October 04, 2004

Over the years we've advocated using the futures markets to make inferences about market expectations. We attempt to select industries that are likely to outperform in the near term. Our statistical procedure attempts to estimate industry responsiveness to the economic cycle by focusing on the average response over previous cycles. Our estimates are dependent on the availability of quarterly historical data. The length and quality of that data affect the reliability of our forecasts. The shorter the horizon, the less history we have. Thus, the more volatile the earnings history, the less reliable the estimates produced by our model.

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