Economics, just as baseball, is steeped in tradition. Economics, to hear Mr. Zatlin tell it, is just as buried in its own past, and missing the great changes taking place in the world. That leads most economists to use outdated methods to measure the wrong things, Mr Zatlin says. Mr. Zatlin engorges on data, from semiconductor orders to vices like escort services (yes, it’s a sign of discretionary spending). He produces a vice index he says has an 88% correlation to personal consumption figures – and a four-month lead time. Other researchers are “measuring things that don’t matter, and not measuring things that do,” he said. “We want to know how people are spending their money, how businesses are spending their money, or not, and what do we do about that?” Take his jobs prediction. Mr. Zatlin says he monitors the hiring practices of more than 1,000 companies, both large and, importantly, small; and separately monitors hiring in 50 metro areas. (While he shared his method, he would not divulge his exact sources.) “I’m very good at capturing the small and mid-sized companies” that are critical to overall economic growth, he said. He takes this data, and once a week runs it through his system to produce an estimate for jobless claims, and once a month to produce the nonfarm payrolls estimate.
There is more stability out their than we admit. This analysts method is entropy encoding, he gets asset groups in his portfolios that best match the economic structure; via arduous trials and trials of optimal histogram making from streams similar transactions. But, in a sparse world, when he hits paydirt, a company classification scheme that locks in, it is solid stuff.
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