Glimpses

Don't you just love those little glimpses of truth you get when you are trying to solve a problem? Those little peeps into the big answer, that flash like a feather dancer for a split second, teasing you into believing that you might actually get it if you stick with it for an eternity or so?
Me, too.
I've been spending the last decade and a half playing with macroeconomics. It's big, messy, and not very many people do it well. I love it.
Not one to take anyone's word for anything, I had to take it apart. Why do so many so-called smart people come to such radically different conclusions? What are they looking at? What weight do they allot which pieces of data? Why? Who's right most of the time? Who's not? What are they doing differently?
First glance went to Elaine Garzarelli. She wore short skirts, got busted for DUI, and was always talking about her indicators. Like a little tease, though, she'd just give you a hint at what she was doing. Rumor was, she predicted the 1987 correction, although the specifics are sketchy.
After subscribing to her ridiculously pricey newsletter for a year, I was able to replicate parts of her model. It failed to predict any subsequent correction, however, and Elaine looked more and more addled. Lehman Brothers canned her and I moved on, too.
During this period, I had completed UCLA's Financial Planning program, and was asked to teach Security Analysis. Fun at first, it became more and more tedious. A financial statement is a financial statement. Cash flow is cash flow. Once mastered, the only hope of rising above the crowd is to lie creatively. Enron's cash flow went to vague footnotes. WorldCom just plain lied. Point - Enron. Yawn.
Then, I was asked to teach Managing Investment Portfolios. Prerequisite - Differential calculus. Whee!
For this, you had to understand the positive and negative corrolation of stocks, bonds, real estate and commodities, and enough macroeconomics to determine the correct mix of asset classes at any particular point in time for people of varying risk tolerances. Electrical engineers, software engineers and other assorted geeks piled in. I tried to deconstruct each component both for myself, and for the engineers, who are going to take it apart anyway. We argued about which indicator gave most information about what, and which was most important. Our class, 6PM to 9PM, often lasted until the janitorial staff glared at us from the halls.
Together, we put together a pretty good construct. When the class was ending, they asked, "What shall we read?" Barron's, I said. Read the Economics Editor of Barron's and put together your own data. Don't listen to anyone. Do it yourself.
Next, I looked at Value Line, the best performing long range investment portfolio for the last 25 years. How did they do it?
They don't give a clue what their system is, so I tested and tested and tested my own to see if my conclusion (percentage of equity vs. debt investments) was similar. Voila!
After only two and one-half years, we matched conclusions consistently.
Much of the basis for tweeking data came from the Economics Editor of Barron's, the brilliant Gene Epstein. Brilliant is not a word I use frequently. I think most people's economic research is spotty, short-term, and incomplete. Not Gene.
Anyhow, Gene just wrote a book called Econospinning. It's the book I wish I'd had when I was teaching. It's Economics without some schmuck's opinion being passed off as a fact. It's the concept of the show I wanted to do at my local community radio station, but on a scale of one to ten, those tie-die wearing, patchouli smelling, folk song singing hippies cared about it about point zero zero zero one. And that's with rounding.
So, if you want a glimpse of heaven, buy this book.
If not, at least subscribe to The Economist, so we'll have something interesting to argue about.