall in the money supply. When turnover falls to zero, the economy will come to a halt altogether.

What does this have to do with the relationship between GDP and the index?

The S&P500's downward movement began in September 2000, Q1 to Q1 2001, in which GDP fell 1.1%: https://www.quandl.com/data/YAHOO/INDEX_GSPC-S-P-500-Index

The S&P500's downward movement began in October 2007, 1 quarter to Q1 2008, in which GDP fell 2.7%:

If this sounds like a fluke to you, it sounds like a pattern to me. Predicting a Q1 GDP drop ahead will avoid sitting in loss-making longs and wondering if this is a correction or a recession.

(Look at the GDP/S&P chart on the previous page again, I corrected it, there were errors when calculating quarterly GDP values, now there are none)

[Vladimir]

Дмитрий:

M0, M1, M2 are not so important, it is in fact cash.

The most important thing is the M4.

M4 for the US I couldn't find. But here's one for the UK: https://research.stlouisfed.org/fred2/series/MABMM402GBA189S

I look at this chart and can't see how it helps to predict the FTSE: https://en.wikipedia.org/wiki/FTSE_100_Index#/media/File:FTSE_100_index_chart_since_1984.png

Dimitri:

But I don't believe in "eternal" models - the relationships between factors change.

I agree, correlations do change. That's why my model keeps changing the leading predictors.

[Дмитрий]

Vladimir:

M4 for the USA I could not find. But here is one for the UK: https://research.stlouisfed.org/fred2/series/MABMM402GBA189S

I'm looking at this chart and can't see how it helps to predict the FTSE: https://en.wikipedia.org/wiki/FTSE_100_Index#/media/File:FTSE_100_index_chart_since_1984.png

It's so hard to tell by eye on this scale.

I used to spin a multi-factor model, but the accuracy of the model was lower than the publicly available predictions