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American Bandstand leader Dick Clark once said, “I don’t set trends. I just find out what they are and exploit them.” The trick, obviously, is knowing which trends are built on a solid empirical foundation and which are just wishful thinking. Not an easy task. For instance, few economists correctly called the current economic crisis. But one little-known indicator did: the Stanley Cup predictor.
According to analysis by Ernest Biktimirov, an associate professor of finance at Brock University in St. Catharines, Ont., the market drops when a team from the NHL’s Western Conference wins, but improves when an Eastern Conference team wins. The Detroit Red Wings won the Cup last June, so the market should finish in the red for 2008. Distressingly bang on. Indeed, the predictor has previously succeeded six times out of seven, so it will have a pretty good 87.5% success rate after this year.
Since 2000, the Canadian stock market goes up by an average of 16.5% in years when the East wins, and declines by an average of 5% when the West wins—and that includes 2007, when the Anaheim Ducks won but the market rose 9%.
Now, no one, least of all Biktimirov, is suggesting there’s anything other than coincidence at work here. But people have been relying on a similar model called the Super Bowl Indicator for years. That one forecasts a down market if a team from the American Football Conference wins and an up market if a National Football Conference team wins. Between 1967 and 1997, the SBI was right 28 times out of 31. Since then, it’s been less precise. The NFC’s New York Giants won in 2008, so it clearly won’t be right this year.
Why pay attention to the SBI at all? Well, the Super Bowl is hugely popular, and its outcome has been quite accurate in determining which way the market will swing. The Stanley Cup meets the same criteria in Canada. But in order to believe these predictors, you have to make two key assumptions. “One, you have to accept correlation results, and the other thing is that you have to believe history repeats itself,” says Biktimirov. “Sometimes, we find a relationship, but we simply just don’t know what causes what.”
There is yet another sporting indicator that could help explain the current malaise, and one that actually has some merit. The post-Olympic slump theory holds that the host country’s economy will slump following the Games. That’s partly because the run-up to the event is marked by all kinds of government-funded economic activity—infrastructure builds, new athletic facilities, renovations—that immediately disappears once the Olympics begin. This effect has been identified in 10 of the previous 11 host economies of the Summer Games, and China’s economic growth is expected to drop from 11.5% in 2007 to 9.4% this year, according to the World Bank, and to just 7.5% in 2009. (China also has an estimated US$40-billion Olympic bill to pay off.)
A 7.5% growth rate would have most countries salivating, but it’s troubling for China, which needs a red-hot economy to keep the peace. It’s also troubling for the rest of the world, which was hoping to cash in on China’s rising middle class to offset decreases elsewhere. But before we get carried away, part of China’s slowdown is certainly due to a general slump in the manufacturing sector as other nations tighten their belts. And, as the predictor’s detractors point out, Beijing’s share of the Chinese economic pie is just 4%—much less than, say, Seoul’s 25% slice of Korea. Any setbacks should be less felt countrywide, let alone worldwide.
Las Vegas oddsmakers have the Giants winning the Super Bowl and the Red Wings or San Jose Sharks winning the Stanley Cup. So if you’re feeling lucky, place your bets.
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