Streetwise

Lauren Rudd

Sunday, February 5, 2012

Fractious Factions Face Off

The rampant discourse over the nation’s economic future took a back seat to some more important forecasts recently as fractious factions faced off over who had the superior groundhog on Groundhog Day.

Selected members of Marmota monax were yanked out of their comfortable dens to view their shadows, the purpose of being to predict the weather six weeks into the future. Staten Island Chuck found himself up against the powerful PR machine of Punxsutawney Phil who made his 127th annual forecast. Not to be outdone, General Beauregard Lee of Georgia, who holds “honorary doctorates” from the University of Georgia and Georgia State in "Weather Prognostication," took on Sir Walter Wally of North Carolina.

By way of full disclosure, the fine folks at the University of Georgia tersely informed me last year that an honorary degree was serious business. They said I should not have added credence to the idea that academic recognition of such magnitude had actually been bestowed by a hallowed university on a groundhog. Therefore, let me make it clear that I did not mean to imply that Beauregard had actually been awarded such an honor. After all, it was not on his Curriculum vitae.

And consider the alterations necessary to fit old Beauregard with the obligatory academic robe, not to mention the stitches his handler would need. Yet, the appropriate robe and hood would certainly be required dress for Beauregard to stand shoulder to shin with his pedagogic colleagues. 

Meanwhile, desirous of taking advantage of the ground swell of groundhog controversy but with no groundhog of its own to roust after having previously banned winter, Florida decided to “borrow” one.

So last year Florida devised an ad campaign indicating that Punxsutawney Phil had exited stage right in search of warmer digs. However, Phil's handlers were not amused, muttering something about, “trademark violation,” and the promotion appears to have died an early death, unlike 127 year old Punxsutawney Phil.

Given the expertise most groundhogs have with the English language, not to mention meteorology, there is probably some doubt as to scientific strength of this forecasting approach. Unfortunately, many of Wall Street’s prognosticators are in the same league as your local groundhog.

Consider, for example, those who believe the Super Bowl can forecast the stock market. Supposedly accurate 36 out of 45 times, the Super Bowl predictor states that at least two of three major market indices will rise when an original NFL team wins. However, if a team from the old AFL wins, at least two indices from among the Dow Jones Industrial Average, the S&P 500 index and the NYSE composite index are headed downward.

From 1967, the year Green Bay (NFL) won the first Super Bowl, through 1989, when the San Francisco 49ers (NFL) won, the market was up after 16 old NFL teams won, and down six of seven times after old AFL teams prevailed. The only time the indicator failed was after the Oakland Raiders won in 1984, and that year the S&P 500 rose just 1.4 percent. 

Since then the theory has forecast the market correctly 11 times, while getting it wrong 10 times, not counting 2003, when Tampa Bay won. That team came into the league after the merger, first joining the AFC and then moving to the NFC. It is not clear what the theory would have forecast that year.

If you subscribe to the idea that Tampa was first in the AFC, and therefore that its victory was a bearish indicator, then that was another loss for the theory. Stocks rose sharply in 2003.

It would appear that lately the odds are the same as flipping a coin. Furthermore, skeptics scoff at the Super Bowl Predictor, giving it the same validity as the theory that markets rise and fall with women's hemlines. Yet, there is a modicum of statistical data that correlates market aberrations with certain calendar or non-financial events.

Consider the so-called January effect, where stock prices supposedly increase during the month of January. Hmm...wait a minute, the Dow was up 3.4 percent this past January, the S&P was up 4.4 percent and the Nasdaq 8 percent. What time is the Super Bowl and where are those potato chips?