Streetwise for Friday, February 2, 2018
The rampant discourse over the world’s economic future must wait. There are more important forecasts to consider as fractious factions face off today, February 2, Groundhog Day, over who has the superior groundhog. OK, I know I write about this event every year, but I think it adds some light heartedness to the somberness of investment analysis.
Peacefully sleeping members of Marmota monax are yanked out of their comfortable dens on this date to view their shadows, the purpose being to predict the weather six weeks into the future.
According to legend, if Punxsutawney Phil sees his shadow, we will see six more weeks of winter and below-average temperatures. If Pennsylvania’s favorite groundhog does not see his shadow, then an early spring is on its way with above-average temperatures.
Phil will climb up out of his burrow, perhaps with a little help from his handlers, at roughly the midway point of astronomical winter at sunrise to see what he can see or not see.
How accurate is Phil? In short, not very. Phil has been accurate only 39 percent of the time since the first Groundhog Day in 1887, according to StormFax.com. Although there has only been one Phil for the last 130 years, he has become slightly more accurate, with a 46 percent success rate since 1988.
However, last year Punxsutawney Phil saw his shadow, thereby predicting six more weeks of winter. What followed was the second-warmest February on record in the Lower 48 states, the ninth-warmest March and the 11th-warmest April.
And let’s not forget General Beauregard Lee of Georgia, who holds “honorary doctorates” from the University of Georgia and Georgia State in “Weather Prognostication,” and must compete with Sir Walter Wally of North Carolina.
By way of full disclosure, the University of Georgia tersely informed me several years ago by letter that academic recognition of such magnitude would not have been bestowed on a groundhog. I did not mean to imply that Beauregard had really been awarded such a degree. After all, he never actually put it on his Curriculum Vitae.
Desirous of taking advantage of the ground swell of groundhog controversy but with no groundhog of its own to roust, Florida at one time devised an ad campaign indicating that Punxsutawney Phil had exited stage right in search of warmer digs.
After all, the recent weather up north would have sent any enterprising ground hog southbound. Phil’s handlers were not amused; muttering something about, “trademark violation” and the promotion died an early death, unlike 130-year-old Punxsutawney Phil.
Given the expertise groundhogs have with the English language, not to mention meteorology, we can excuse the fact that their forecasting approach leaves a bit to be desired. Unfortunately, many of Wall Street’s prognosticators are in the same league as a groundhog.
There a widespread belief that the Super Bowl can foretell the stock market’s future, even though the Super Bowl Indicator has a worse record than flipping a coin.
The Patriots are a 5 ½ point favorite to win the Super Bowl on February 4. The venerable Super Bowl Indicator is bearish whenever the victorious team traces its roots back to the original American Football League, as is the case with the Patriots. Yet, the markets have performed better following Super Bowl victories by those teams that trace their roots back to the AFL.
There is also a modicum of statistical data that correlates market aberrations with certain calendar events. For example, the so-called January effect, where January stock prices supposedly forecast the markets performance for the remaining months of the year. Let’s hope that one works this year.
However, before you start placing buy orders consider that 20 years ago, David Leinweber, a visiting economist at Caltech, determined that butter production in Bangladesh had a statistically significant correlation (an r-squared of 99 percent for math buffs) with the S&P 500 index. And he still receives requests for current butter production numbers, as do I.
Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.