Over the years, I have criticized a variety of official data points as misleading: Consumer Price Index [CPI] for woefully understating price increases, Non Farm Payrolls [NFP] due to the Birth/Death Adjustment, Core Inflation for omitting anything going up in price (aka inflation ex inflation), The Unemployment Rate due to the shrinking labor pool, and GDP due to the excesses of the deflator.

All of these data series have something in common: They all have had gradual changes in their methodologies over time. These incremental improvements in modeling, data gathering and analysis have slowly altered the various econometric models that are used to produce the official numbers: NFP, GDP, CPI, etc.

Can the Fed save the (financial) world? Roger Altman, former deputy secretary of the Treasury, thinks so:

"Today, regulatory authority is divided among the Federal Reserve, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Office of Federal Housing Enterprise Oversight, the Securities and Exchange Commission, the Commodity Futures Trading Commission, state banking regulators and state insurance regulators. That’s too many players.

We all know that Intrade Political Futures got the Joe Biden pick right last week -- how well did it do with the GOP pick?

As it turns out, not so good.  THEY COMPLETELY MISSED THE VEEP PICK.Not just off by a little, but off a ginormous amount.

We noted earlier today that the Bureau of Economic Analysis reported revised Q2 GDP data at a better-than-expected annualized 3.3%.

As discussed in the comments, the measure of Inflation is crucial to getting an accurate read on GDP (or Durable Goods). Say  you live in a country that produced $100X worth of widgets in Year 1. In Year 2, it produced $110X worth of widgets. What was your GDP gains? 10% ? 0% ? Or something in between?

A belated post on yesterday's Case Shiller release:

Through June 2008 the  S&P/Case-Shiller Home Price Indices showed "continued broad based declines in the prices of existing single family homes across the United States, a trend that prevailed throughout 2007 and has continued through the first half of 2008."

Existing-home sales (seasonally adjusted) rose 3.1% to an annual rate of 5 million units in July, from a downwardly revised level of 4.85 million in June. These are 13.2% percent lower than the 5.76 million-unit pace in July 2007.

The sales level was the highest since 5.03 million in February, while the monthly gain was the biggest one since March 2007.

 
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"At the start of the year, profits at banks, brokers and insurance companies were projected to rise 22 percent in 2008, according to the average estimate of analysts surveyed by Bloomberg. They're now expected to decline 48 percent."  -Bloomberg's Chart of Day

I seem to get the question all the time. What's with all the Housing stuff? I thought you wrote about the economy and the markets? Readers ask it, colleagues question it, Larry the K used to tease me about it all the time.

There is a damned good reason. But rather than give you a long diatribe, I will point you towards some recent research from Professor Edward Leamer of the Graduate School of Management at UCLA.

"In 2006 and early 2007, the industry, many analysts and market observers were generally not predicting a downturn in the housing and credit markets to the magnitude of what has since emerged, and outlooks for particular market segments at that time varied significantly." - Fannie Mae chief Daniel H. Mudd

That is the excuse given by Fannie Mae (FNM) CEO Daniel Mudd as to why the GSE bought into so much ruinous paper (and at the peak of the market to boot).

"The worst is yet to come in the U.S.''  -Kenneth Rogoff, former chief economist at the International Monetary Fund

Unfortunately, I have to agree. We have yet to really feel any severe impact from the credit crunch in the broader economy, or in the markets.

 "The system is completely broken. It's amazing that the system ever worked at all."  - Marc L. Weinberg, Acting Executive Director and General Counsel, Appraisal Subcommittee>  

Here's something you may not have considered: The massive losses taken by Wall Street banks and brokers are going to wipe out their profit for the next few years. About $500 Billion in write downs have already occurred. Best estimates for the total that will get written down range from $1 trillion to $2 trillion dollars.

That's not only very bad for the firms, their shareholders and employees -- it's also going to be very challenging for the regions where they are headquartered and do much of their business.

"If they are too big to fail, make them smaller," former Nixon Treasury Secretary George Shultz said.

That quote was pulled from a long article about none other than former FOMC chair Alan Greenspan. And we agree with Sec'y Schultz -- and disagree with nearly everything Greenspan claims in the article. 

The monthly update to the NAR Housing Affordability Index gets released Thursday morning (August 14), as well as the Quarterly Housing Affordability Index for First-time Buyers.

Some people seem to think this index is meaningful.  Over the past month, I have received numerous emails explaining to me how "affordable" Housing has become, most notably via this index.

Back in July, I noted that we had exited many energy positions, and that I would like to see Oil pull back to $105-110 to re-enter them.

This was a tactical, not secular, repositioning.

At this point, you would have thought the Efficient Market Hypothesis would have died a quiet death. But as is its wont on Wall Street, myths, bad theories, and old information linger far longer than one would expect.

Today's case in point: The WSJ Ahead of the Tape column today (Predicting What's Next Gets Harder) looks at how much of a future discounting mechanism the markets actually are:

There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

-Pending Home Sales Index 

US Recession 2008

Chart via Intrade

I am only a partial believer in The Wisdom of Crowds.

The climate is turning desperate for small businesses. They are in crisis, and, as these numbers show, it's getting worse and worse."

- George Cloutier, founder of American Management Services

We have been noting that earnings expectations are way too high for the second half of the year (Q3 +20%, Q4, +50%).

It turns out that they were also way too high for Q2: