Saturday, October 15, 2011

Citigroup Economic Surprise Index Continues Upturn

How clueless have Keynesian econometric trend forecasters become? One measure that provides an indication is the Citigroup Economic Surprise Index.

The CESI is a quantitative measure of actual economic news that is contrasted with econometric forecasts of what the news will be .The measures are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median). A positive reading of the Economic Surprise Index suggests that economic releases have on balance beating consensus. The index is calculated daily in a rolling three-month window.

An examination of the index shows that since since mid-August it has turned upward, indicating that more and more Keynesians are underestimating strength in the market. (Only Keynesians, of one sort or another are quizzed in the survey). See a chart of index here.

Most economists are simply trend followers. They have no theory to explain changes in the economy. For them, there is some kind of deus ex machina event that causes a change in consumer demand, which to them means the demand must be coaxed back on track. They have no way of forecasting a change in the economy before this supposed shift in consumer demand occurs.

Only Austrian Business Cycle Theory sees the different phases of the business cycle developing before the data turn. ABCT rejects the Keynesian consumer demand theory and looks at money flows, specifically central bank newly created money. The economy in manipulated fashion will "boom" when newly created money is created. It is a distortion of what would be a non-bankster economy.

Currently, Bernanke is printing money (M2) at very aggressive double digit rates. It is this money printing that is fueling the manipulated boom. Since Keynesians don't watch or understand the role money creation causes in the Fed created boom-bust cycle, they don't see the manipulated boom coming until it is actually reflected in the economic data. That's why, at present, the data are surprising them to the upside. The new Fed created money is pushing the economic data higher, but since they don't understand ABCT, they won't understand what is going on in the data until months of data role in showing the change in trend.


  1. via HSBC Emerging Markets Index report Q3 2011:

    Emerging market output growth (covering manufacturing and services) eased to a nine-quarter low in Q3 2011. Additionally, the EMI reading was the fourth-lowest in the series history, only surpassing levels registered between Q4 2008 - Q2 2009.


  2. @Jill

    How the hell does the Emerging Markets Index have anything to do with what I am discussing in this post?

  3. Bob, people that are psychically invested in the idea that "The Great Crash" is imminent (and I fall into that crowd, somewhat) ignore or mock any indication that another "boom" is upon us. If I didn't trust you so much I would probably be skeptical, but your practical application and theoretical knowledge of ABCT exceeds mine, so I defer to you. It has prompted me to cut some of my short positions (I only "play" the stock market) and I expect a mild boom this winter season.

    People that are convinced that the FED and TPTB are out of ammo to juice the game "one more time" and that TEOTWAWKI is upon us don't like to hear that they may be wrong. You might be wrong, but I doubt it. The game will end, spectacularly, but the can will be kicked for as long as possible, even though the "crack up boom" is inevitable.

    I linked to your post about the upswing in positive data at ZeroHedge a few days ago, and got slammed. They are 100% sure it's "game over" and ignore the fact that TPTB have vast resources at their disposal that can be deployed to keep the party going for a while longer. As the saying goes, "the market can remain irrational far longer than you can remain solvent" and this is just proof of that axiom.