We investigate the performance of investments and economic indicators:
We produce statistical models:
The economy and its markets behave as a system--that is, as if it were a living organism. In this system everything is connected to everything else. Understanding it requires top-down thinking. The system is a great deal more than the sum of its parts, and its behavior cannot be understood solely by analyzing the parts separately and summing the resultsjust as in astronomy, the behavior of a galaxy cannot be predicted by studying the individual stars of which it consists. Government policy influences the system, but not in a way that is widely understood, and it constantly falls prey to the "law of unintended consequences." "Bottom-up thinking" in economics does not work well.
As in Adam Smith's Wealth of Nations, the system is driven by market prices that act as signals containing information (such as scarcity or glut, fear and euphoria, actions and intentions of the central government) and which continually induce producers, investors and consumers to rethink and reallocate their efforts. We believe that is why financial-market prices work so well to predict the behavior of the system: its growth, the stability and purchasing power of its currency, and the performance of its investments.
Certain prices are more critical than others, and the performance of any single asset class is usually a function of several financial-price inputs that are powerful factors in driving other asset classes as well. The most commonly encountered inputs that power our models are: short term interest rates; the value of the currency expressed in terms of precious metals; corporate bond-market yield spreads; valuation expressed as the ratio of one asset price to another; persistence; and absolute and relative volatility.