Today I'd like to introduce you to a fascinating person. R. David Ranson is the president of H.C. Wainwright & Co. Economics, Inc. He has degrees from Queen's College, Oxford and the University of Chicago and is one of the most interesting people you might meet.
Dr. Ranson believes that the most accurate forecasting tools come directly from the markets, not from economic statistics. He believes that the best forecasting tools are those that can be empirically tested. He believes in simple models and correlations. The result of his research and beliefs has led to some conclusions that are different than conventional wisdom. Since alpha can only be added by deviating from the benchmark, having contrarian views to conventional wisdom may help you in your search for alpha.
I spent the afternoon today with Dr. Ranson and listened to two different presentations. I have known him for several years and he agreed that I might share with you some of his insights. You can find him online at www.hcwe.com. If you would like a complimentary Wainwright report you can request one at 800-655-4020.
Dr. Ranson describes a cycle where various markets are linked together. The cycle starts with the price of commodities and precious metals. We tend to think of currencies like the dollar as being constant and the price of things changing. Dr. Ranson posits that really what is happening is that the value of precious metals (Gold, Silver, and Platinum) remains relatively constant and that the value of currencies change. If the prices of precious metals are going up, then the dollar is devaluing. That is currently the case, and has been for several years.
The next step in the cycle is short-term rates and bond prices. Dr. Ranson's research has shown a strong correlation between rising precious metal prices and rising short term interest rates. There is an inverse relationship between rising precious metals prices and bond prices. Each of these relationships take about a year to develop. That is, if you see Gold rising today, you are likely to see short term interest rates rise and bond prices fall next year at this time.
I will describe the next two steps in the cycle in the next post.
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