False Data Clobbers the Markets 49 comments
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What is real? Up until this point, 2008 has been a year marred by false data. The market has had no trouble digesting the real numbers. It's the false numbers that have put us into a recession-like sell off. The list of market moving inaccuracies continues to grow, here are the three latest:
1. Government GDP Report. Why doesn't the government just hold off a few weeks before releasing its reports? No data is better than false data. The latest GDP growth revision is absolutely inexcusable. I can handle a small revision from 3.1% to 3.2% but 1.9% to 3.3%? Wouldn't it be better to just wait another 3 or 4 weeks and get the numbers correct?
This isn't the first time either. The non farm payroll reports have provided us with some overreactions. The carnage of 2008 actually began on January 4th when the December payroll number was released. It came out at 18k and the Dow sold off over 800 points in ten days. Nobody paid much attention when that number was later revised up. We've lost too much market value because of seemingly negative data that was later revised. Our estimates show that such inaccuracies have cost the Dow over 1500 points.
2. The Steve Jobs Obituary. False rumors haven't been limited to the financials, Nasdaq leader Apple (AAPL) has dealt with its fair share of false rumors as well. The latest cheap shot bear tactic happened on Wednesday evening with the release of a 17-page Steve Jobs obituary over at Bloomberg. We calculate that Apple has lost approximately $30 in share price due to false rumors regarding the health of its CEO.
3. The Misinformation on Oil. Talk about getting creative, try being an oil bull for a day. We have heard lie after lie come from this group as they try to justify the ramp in crude prices. My favorite was the Nigerian oil crisis. Come on. They try to say whatever they can come up with to take the focus away from the real data. The bottom line is that this planet is flush with oil and even if it wasn't, we will have alternative technologies for transportation and energy fully integrated into society within twenty years. Cars will run on natural gas, hydrogen, and electricity. Energy will come from solar, wind, geothermal, or nuclear. Take your pick.
The other fallacy among oil bulls is that the growing middle class of India and China will cause a world wide shortage. I'd encourage you to research one of the main concerns presented to international leaders at the World Economic Forum in Davos, Switzerland. Their real concern is just the opposite - they are actually more concerned with decelerating population growth. Germany, Italy, Spain, France, Japan and Russia are losing drivers every year. By 2030 there will be 80 million fewer Europeans than there are today. Japan will lose 60 million people. Russia 30 million. We calculate that oil is overvalued by at least $65 a barrel because of false supply issues spread by investment speculators.
CONCLUSION:
The US economy has been amazingly resilient in the face of these volatile headwinds. Inaccurate data moves the markets in the short term but over time, the market will overcome its panic and focus on real data. With all the negativity that has been thrown around this year the truth actually sounds like a lie. We have GDP growth at 3.3%, unemployment is still in the 5% range despite a housing meltdown, Apple can't produce enough iPhones to sell, and corporate earnings (excluding financials) have held up remarkably well. These positives will get priced in as the panic continues to subside.
DISCLOSURE: LONG AAPL, SHORT USO.
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This article has 49 comments:
Plenty of oil scholars say it's during the next 5-15 years that we'll have supply problems, before other energy sources start handling a meaningful percentage of the burden. So you give no credence to those who claim depletion and refining limits are going to cause supply problems, and China and India will be wanting more and more oil?
Are you close friends with Steve or what? How do you know the rumors of Jobs' illness are false? I'm not saying they are true, I'm saying there is a possibility they are true. I suppose no one ever dies in your world? I'd love to live there, reality is a lot less fun.
First: The government is LYING!
Look at a web site called shadowstats.com this site calculates inflation at about 14% NOT 1.9 used to calculate the phony GDP numbers.
If you want to know how they come up with these BS inflation numbers and the BS GDP numbers watch this explanation with slides www.chrismartenson.com...
“The bottom line is that this planet is flush with oil”
Yea that is why at 150 per barrel there is not a flood coming into the market.
LOOK AT THIS www.chrismartenson.com...
I would go on but I do not have the time
In my little niche, the software market, we see a variation all the time. It's not a matter of false data but no data. The pundits say:
-- Microsoft is in an end-game state (except that it is growing as fast or faster than all the other leading software suppliers except Google and is active in all the likely future technology trends, not just Search, leading in some of them)
-- SaaS is taking over the software world (except there is no data to back up that claim even though SasS--nee ASP--has been out there for 10 years, or more depending on how you count)
-- Cloud computing is the next big thing (except it has been around for 50 years)
Getting no data is the simplest thing in the world: Sell your TV set and DON'T watch CNBC. Problem solved!
But false data is a big help for smart people, it drives stock prices down to bargain-basement red-tag sale levels, the best time to buy. :)
The GDP report assumes just a 1.2% annual rate of inflation. Let's see, if you assume inflation is REALLY even 4.5%, then growth is actually zero. However, the latest CPI was +5.6% YTY, while the latest PPI was +9.8% YTY...
You keep betting oil and commodities will fall and I'll continue profiting off your analysis.
A fool and their money are soon parted.
Your alternative energy will save us view is also way too optimistic...there are huge infrastructure issues with every alternative on offer...most people who understand that we need more than a few electric cars and some solar plants to change the oil addiction say there it would take 20 years and trillions of dollars to really overhaul the economy to work on alt. energies. That's assuming we have several technology breakthroughs.
Anyways, very poor article but anything that promotes discussion is good...right?
Naked assertions without any logic or data to support them are less than persuasive - the author may wish to look up the definition of 'analysis' because this exercise in magical thinking does not qualify. Don't get me wrong - I'm a big fan of magical thinking - it allows me to buy on the dips from folks who engage in it. Let's all repeat together: "oil is not a finite resource - and besides we can always fall back on magic pixie dust if need be."
It really doesn't matter how much oil is in the ground, what matters is whether anyone is ready, willing and able to pay the costs (monetary and otherwise) to extract it. How many polar and deepwater drilling rigs are there in the world? What's the ERoEI for tar sands? Oil shale? Why aren't the IOCs already busy drilling on the leases they have in the OCS? Where does the natural gas come from, given that the same peak dynamics are impacting that fossil fuel as oil? What's the supply situation for uranium look like, and how much energy will it cost to find, mine, extract, transport and process it? How much would it cost to build and operate enough nuclear plants? Wind farms? Solar plants? What's the amortization picture for all those gas fired plants that just got built? What's the feedstock for hydrogen?
And bottom line: who is going to pay for all of this considering we as a nation are dead BROKE and the banks are reluctant to lend money for CARS, let alone for massively capital intensive projects like, say, replacing the entire energy infrastructure of this nation over a quick time span of only a couple of decades?
For those who prefer a little reality in crafting their long term perspective, I suggest the 2005 Dept of Energy Study, and it's 2006 and 2007 follow up reports on mitigation strategies, by Dr Robert Hirsch:
www.netl.doe.gov/publi...
www.d-n-i.net/fcs/pdf/...
www.d-n-i.net/fcs/pdf/...
Hirsch's bio:
* Senior Energy Program Advisor, SAIC (World oil production)
* Senior Energy Analyst, RAND (Various energy studies)
* Vice President of the Electric Power Research Institute (EPRI).
* Vice President and Manager of Research and Technical Services for Atlantic Richfield Co. (ARCO) (Oil and gas exploration and production).
* Founder and CEO of APTI, a roughly $50 million/year company now owned by BAE Systems. (Commercial & Defense Department technologies).
* Manager of Exxon’s synthetic fuels research laboratory.
* Manager of Petroleum Exploratory Research at Exxon. (Refining R & D).
* Assistant Administrator of the U.S. Energy Research and Development Administration (ERDA) responsible for renewables, fusion, geothermal and basic research. (Presidential Appointment).
* Director of fusion research at the U.S. Atomic Energy Commission and ERDA.
Next, google Matt Simmons, CEO of the largest energy investment bank in the world, and take a look at any of the numerous presentations and interviews he's given. Here are some startingf points:
www.financialsense.com...
www.ogfj.com/display_a.../
www.economist.com/peop...
www.simmonsco-intl.com...
Finally, how about testimony from one of the most conservative Repubilcan Congressmen, Roscoe Bartlett:
bartlett.house.gov/Ene.../
www.energybulletin.net...
www.energybulletin.net...
Folks, these are not Birkenstock wearing tree huggers. Not sure what the energy background of the author of this bit of speculative fiction above is, but I'm willing to bet he's just a tad overmatched here.
"The other fallacy among oil bulls is that the growing middle class of India and China will cause a world wide shortage. ...Germany, Italy, Spain, France, Japan and Russia are losing drivers every year. By 2030 there will be 80 million fewer Europeans than there are today. Japan will lose 60 million people. Russia 30 million."
Drivers? Is the author under the impression that the only use for petroleum is *gasoline* and the only users are shoppers and commuters?! What about agriculture? Mining? Commerical transportation? Manufacturing? Plastics? Pharamceuticals? Asphalt? etc...
Pop quiz: what is the rate of GLOBAL population growth? (Hint: all these people will want to eat)
Cherry picking a half dozen nations whose replacement rate is low isn't analysis - it's blatant bias and distortion (in the best case, ineptitude) seemingly intended to introduce false data. Precisely the problems this piece of "analysis" (and I do use that word loosely!) purports to address.
Writing an essay on misinformation and then, within it, promulgating misinformation - Orwell would be proud.
excellent analysis of the article. As you say "cherrypicking" countries with declining population rates and conveniently omitting countries with INCREASING population like China and India is not analysis. It's misinformation. As much as the crtics want to trumpet lower growth rates for both China and India; 9.5% and 8% annual growth still look pretty good compared with US economic growth. More importantly both countries are rapidly industrializing and adopting a "Western" lifestyle. You know what that means? More cars, appliances, infrastructure, etc. I do however agree with the author that there is an incredible amount of manipulation going on right now in the stock markets. With actual physical shortages of gold and silver now how can anyone explain the rationale for a 30% decline in precious metals? The answer: Central Bank short selling.
Yank
But let's not stop there - let's look at the macro picture - the author of this piece suggests:
"Why doesn't the government just hold off a few weeks before releasing its reports? No data is better than false data. The latest GDP growth revision is absolutely inexcusable. I can handle a small revision from 3.1% to 3.2% but 1.9% to 3.3%? Wouldn't it be better to just wait another 3 or 4 weeks and get the numbers correct?"
Why in the world would anyone presume that GDP numbers - that issue from the same government that emits the laughably fraudulent CPI - are 'correct' at any point along the revision trajectory?
IMO - it's all false. It's all massaged. It's all a mirage - an illusion. I wonder if the author of the piece above ever bothered to look into how the GDP is actually calculated. As one widely available short essay on the subject notes:
"Much of the data used in GDP is collected by sending out surveys to different companies. They will send out surveys to a select bunch of retailers and manufacturers to ask for details of their output or sales on a monthly basis. Then comes the estimate of the whole. The governments can obviously use this to their advantage by selecting the companies that they know are steady companies and not choose the smaller companies who are more likely to be erratic. Therefore most smaller companies will never get asked to perform a survey for the government as this may upset the figures."
So the number is not only inherently inaccurate (and we have not even gone into the forms of economic activity that the GDP explicitly excludes), it is an invitation to governmental manipulation. After all, how would one prove that "the economy" (as though this were so easily defined in the first place!) grew at this rate or that rate? The only reason to believe the govt stats are accurate is if you believe the govt does not lie as easily as you and I breathe, which is demonstrably false.
So it's not just metals, not just the market, but the entire economic picture as portrayed by government statistics that is one big manipulation.
As far as I can tell, the one thing that one *can* rely upon is that a government which uses a fiat currency and is out of other options, especially one which is on the hook for $60T+ in unfunded obligations over the next ~75 years and has no other way to 'meet' these, must inflate like mad. Period. And at some point, manipulation or not, that's good news for gold, in the long term. And probably for oil, too, for as long as it's priced in USD anyway.
Students of history will know that in every single instance of the deployment of a fiat currency, starting 1000 years ago in Szechuan Province, China, the outcome is always the same - dozens of examples across history all tell the same story: run away inflation, sky rocketing of gold prices, collapse of the currency.
Those who are not students of history - well, Santayana had them pegged.
Ray Charles could see oil and food and health care and politics, and your favorite opportunity for arbitrage are being manipulated, like your selective premises.
One thing is for certain, we are not in a good situation as a nation going forward so quit trying to prolong the inevitable for those ready for it!! See ya when the DOW hits 8000.
I don't particularly care for unsubtantiated claims and projections of energy alternatives from a confessed options trader, the US deficit is real, and the breakdown in the finacial markets is real - that's what will be felt after Labor Day, so don't short energy, short financials
Options trader=market manipulator, great to hear the author has made lots of money for his investment fund,
sure like Ozzy's post,
BDO
From where was this statistic derived? From the "legal" employment/unemploymen... data?
What about the millions of "illegal criminal alliens" who are now back in their own countries living like kings, who are NOT counted in the unemployment statistics?
Just guessing, but probably if you counted the loss of jobs by all the "illegal criminal aliens" in the last couple of years, the true unemployment figures would be closer to 9%, or more!
Ozzy....I understand your frustration ;) Also know that there are none so blind as those who will not see...
Its a pity that the credibilty of the government, industry and the media is so utterly trashed., and this article doesn't help.
Everyone now starts from the position ' what agenda is served by the latest round of lies and distortion ?'
Most poeple feel better when they believe in something or somebody.
Unfortunately we have to get along without that.
On August 28th a report in a Corpus Christi, Texas newspaper included a picture with this caption: “Tank trucks wait in long line Wednesday to load fuel at Magellan terminal in Fargo North Dakota.” For those who don’t know, Magellan Midstream Partners LP operates a network of pipelines and distribution terminals including one in Fargo.
The report went on to say that industry officials are mystified by fuel shortages at terminals in the upper Midwest in recent days. However, they are likely to have enough supplies for Labor Day weekend.
Folks, we reported a week ago that there were shortages of diesel in, of all places, northwestern Saudi Arabia. Last spring we reported that there was no gasoline in Australia and the big companies advertised in a Sunday paper to apologize. We also reported on the shortage of gasoline at the biggest refinery on Edmonton Row in Alberta Canada – all evidence that this is NOT a new occurrence!
Are you beginning to get the picture? It’s developing right before our eyes. There is only one reason for shortages of gas to be happening in so many places, and that’s because THERE ISN’T ENOUGH crude supply.
If you haven't heard me before, please pay attention because peak oil is behind us. Let me say that again…PEAK OIL IS BEHIND US! We now consume more oil every day then we produce, and that is not likely to change! The crude oil inventories that are worldwide and located in 10,000 different places have been absorbed through the second quarter. From here to the end of the year, the rubber meets the road “big time”. I must say this once again. “Now is the time to be long in oil, natural gas, coal, gold, silver and agricultural products.”
This is Zapata George
I'm more worried about the gas pump price next week when we begin to see if Gustav is going to be a problem.
Relax and enjoy plenty of time to be paranoid next week
Plenty of oil: Sure is. Getting it out of the ground is the problem. Ever try to suck oil out of sandstone closed pockets?
China is not a risk. China is building freeways for 200 million cars. If one third that number fills them......... That will add another SIX MILLION barrels a day of consumption, which everyone admits is not currently possible.
O, Inflation. The dollar is in tatters. The current free money policies have destroyed it.
Talk about clueless. Yes, the data is flawed. But in the opposite direction!
Don't care much about oil, but I'm certain that once you remove the oil men from the big house, the price will drop. You can write dissertations why it won't, and why the world is coming to an end and no one will listen.
Because YOU sure ain't.
The description of "headlong dive" may turn out to be quite prophetic. The cure to an Addiction involves the realization there is an addiction in the first place. We are still in the denial phase.
There is plenty of oil. However, most is horrifically expensive to retrieve or of a grade that 90% of the world can't refine. Might as well leave it in the ground.
The next generation will look at this and laugh. But we are not in that timeline. We have the present.
The Idiots in Congress have forbidden oil drilling away from the High Risk area of the Gulf. This has led to a concentration of refineries in the same region.
Katrina should have been a wake up call. Instead, the alcoholics had a few more drinks. The big difference, that Gustav brings to the table, is that this time around Europe will not accomodate our needs in the form of refined products. Russia's incursion and the threat of oil reduction to the West will preclude aid.
Gustav is not a figment of someone's imagination and if it does even half the damage that Katrina did, refined products will surge and stay higher and longer than if we had only diversified away from the area.
The SPR provides oil. It does not provide gasoline.
Meanwhile, the Stats provide that stocks are the best investments over a long period of time, usually 50 years or so. That is true if one looks at the forest, that is, an Index. However, thousands of stocks have gone belly up during that same interval and while gold has its ups and downs it does not lose all of its value.
Please explain why someone in Nigeria farts within a mile of a pipeline and oil goes outta sight but a hurricane threatens the Gulf Coast and oil goes down ????
Supply/demand my ass.
Great post. When it comes to government numbers i always remember this. Social Security has been ' fixed ' 3 times in last 60 years and each time for the next 100 years .
So much for government numbers.
No inflation ? Then why is gold some 23 times more expensive in relation to the dollar than some 70 years ago . I think i will keep holding a bit of the shiny stuff .
Everything is so rosy (just ignore those minor banking issues).
....but let's take them one-by-one.....
First, I didn't like the latest GDP numbers anymore than anyone else. It was one of those "this does not compute" moments. But waiting for "better" data is not the answer. While I'll be about the last person to cheer on BEA, it makes clear that the latest estimate is "preliminary" after its "advanced" estimate a month ago--and it will continue to revise this number as time goes on. Are markets going to wait until the GDP number is 100% accurate before it moves? I don't think so.
And to the extent that the writer believes "inaccurate" NFP estimates cost the DJ some 1500 points, I would say that points to a huge flaw in his modeling approach to the market. The data is what it is; whether you can properly interpret it is your problem.
Second, Steve Jobs' health--or lack thereof--has been the subject of rumors for years. Look how skinny he is, he must be dying of cancer......blah, blah, blah. This isn't data; it's barely information, and it's not new. It is rumor, innuendo, etc., and the likelihood of its being true--no matter how many times it has been repeated--is small. To make investment decisions on that kind of information is stupid, even misfeasance.
Third, explanations for why oil prices go up or down are no better or worse than the explanations given for other market phenomena. Indeed, pundits feel compelled to explain market, stock, or other investment-related events in terms of some kind news event. Once in awhile they get it right, but more often than not, there is no apparent cause and effect relationship. And sometimes they are just plain wrong. Acting on such information without vetting it thoroughly is irresponsible. Until it is vetted, it is not data.
As for the apparent contradiction between slowing population increases in China and India and the growth of the middle class, the writer is confusing a demographic trend and an economic trend. It is quite easy to have a smaller population and larger middle class over time in both real and relative terms. This is not bad data, this is really bad analysis.
I'm not Mike in Finland, but I'd like to comment that you sound like a shrink or a con man.
But you know who you are...
One Hurricane hits the Gulf, the economy is hit as a whole. Another looks ready to hit the East Coast within a week, it won't stimulate that area either. Ike is on the way.
While Oil is a long term play, the entire Focus is on the US Economy and the effect these hurricanes will have. In the short term, I would think it will be greater demand destruction.
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