The Approach

1The Central Banks' Best Kept Secret

Most economists and investors are fixated on interest rate analysis. In vain. Interest rates are only a secondary tool used by central banks to control economies. Their main tools are the basis of our proprietary approach, which was developed using input from central bankers and has been statistically superior to other models. Under a strict confidentiality agreement, you can look at economies the same way as central bankers do.

2. Liquidity is the Key

Put simply, money drives the economy. However, it must be measured correctly. The monetarist approach was discredited, because monetarists fell for the central bankers' ruse of selling to the public as measures of the 'money supply' what actually amounts to mere measures of the savings supply, namely deposit aggregates such as M1, M2, etc. Net new economic activity is only possible when net new purchasing power becomes effective in the economy. Net new purchasing power can only be created by central banks and the private banking system (the 'credit creation' process). Measuring this with our proprietary Liquidity Indices, we explain and forecast GDP growth, exchange rates, capital flows and asset prices in virtually any country.

3. Top-down

Many mistakes in forecasting are due to a narrow focus on micro-analysis (encouraged by neo-classical economics). Micro research is important for stock selection, but with it you cannot catch market turning points. This is due to the fallacy of composition: The mere addition of parts does not add up to the whole, because the crucial interaction between those parts is neglected. To give an example: classical theory says that exchange rates and capital flows are determined by the interest rate differential. This is the result of a model of one 'representative' investor, for whom interest rates are given. However, no empirical evidence could be found for this widely-held theory. The reason is simple: though true for one investor, for all investors together, interest rates are not external, but the result of their collective actions. Our top-down analysis captures exactly this.