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 MarketTrak Question/Comment Message


Posted By: Tom D   Date: Tue Aug 12, 2008

Title: Development Model

Message:
  You wrote today, "The development model is currently long while the current model is in cash and about to go short. The difference in the outlook seems to be related to the significance the nets give to the recent drop in commodity prices."
 
  From what I read, human "neural nets" are having a problem with that issue as well. The bears see the commodity drops as more evidence for a worsening economy which would therefore be bad for the stock market. The bulls see the commodity drop as a normal correction in an overbought sector which should be good for operating industries and consumers and therefore good for the stock market.
 
  Since the excruciating rises in crude oil, iron ore, and copper were like a sudden vice-like tax, I see the declines as being like a very large tax cut for business and consumers. So I'd be inclined to agree with your new model under development.

Response:
 Tom,

  I believe your economic analysis of the situation is correct. Unfortunately, like humans, our models do not agree on the impact of commodity prices. One sees the future correctly while the other does not. Which one is correct will be known in a few weeks. It is interesting that both models see the same financial data and are quite accurate in their past forecasts but can draw different conclusions.

  The models are practically the same except for the way network input data are normalized. The developmental model uses an approach that should be better. We'll see if that is true.

Rich

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