Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy [NOOK Book]

Overview

How can you make wise decisions about your company and your personal future when you have no idea where the economy is headed?
The answer is, you can’t. But you can learn how to accurately predict turns in the economy so that you can see the road ahead. And
BEATING THE BUSINESS CYCLE shows you how.

In BEATING THE BUSINESS CYCLE, Lakshman ...
See more details below
Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy

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Overview

How can you make wise decisions about your company and your personal future when you have no idea where the economy is headed?
The answer is, you can’t. But you can learn how to accurately predict turns in the economy so that you can see the road ahead. And
BEATING THE BUSINESS CYCLE shows you how.

In BEATING THE BUSINESS CYCLE, Lakshman Achuthan and Anirvan Banerji, the directors of the renowned Economic Cycle Research Institute (ECRI) show how anyone can predict and profit from the inevitable booms and busts of the economy.

Why should we believe them? Because while so many economists and financial gurus have failed to predict recessions in the past, ECRI’s forecasts are known for being uncannily accurate. The institute successfully predicted the U.S. recession of 2001 many months before the economists did; the 1990 recession and later recovery; and most recently, the weak U.S. recovery in 2002. ECRI is in constant demand by corporate America and the media. It is the “secret weapon” of companies from Disney to DuPont, the major fund managers, and many central banks.

BEATING THE BUSINESS CYCLE is the first book to reveal how decision makers at all levels–managers, small business owners, and individuals–can see into the economy’s future when making key decisions. Should a large company search out new clients and build new factories or stores, or should it consider cost cutting and layoffs? Is it the right time for you to splurge on that luxury vacation or addition to your house, or would it be more prudent to cut back on big expenditures and save money for a rainy day?
Written in an easy-to-understand, accessible style, BEATING THE BUSINESS CYCLE reveals which of the hundreds of economic indicators to trust and which ones to trash. It will give you the tools and confidence you need to make the right decisions at the right times–even when the rest of the investing and business world would persuade you otherwise. Whether you are a corporate manager or the owner of a small business, whether you have your money invested in stocks or in your home, BEATING THE BUSINESS CYCLE will give you the edge you need to trump the competition and stay ahead of the crowd.
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Product Details

  • ISBN-13: 9780385512589
  • Publisher: Crown Publishing Group
  • Publication date: 5/18/2004
  • Sold by: Random House
  • Format: eBook
  • Pages: 208
  • Sales rank: 1,325,561
  • File size: 2 MB

Meet the Author

LAKSHMAN ACHUTHAN and ANIRVAN BANERJI are the managing director and director of research at the famed Economic Cycle Research Institute. They are the trusted advisors of Fortune 500 companies, major fund managers, and government agencies throughout the world. They appear regularly on CNN’s Moneyline, CNBC, and NPR, and have been featured in Money magazine and The Economist.
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Read an Excerpt

Chapter 1



The Resurrection of Risk



In the Road Runner cartoon the joke is always the same. Wile E. Coyote chases the Road Runner, misses a sharp turn, and runs right over the edge of the cliff. He looks down and, realizing too late that he is in midair, plunges into the chasm below.

This may seem uncomfortably familiar to those who found themselves carried away by the excitement of the 1990s economic boom. Too late they realized that profits, jobs, or stock prices were already in a free fall. But, unlike the cartoon, it was not funny. A shift from boom to bust, from economic expansion to recession, like the one we experienced in 2001, can be painful, even tragic, for those blindsided by the downturn. That is why it is so critical to be forewarned of turning points in the economy.

Is that even possible? Many would say "no." It is true that economic forecasters rarely get recession calls right. In fact, as a recent study concluded, "The [worldwide] record of failure to predict recessions is virtually unblemished."1

But we are here to tell you a different story. It really is possible to predict recessions. And we will show you how, so that you will no longer be at the mercy of economic cycles. Whether you are an employee or a student, a business manager or a policy maker, you can learn to navigate the economy's ups and downs.

We will describe a cyclical framework for viewing the economy that relies on an array of objective indicators that, if used properly, warn of turning points before they happen. We will also tell you why many of the commonly followed economic indicators can be misleading. You'll discover you don't need a Ph.D. in economics or even a full-time focus on the economy to use our techniques.

But if recessions have historically been so hard to predict, why should you listen to us? Because we have accurately predicted recessions and recoveries when others have failed.2

We were able to do this not because we are smarter than other forecasters, or because we have some secret formula, but because at the Economic Cycle Research Institute (ECRI) an eighty-year tradition of business cycle research gives us a unique vantage point. By standing on the shoulders of the giants of business cycle research who pioneered our approach, we have, over time, designed objective tools that accurately predict turning points in the economy. In Beating the Business Cycle, we share this information so that you, too, can create your own customized "economic dashboard" that will help steer your future financial decisions in the right direction before you find yourself plunging into the abyss.

Our research tradition was handed down to us by Geoffrey H. Moore, the legendary business cycle scholar whom The Wall Street Journal called "the father of leading indicators." Moore

was the protege of Wesley C. Mitchell and Arthur F. Burns, who, early in the twentieth century, pioneered modern business cycle research. Moore's career spanned six decades and focused on the development of practical tools to monitor and predict economic cycles. His approach stands in stark contrast to the views of a generation of economic researchers who shrugged their shoulders long ago, resigned to the belief that forecasting turns in the cycle was impossible and therefore irrelevant. Moore founded the independent Economic Cycle Research Institute to advance the tradition of cyclical research, as well as to refine its predictive tools and make those results available to as many people as possible.

We believe these tools are invaluable in helping you make decisions about your business and your personal life. Why? Because there are both opportunities and dangers linked to the ups and downs of the business cycle that you need to know. When will the next turning point in the economy arrive? How can you avoid getting hurt in a bust? When can you capitalize on the opportunities a boom will offer? This book will give you those answers. It will help you to reduce the risk of being blindsided by an economic downturn and allow you to take full advantage of the good times. So while most economic books are liable to put you to sleep, this book should help you to sleep better.

Wile E. Coyote, after scraping himself off the canyon floor, again gives chase, heedless of the dangers ahead, oblivious to any lessons he might learn. Because he is only a cartoon character, no matter how many times he gets splattered, he never really gets hurt. But life is not a cartoon. And if you are the one to take a nosedive when the economy makes an unexpected turn, the pain is real. It may not be so easy to peel yourself off the canyon floor.



A Different Perspective



The 2001 recession was the first time many of us experienced what it feels like to go from a boom to a bust. The fact is, with forewarning, the pain could have been considerably less. But

the din of the late-1990s euphoria was simply too loud for most people to hear any voice not in harmony with the boom-market revelry.

In September 2000, ECRI warned of a recession ahead3 to our clients, and later on the evening news shows. Few listened. Most kept upping the ante, convincing themselves and one another that any economic rough spots were only minor speed bumps. It was easy to be swept along by the enthusiasm of the New Economy.

For much of the 1990s, it was worth joining in on the fun. Contrarians missed out on the longest expansion in U.S. history, as the stock market climbed from well below 4,000 to over 11,000. Clearly, during the boom, the important question was "When is it the right time to break away from the bulls?" And in the wake of a bust, it is just as important to know when to part company with the pessimists. The bottom of an economic cycle is the perfect time to ask, "Is now the time to add to my business by buying out competitors while prices are low?"

These questions are answerable. You need not live in a constant state of fear, wondering where the economy is headed. The tools we employ to forecast recessions and recoveries for our major clients can be used by any business or individual. The objective indicators we have developed will tell you when we are approaching a turning point in the economy. We will show you how to read them and use them when making different kinds of financial decisions. But you must be strong enough to trust them--especially when they cut against the grain of popular opinion. And believe us--at the most critical times, they will.

The research that gave rise to these indicators has too long been hidden from public view. Back in the 1920s and 1930s, there was a great deal of interest in business cycles as a result of the boom of the 1920s and the Great Depression that followed. But memories fade. Most forecasters have forgotten the work of Mitchell, Burns, and Moore. This is part of the reason so many economists and financial experts were blindsided by the 2001 recession, and why much of what you read here will seem new.

In March 2001, six months after we issued our initial warning of a recession, it became clear to us that a recession was unavoidable. We were not shy about saying so. The New York Times published our call on its front page.4 In hindsight, it is agreed that was precisely when the recession began.5

We do not want to suggest that it was easy to make the call. Far from it. Over a decade had passed since our last recession call in February 1990, five months before the previous recession started. Because we are experts in business cycle forecasting and had the record to prove it, we were under enormous pressure. To make things even more stressful, this was the first recession forecast we would make without the help of Moore, who had passed away a year earlier. (Some believed that it was Moore's uncanny intuition about the direction of the economy that helped us make calls, rather than his research.) In spite of these challenges, we knew that our well-tested methods would steer us correctly. The entire ECRI staff gathered together, spending two weeks poring over each and every indicator. Only then did we steel ourselves to go public; we concluded that it would be irresponsible to do otherwise.

What led us to that conclusion? Not since the mid-1970s had the world's three largest economies--the United States, Japan, and Germany--contracted in sync. We saw that kind of synchronous contraction again in 2001. Nonetheless, for most of the year, few believed that the party was over. Confident that the economic boom would soon resume, the stock market rallied through late May--three months into the recession. Denial persisted even as corporate profits plunged and job losses mounted. In fact, cheerleaders of the boom economy continued their good-times refrain through September 10, 2001, even though stock prices had been dropping sharply since May.

By September 11, the recession was six months old. In the wake of the terrorist attacks, the confusion and the boost from emergency economic stimuli allowed some pundits to continue denying the reality of recession. Others blamed the economy's woes on the unpredictable shock of those attacks.

In the months that followed, many viewed the emerging corporate scandals at Enron, WorldCom, and Arthur Andersen, as well as the intensification of the Israeli-Palestinian conflict and the continued threat from al-Qaeda, as evidence of a "perfect storm" of freak events that caused the recession. Such a view implied that the storm would pass and things would return to the way they were. But the recession did not result from any such storm. In fact, it preceded it. Like earlier busts, it resulted from the wide gap between perceptions and reality, as the wishful thinking about an ever-expanding economy got a wake-up call from the business cycle.

The momentum of the late-1990s boom carried perceptions of growth forward, beyond the downturn that marked the onset of recession. Business managers planned for demand that suddenly vanished; individuals made important career or financial decisions based on a roaring economy; investors held on to large positions in stocks because they believed double-digit returns would continue. Few factored the risk of a recession into their plans, and when one hit with the force of a falling Acme safe, many people were left feeling like the flattened Coyote.

Why were so many caught off guard by the downturn? Certainly the cheerleaders of the New Economy were partly to blame, along with a general belief that the business cycle was dead. But the fundamental reason rests with human nature. When looking to the future, people naturally project from the recent past. Just like Wile E. Coyote, we think that because the road has been straight for some time, it will remain so.

As long as the economy is proceeding in the same general direction, you can easily adjust major business decisions, such as whether to expand your company, hire new employees, or implement cost-cutting measures; in your personal life, you can postpone or accelerate major decisions such as buying or selling a house or changing jobs. But as a turning point in the economy approaches, the gap between reality and one's expectations can lead to painful consequences, and you can find yourself quickly heading in the wrong direction.

During the downturn of 2001, many businesses and individuals experienced this devastation firsthand. The severity of the drop was worsened by the extent to which CEOs believed the hype that recessions were a thing of the past. The fiber-optics and telecom industries built up tremendous overcapacity as a result. Cisco Systems, for example, continued to order equipment from its vendors long after customer orders began to dry up. The bust, in effect, was ensured by the growing dismissal of risk, which led to reckless behavior.

When business leaders, the media, government officials, economists, and individuals make such mistakes together, things go wrong in a big way. A herd mentality takes over and otherwise sane and rational people do crazy things. This tendency lay at the foundation of the biggest stock market bust of our generation. The urge to believe that the future would be like the recent past, combined with a kind of mass euphoria, blinded people to the possibility that the economic times may change.

If bullish behavior during booms and bubbles feels rational at the time, so can pessimism and anxiety during downturns. Like it or not, our assessment of the future is colored by emotion. Subjective interpretations are driven by both the recent past and the prevailing wisdom, and will always lag at economic turning points. Although many people were hurt when the economy turned down, as time passes those scars, too, will fade, and caution will eventually again give way to complacency. When the next recession hits, most people, oblivious of the turn in the cycle, will make the same mistake as before. In the same way, we may, with the recent recession in mind, fail to take advantage of the next boom in the economy. To break from this pattern of basing economic decisions on the recent past, you need to use a decision-making framework that can see through the delusions of the crowd, and anticipate the next turn in the economy.

Good judgments are easy to make after the fact. But it is difficult to make the right decision in the heat of the moment. When it comes to gathering information for making decisions, most of us rely on sources that reflect the consensus view. Yet the consensus, like Coyote, has a dismal record of spotting turns in the road ahead.

Prevailing wisdom on the economy is delivered to you by the news media, whose ratings depend on the excitement that extreme views generate. Politicians and business leaders with their own agendas contribute to the hype. The purveyors of this collective wisdom are focused on advancing their own interests, not yours. As with most things in life, ultimately you need to watch out for yourself.



An Objective Framework



As business cycle researchers, we use methods that set us apart from other economists. Our record validates our approach. We correctly forecasted major economic turning points in the United States and abroad over the past decades.6 While there is no Holy Grail in forecasting, the discipline and objectivity of our approach have allowed us to step away from the crowd at the right time and predict turning points when most forecasters fail (see Appendix A).

Economic forecasting deserves its bad reputation in predicting recessions and recoveries. As The Economist noted, "In March 2001, 95% of American economists thought there would not be a recession, yet one had already started."7 The reason for this failure is simple. Most economists forecast by extrapolating economic trends. While this methodology has its merits, forecasting turning points is not one of them.

Why does this approach fail to predict turning points? One key reason is that these forecasting models assume the recent past to be a good guide to the near future (see chart below). Most of the time this is true. But as we approach economic turning points, by definition, the pattern changes. The gap between such forecasts and reality balloons, resulting in large forecast errors.


From the Hardcover edition.
Read More Show Less

First Chapter

Chapter 1



The Resurrection of Risk



In the Road Runner cartoon the joke is always the same. Wile E. Coyote chases the Road Runner, misses a sharp turn, and runs right over the edge of the cliff. He looks down and, realizing too late that he is in midair, plunges into the chasm below.

This may seem uncomfortably familiar to those who found themselves carried away by the excitement of the 1990s economic boom. Too late they realized that profits, jobs, or stock prices were already in a free fall. But, unlike the cartoon, it was not funny. A shift from boom to bust, from economic expansion to recession, like the one we experienced in 2001, can be painful, even tragic, for those blindsided by the downturn. That is why it is so critical to be forewarned of turning points in the economy.

Is that even possible? Many would say "no." It is true that economic forecasters rarely get recession calls right. In fact, as a recent study concluded, "The [worldwide] record of failure to predict recessions is virtually unblemished."1

But we are here to tell you a different story. It really is possible to predict recessions. And we will show you how, so that you will no longer be at the mercy of economic cycles. Whether you are an employee or a student, a business manager or a policy maker, you can learn to navigate the economy's ups and downs.

We will describe a cyclical framework for viewing the economy that relies on an array of objective indicators that, if used properly, warn of turning points before they happen. We will also tell you why many of the commonly followed economic indicators can be misleading. You'll discover you don't need aPh.D. in economics or even a full-time focus on the economy to use our techniques.

But if recessions have historically been so hard to predict, why should you listen to us? Because we have accurately predicted recessions and recoveries when others have failed.2

We were able to do this not because we are smarter than other forecasters, or because we have some secret formula, but because at the Economic Cycle Research Institute (ECRI) an eighty-year tradition of business cycle research gives us a unique vantage point. By standing on the shoulders of the giants of business cycle research who pioneered our approach, we have, over time, designed objective tools that accurately predict turning points in the economy. In Beating the Business Cycle, we share this information so that you, too, can create your own customized "economic dashboard" that will help steer your future financial decisions in the right direction before you find yourself plunging into the abyss.

Our research tradition was handed down to us by Geoffrey H. Moore, the legendary business cycle scholar whom The Wall Street Journal called "the father of leading indicators." Moore

was the protege of Wesley C. Mitchell and Arthur F. Burns, who, early in the twentieth century, pioneered modern business cycle research. Moore's career spanned six decades and focused on the development of practical tools to monitor and predict economic cycles. His approach stands in stark contrast to the views of a generation of economic researchers who shrugged their shoulders long ago, resigned to the belief that forecasting turns in the cycle was impossible and therefore irrelevant. Moore founded the independent Economic Cycle Research Institute to advance the tradition of cyclical research, as well as to refine its predictive tools and make those results available to as many people as possible.

We believe these tools are invaluable in helping you make decisions about your business and your personal life. Why? Because there are both opportunities and dangers linked to the ups and downs of the business cycle that you need to know. When will the next turning point in the economy arrive? How can you avoid getting hurt in a bust? When can you capitalize on the opportunities a boom will offer? This book will give you those answers. It will help you to reduce the risk of being blindsided by an economic downturn and allow you to take full advantage of the good times. So while most economic books are liable to put you to sleep, this book should help you to sleep better.

Wile E. Coyote, after scraping himself off the canyon floor, again gives chase, heedless of the dangers ahead, oblivious to any lessons he might learn. Because he is only a cartoon character, no matter how many times he gets splattered, he never really gets hurt. But life is not a cartoon. And if you are the one to take a nosedive when the economy makes an unexpected turn, the pain is real. It may not be so easy to peel yourself off the canyon floor.



A Different Perspective



The 2001 recession was the first time many of us experienced what it feels like to go from a boom to a bust. The fact is, with forewarning, the pain could have been considerably less. But

the din of the late-1990s euphoria was simply too loud for most people to hear any voice not in harmony with the boom-market revelry.

In September 2000, ECRI warned of a recession ahead3 to our clients, and later on the evening news shows. Few listened. Most kept upping the ante, convincing themselves and one another that any economic rough spots were only minor speed bumps. It was easy to be swept along by the enthusiasm of the New Economy.

For much of the 1990s, it was worth joining in on the fun. Contrarians missed out on the longest expansion in U.S. history, as the stock market climbed from well below 4,000 to over 11,000. Clearly, during the boom, the important question was "When is it the right time to break away from the bulls?" And in the wake of a bust, it is just as important to know when to part company with the pessimists. The bottom of an economic cycle is the perfect time to ask, "Is now the time to add to my business by buying out competitors while prices are low?"

These questions are answerable. You need not live in a constant state of fear, wondering where the economy is headed. The tools we employ to forecast recessions and recoveries for our major clients can be used by any business or individual. The objective indicators we have developed will tell you when we are approaching a turning point in the economy. We will show you how to read them and use them when making different kinds of financial decisions. But you must be strong enough to trust them--especially when they cut against the grain of popular opinion. And believe us--at the most critical times, they will.

The research that gave rise to these indicators has too long been hidden from public view. Back in the 1920s and 1930s, there was a great deal of interest in business cycles as a result of the boom of the 1920s and the Great Depression that followed. But memories fade. Most forecasters have forgotten the work of Mitchell, Burns, and Moore. This is part of the reason so many economists and financial experts were blindsided by the 2001 recession, and why much of what you read here will seem new.

In March 2001, six months after we issued our initial warning of a recession, it became clear to us that a recession was unavoidable. We were not shy about saying so. The New York Times published our call on its front page.4 In hindsight, it is agreed that was precisely when the recession began.5

We do not want to suggest that it was easy to make the call. Far from it. Over a decade had passed since our last recession call in February 1990, five months before the previous recession started. Because we are experts in business cycle forecasting and had the record to prove it, we were under enormous pressure. To make things even more stressful, this was the first recession forecast we would make without the help of Moore, who had passed away a year earlier. (Some believed that it was Moore's uncanny intuition about the direction of the economy that helped us make calls, rather than his research.) In spite of these challenges, we knew that our well-tested methods would steer us correctly. The entire ECRI staff gathered together, spending two weeks poring over each and every indicator. Only then did we steel ourselves to go public; we concluded that it would be irresponsible to do otherwise.

What led us to that conclusion? Not since the mid-1970s had the world's three largest economies--the United States, Japan, and Germany--contracted in sync. We saw that kind of synchronous contraction again in 2001. Nonetheless, for most of the year, few believed that the party was over. Confident that the economic boom would soon resume, the stock market rallied through late May--three months into the recession. Denial persisted even as corporate profits plunged and job losses mounted. In fact, cheerleaders of the boom economy continued their good-times refrain through September 10, 2001, even though stock prices had been dropping sharply since May.

By September 11, the recession was six months old. In the wake of the terrorist attacks, the confusion and the boost from emergency economic stimuli allowed some pundits to continue denying the reality of recession. Others blamed the economy's woes on the unpredictable shock of those attacks.

In the months that followed, many viewed the emerging corporate scandals at Enron, WorldCom, and Arthur Andersen, as well as the intensification of the Israeli-Palestinian conflict and the continued threat from al-Qaeda, as evidence of a "perfect storm" of freak events that caused the recession. Such a view implied that the storm would pass and things would return to the way they were. But the recession did not result from any such storm. In fact, it preceded it. Like earlier busts, it resulted from the wide gap between perceptions and reality, as the wishful thinking about an ever-expanding economy got a wake-up call from the business cycle.

The momentum of the late-1990s boom carried perceptions of growth forward, beyond the downturn that marked the onset of recession. Business managers planned for demand that suddenly vanished; individuals made important career or financial decisions based on a roaring economy; investors held on to large positions in stocks because they believed double-digit returns would continue. Few factored the risk of a recession into their plans, and when one hit with the force of a falling Acme safe, many people were left feeling like the flattened Coyote.

Why were so many caught off guard by the downturn? Certainly the cheerleaders of the New Economy were partly to blame, along with a general belief that the business cycle was dead. But the fundamental reason rests with human nature. When looking to the future, people naturally project from the recent past. Just like Wile E. Coyote, we think that because the road has been straight for some time, it will remain so.

As long as the economy is proceeding in the same general direction, you can easily adjust major business decisions, such as whether to expand your company, hire new employees, or implement cost-cutting measures; in your personal life, you can postpone or accelerate major decisions such as buying or selling a house or changing jobs. But as a turning point in the economy approaches, the gap between reality and one's expectations can lead to painful consequences, and you can find yourself quickly heading in the wrong direction.

During the downturn of 2001, many businesses and individuals experienced this devastation firsthand. The severity of the drop was worsened by the extent to which CEOs believed the hype that recessions were a thing of the past. The fiber-optics and telecom industries built up tremendous overcapacity as a result. Cisco Systems, for example, continued to order equipment from its vendors long after customer orders began to dry up. The bust, in effect, was ensured by the growing dismissal of risk, which led to reckless behavior.

When business leaders, the media, government officials, economists, and individuals make such mistakes together, things go wrong in a big way. A herd mentality takes over and otherwise sane and rational people do crazy things. This tendency lay at the foundation of the biggest stock market bust of our generation. The urge to believe that the future would be like the recent past, combined with a kind of mass euphoria, blinded people to the possibility that the economic times may change.

If bullish behavior during booms and bubbles feels rational at the time, so can pessimism and anxiety during downturns. Like it or not, our assessment of the future is colored by emotion. Subjective interpretations are driven by both the recent past and the prevailing wisdom, and will always lag at economic turning points. Although many people were hurt when the economy turned down, as time passes those scars, too, will fade, and caution will eventually again give way to complacency. When the next recession hits, most people, oblivious of the turn in the cycle, will make the same mistake as before. In the same way, we may, with the recent recession in mind, fail to take advantage of the next boom in the economy. To break from this pattern of basing economic decisions on the recent past, you need to use a decision-making framework that can see through the delusions of the crowd, and anticipate the next turn in the economy.

Good judgments are easy to make after the fact. But it is difficult to make the right decision in the heat of the moment. When it comes to gathering information for making decisions, most of us rely on sources that reflect the consensus view. Yet the consensus, like Coyote, has a dismal record of spotting turns in the road ahead.

Prevailing wisdom on the economy is delivered to you by the news media, whose ratings depend on the excitement that extreme views generate. Politicians and business leaders with their own agendas contribute to the hype. The purveyors of this collective wisdom are focused on advancing their own interests, not yours. As with most things in life, ultimately you need to watch out for yourself.



An Objective Framework



As business cycle researchers, we use methods that set us apart from other economists. Our record validates our approach. We correctly forecasted major economic turning points in the United States and abroad over the past decades.6 While there is no Holy Grail in forecasting, the discipline and objectivity of our approach have allowed us to step away from the crowd at the right time and predict turning points when most forecasters fail (see Appendix A).

Economic forecasting deserves its bad reputation in predicting recessions and recoveries. As The Economist noted, "In March 2001, 95% of American economists thought there would not be a recession, yet one had already started."7 The reason for this failure is simple. Most economists forecast by extrapolating economic trends. While this methodology has its merits, forecasting turning points is not one of them.

Why does this approach fail to predict turning points? One key reason is that these forecasting models assume the recent past to be a good guide to the near future (see chart below). Most of the time this is true. But as we approach economic turning points, by definition, the pattern changes. The gap between such forecasts and reality balloons, resulting in large forecast errors.
Read More Show Less

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  • Posted January 31, 2011

    An excellent book. Highly Recommended!

    The art of forecasting is critical in determining which way the economy is heading. The authors, Achuthan and Banerji have written a very good book, that is meant for a more general audience.It is equally valuable to the seasoned professional as well. These gentlemen of intelligence and integrity are co founders of ECRI which has had an enviable record in forecasting business cycles. They explain why the ECRI approach has been so effective in forecastig recessions as opposed to projections made by other leading economists of the day. Sometimes economists can be blindsided by giving too much importance to regression models and the like. When it comes to deciding "turning points", regression models may prove to be less useful. ECRI are specialists when it comes to figuring out when the turning point in the economy will be. The work at ECRI would be useful to a broad range of people and their service are useful to the seasoned finance professionals as well as the economists. Highly recommended!

    1 out of 1 people found this review helpful.

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  • Anonymous

    Posted December 5, 2007

    SO MUCH TO WATCH

    This short, easy-to-read book opened my eyes to the mysteries of the business cycle. I appreciated the history behind forecasting and the many challenges that economists face is being accurate in their predictions. Although I am familiar with economic ideas, I found that I could recommend this book to family and friends who are not. It is obvious that forecasting is not for the weak at heart. Achuthan and Banerji, along with ECRI, track hundreds of indices necessary to make predictions. It is obvious that turning points are where I can gain or lose the most, making accurate predictions so crucial. While, as an individual I can follow certain indicators, and now have a better understanding of how to do so, it is best to leave major turns in the economy up to the professionals. From reading this book I now have a better understanding of how I can react before, during and after a recession, whether I am buying a home, considering graduate studies or seeking to start my own business (check out the section on real life scenarios). As the economy continues to expand we are reminded that ¿cycles always turn the question is when.¿ Although recently the media has stated that we are currently headed towards a recession (if we are not already in one), I am following the predictions of ECRI, the only group that has been accurate in the past.

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  • Anonymous

    Posted December 4, 2007

    A reviewer

    I found this book to be interesting and accessibly written. It offers a succinct history of business cycles and shows that by understanding past business cycles one can anticipate future cycles. In particular, I found it interesting how they pointed out that even as technology changes the way business is conducted, business cycles persist.

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  • Anonymous

    Posted December 4, 2007

    A reviewer

    I bought this book because of strong recommendations from the Money Man Report on the radio in Texas, and am really glad I did. I found this to be a great book - short, accessible and to the point - and I'm certainly going to follow ECRI's work from now on. I see a couple of reviewers here have panned the book - one of them twice, which makes me suspect he/she has an ax to grind. Alternatively, they thought this book would teach them how to create leading economic indicators at home - if you have such expectations, don't waste your money. Look, guys, as an independent research outfit, and there are few enough of those out there, ECRI needs their research to be funded by subscribers, so they aren't going to give away their trade secrets for $25! The point is that ECRI has the best track record of predicting the economy's turning points that I'm aware of, and this book helps you take advantage of that. If you're a decision maker in business or managing your own portfolio, this book has all you need to navigate the treacherous shoals of this economy. If you are a decision maker, rather than an economist trying to copy ECRI's methods, this book's for you!

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  • Anonymous

    Posted December 5, 2007

    A bargain of money & time

    This book is a bargain because after two hours of reading, I had a new way to look at the economy and markets, and it only cost $16.00. If anything, that is too cheap! The text is in ENGLISH, not jargon, which I liked very much. Some economic books seem about as readable as the fine print on my mobile phone bill. Sure, ECRI spends time telling how their indexes have worked in the past, but I don't read that as a marketing pitch. Who else is going to ever tell a small fry like me what's been going on? Not any of the pundits from Wall Street on TV, etc, that's for sure. From what I gather, they'd be quite happy if ECRI went away. I've recommended the book to many people who now feel the same way.

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  • Anonymous

    Posted December 4, 2007

    A reviewer

    This book is a bargain because after two hours of reading, I had a new way to look at the economy and markets, and to boot it only cost $16.00. If anything, that is too cheap! The text is in ENGLISH, not jargon, which I liked very much. Some economic books seem about as readable as the fine print on my mobile phone bill. Sure, ECRI spends time telling how their indexes have worked in the past, but I don't read that as a marketing pitch. Who else is going to ever tell a small fry like me what's been going on? Not any of the pundits from Wall Street on TV, etc, that's for sure. From what I gather, they'd be quite happy if ECRI went away. I've recommended the book to many people who now feel the same way. p.s. some of the comments on this thread sound like 'physics envy' to me... discussed in the book.

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  • Anonymous

    Posted December 4, 2007

    A reviewer

    This is a well-written, well thought-out book with unique insights on how the economy works and how to predict it using indexes. That¿s much more than what most books will give you. Yes, there is some self promotion but hey, they managed to predict the last two U.S. recessions. Who wouldn¿t brag? So, definitely a good read, with a lot of useful info on how to predict and profit from turns in the business cycle.

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  • Anonymous

    Posted December 5, 2007

    Quick and informative read introducing a great service

    Before getting my hands on this gem I didn't know who or what to follow - newspapers, financial sites, talking heads all really left me confused and a bit in the dark. After reading the book, starting the free trial, and noting ECRI's turning point track record I feel like I've found somewhere to turn. Now I'm not a billion dollar hedge fund, just an individual working to build her nest egg, but I feel like I've got an edge. This year alone I've managed to successfully navigate the volatile markets and fear mongering media junkies using ECRI's non-scare tactic based outlooks - take the Feb/Mar scare as well as the big August drop, ECRI held their position on 'no recession' and I held mine, much to my benefit. A great read/service in my mind.

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  • Anonymous

    Posted August 7, 2007

    Nothing offered here

    This book will suck you time and energy giving you nothing in return. There is basically a lot of confused mumbo jumbo and a lot of self promotion. You will tear your hair out trying to get anything out of this book.

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  • Anonymous

    Posted April 2, 2007

    A book that is quite ok

    I think some criticism is justified as the book could have been more substantive and less of an advertisement for ECRI. But ECRI could be justifiably proud of correctly predicting the recession the last time when 95% economists failed. The authors also make a case that using past data to predict future events may not always be the best way to go. On the whole, the book is worth a read and explains why someone may want to subscribe to their service.

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  • Anonymous

    Posted March 12, 2007

    mindless,misleading nonsense

    This book is a garbled piece of mindless pap.This book is a fraud and the authors are charlatans. I have rarely seen the authors provide any substantive discussion on anything. Reading a few tables, does not make someone an economist. Forget this one.

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  • Anonymous

    Posted November 19, 2006

    a super con job!

    Bravo to the authors of Beating the Business Cycle for pulling off one of the best con jobs I have seen in recent years! Bravo!

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  • Anonymous

    Posted August 24, 2004

    The Proof is in the Pudding ...

    I found Beating the Business Cycle to be readable, interesting, informative, and most importantly, eminently useful. If the reader can forgive the sometimes Madison Avenuesque nature of the book (i.e., the book at times sounds more like an ad for ECRI than a ¿how to¿ manual), he/she will find this book to be an excellent tool to help financial professionals and business managers navigate the often murky waters of business cycle forecasting. As far as forgiveness is concerned, I direct the reader to p. 35, which states: ¿Unlike many research institutes, ECRI has no endowment and is not funded by any special-interest group. We cover our expenses by providing subscribers with access to our forecasts which are based on more than one hundred cyclical indexes covering over 85 percent of the world GDP.¿ What this means is that unlike other economic think tanks, there is no university endowment, brokerage firm, political group, etc. underwriting their research. Therefore, in order for them to produce absolutely objective and meaningful reports, they must (1) obtain 100% of their funding from subscriber fees, and (2) strictly withhold from their clients (and the public vis-à-vis this book) the proprietary knowledge that supports their research. The logic behind this is simple and needs no further clarification. As for the book itself, it does exactly what it purports to do: explain in non-technical language what ECRI is, what they do, and yes, how well they do it. Most importantly, they explain how their research can be useful to both the individual and business community. The proof is in the pudding: ECRI began talking about the possibility of US economic weakening in mid-May earlier this year. They are vehement about it now, but the consensus has only begun to ¿see the light¿. Even the Feds stated only a few weeks ago, when they raised the Federal Funds rate by ¼ point, that the economy is poised to continue strong growth and we are only in a temporary ¿soft spot¿. So once again, ECRI is right on target and the consensus lags. (Read the book to see what I¿m talking about!) I recommend that individuals and financial professionals read the book carefully and sign up for their 3-month free trial subscription (at the end of the book). At the same time, follow closely the changes in the published economic indicators, listen carefully to the pundits on CNNFN and CNBC, read the Wall Street Journal, etc. If you¿re still in doubt, put the whole thing aside for several months, then go back and take another look. My prediction is that you will be more than convinced of the book¿s credibility.

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  • Anonymous

    Posted May 21, 2004

    Outstanding

    Finally a book that explains the complex area of business cycles in a simple and easy to understand methodolgy. The authors are world leaders in their field wtih the rare gift of communication to the reader. This book is a must for all investors, highly recommended.

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  • Anonymous

    Posted May 20, 2004

    Predicting recessions and when jobs will rise/fall

    This book is quite amazing - I graduated from college two years ago when jobs were scarce and all my friends were having a tough time. Out of sheer interest, and having heard the authors speak on tv, I made a note to order the book as it came out. They 'answer' basic questions such as when to buy a house, when the job market will slow down/pick up, etc.. months in advance using their leading indicators. Look at Page 94!!! I like the opening sentence itself (Looney Tunes-coyote) as it promises the reader to be an interesting read. The book gives a historical perspective on business cycles and tells us that ECRI had successfully predicted the '91 and '01 recessions in the US well before others even contemplated the possibility. And they didn't make any false calls either! Quite amazing to foretell the direction of the economy WITHOUT ECONOMIC JARGON!! Very insightful and a basic understanding of the economy for everyone.

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  • Anonymous

    Posted May 31, 2004

    To Believe or Not to Believe

    I thought the book was well written and interesting. The authors make a good case for tracking their data based on successful predictions they have made in the past. What I plan to do is track their data and see whether it leads to me increasing returns for investments I make based on their predictors. The verdict will truly be told for me after I try it and track my own success or failure...

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  • Anonymous

    Posted May 31, 2004

    Skeptical Investment Advisor

    This book provided a clear description of how the ECRI develops compsoite indexes that forecast market turns for economic growth, inflation and employment made up of hundreds of tried and true economic indicators. All my prior research has indicated that their is little evidence that market timing is possible, so I will follow ECRI's track record going forward with great interest. Their past record appears exemplary. I beleive this is a must read for both beleivers and skeptics alike.

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  • Anonymous

    Posted May 31, 2004

    Finally, a 'one-handed' economist!

    I'm an admitted armchair economist, watching and reading what the experts have to say about the outlook. This book was a quick read, and showed me how to steer clear of pundits who tend to see things the same way. While the authors are on TV sometimes, the ECRI is much more than a couple of talking heads. I usually don't take notes when I read, but this time I did, especially regarding the Weekly Leading Index which gets rid of all the 'on the other hand' phrases that are all too common when all you want is a straight answer. By the way, the leading index looks like it¿s turning down.

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  • Anonymous

    Posted December 12, 2003

    I Can't Wait

    I am looking forward to reading this book. All I know is that when everyone was gung-ho about the economy in late 2000, they were sounding the alarm bells. And then in 2003 they (ECRI) argued, based on the weekly leading index, that there would be no 'double-dip.'

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  • Anonymous

    Posted January 27, 2010

    No text was provided for this review.

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