The business economist at work: Argus Research Corporation

Business Economics, July, 1999 by Richard A. Yamarone

As with many professions, the practical functions performed daily by the financial markets economist have little to do with the theory taught in graduate school. And yet those daily functions, duties, and responsibilities can best be summed up in a phrase borrowed from an earlier stage of schooling: reading, writing, and a whole lot of arithmetic.

Our nation's universities rarely teach practical "real life" economics. Schools are so determined to impress upon economists-in-training the importance of Giffen Good paradoxes and the latest debate between Smithian free-market and Keynesian philosophies that these trees tend to obscure the forest of daily practice. While a firm foundation in theory is indispensable, the fledgling economist comes only partly prepared to Wall Street. In the absence of a mentor, new economists must navigate on their own some deep and treacherous waters: from gaining a complete understanding of the National Income and Product Accounts, to the calculation of major economic statistics such as CPI, to deciphering the cryptic Fed-speak that accompanies a shift in Federal Reserve policy.

One reason for the dearth of "real-world" economics courses is that each career path requires its own path-specific approach. No single title applies to those who ply their trade on the Street. Some of the more familiar roles played by economists on Wall Street are macroforecaster, statistician, econometrician, and international economist. Perhaps the most widely accepted is financial markets economist.

Job of a Wall Street Economist

The term "financial economist" is a bit of a misnomer; it conjures images of Fisher Black and Myron Scholes laboring over their option-pricing models. A better term for what I do might be Wall Street economist.

Some background in the ways of Wall Street is a must for this position. Practical work experience in at least two related but distinct areas is a requirement at Argus Research. First-hand experience trading in the stock or bond markets, for example, provides a useful backdrop when considering the forces that affect those markets. Individuals who have "ridden" a position overnight are best situated to write about those economic events that affect positions in foreign exchange, fixed income or equities. Looking at the economy from the perspective of a trader provides insights denied the pure academic.

Argus regards this "insider's" viewpoint as a great generator of ideas for new and timely market-related commentary. Years ago, working as a trader of money-market instruments and interest-rate derivative securities, I saw first-hand how the credit markets responded to releases of the Federal Reserve's Beige Book. As a trading floor economist for an Australian bank, I created a mock Beige Book that detailed the goings on in each of the Fed's twelve districts - two weeks before the official book was released. I eventually performed the same function regarding the Fed's Blue and Green Books. These books were reviewed during policy meetings, winning kudos from senior management.

Yet an economist can't permit earlier experiences to obscure the needs of current clients. Products and commentary must always be considered with respect to the client's needs. When writing for a daily trading audience, I focused more on yield spreads and Federal Reserve activity. Argus subscribers come to us for equity-related advice, and my focus is on more industry-specific matters, e.g., the effect of rising oil prices on transportation issues.

Reading

The Argus approach to economic analysis parallels that of Fed Chairman Alan Greenspan - gather all relevant information on the economy, industry, financial markets and international developments, toss in a few academic "white papers," and form an opinion on the direction of the economy, interest rates and monetary policy. Unfortunately, the major difference between the Fed chairman and the Argus economics team is that the Fed has an arsenal of research and economic professionals. Sometimes dozens of economists are employed in the creation of one economic measure.

It is most efficient to get the reading out of the way during the morning commute. Clearly if you drive to work this isn't such a great idea. But listening to a financial news station on the radio, such as Bloomberg Business Radio here in New York, could provide an alternative way of thinking about a problem or a solution.

Most of the topics that are chosen for the morning commentary are derived prior to 6:30 a.m., what I refer to as the information hour. By the first hour of work (6:00 a.m. to 7:00 a.m.) I have been able to digest the top ten economically relevant stories from a dozen newspapers and daily closing commentaries from overseas sources. E-mail and early morning telephone conversations provide insight for the first and foremost question of the day: What will the top story be that affects the U.S. financial markets? The answer is usually provided by our sources in Australia, Tokyo, Singapore or London.