The term” Now-Casting” has been around for a few years and has recently prompted some lively discussion among our Research Analysts and Brokers. Generally speaking, Now-Casting, refers to the use of real-time economic data to assess a wide variety of business and economic trends. In a very key sense, we in the investment business, have been Now-Casting our entire working life. We make decisions using the vast array of trading data that is as “REAL TIME” as it gets. Our Program Trading Department uses sophisticated statistical and historic models that execute trades automatically and they get offended if I tell them they are not really using real time data. Yes, the trading data is real time, but the decision making that has generated much of the trading is not. That is the crucial distinction.
Stock market and business cycle predictions are most accurate when the models use the most number of indicator inputs. On the Macro-Economic level GDP reports come out quarterly and are revised a few weeks later. By studying key leading indicators like inventory levels, business startups, building permits and retail sales, analysts try to get a head start, on Macro trends. The Stock market itself is a great leading indicator on aggregate. In this regard technical analysis focuses on a myriad of indicators like relative strength, momentum, moving averages, short position ratios and volume confirmations. As these and many more are compared with complex mathematical formulas, predictions can be made with a fair degree of accuracy. Black Swan events will make even the most astute analyst humble but all the effort does produce results.
Now imagine that satellite and CCTV cameras are monitoring every single parking lot at shopping centers and large retailers like Walmart and Costco in the United States. Also imagine that software with artificial intelligence capability is counting the number of cars at all times. Once this data is compared with real retail sales in future weeks and months it is then possible (by testing different models repeatedly) to actually “know“retail sales data as it is happening. Use the same technique (counting the movement and number of containers) for all the major ports and shipping terminals in the world and you have real time world trade data. Factory truck delivery counting data will give you manufacturing strength and plane departures and arrivals will give you tourism. The list goes on.
The origin of all this is the merger of the Meteorological Science, Satellite Imagery and need to estimate Agricultural yields. Weather predicting is the original Now-Casting. By studying and measuring the usage of the world’s agricultural land combined with Meteorological data it is possible to estimate world output. This of course can now be subdivided by sector like soybean, wheat, coffee, oranges etc. etc. Extreme weather occurrences are not the Black Swan events they once were because by having all the precise data of land use and combining it with the known effects of extreme weather allows for quite accurate estimates in real time.
Now-Casting is a rapidly expanding and useful tool for analysts. Two of the most prominent companies are SpaceKnow and Orbital Insight. They are worth checking out.
Richard T. Brandt, Director of Research, Kingston Trading