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I am a molecular biologist that has worked in the biotechnology and pharmaceutical industry for over 10 years. While considering buying a home in the year 2004, I started to get the feeling that something was very wrong. Since then I have studied economics and all things financial to educate... More
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Economic Disconnect
  • Market Data Means What It Means Unless It Doesn't 1 comment
    Jan 25, 2010 10:03 PM
    All lies and jests
    Still a man hears what he wants to hear
    And disregards the rest
    -Simon an Garfunkel "The Boxer"
    As a scientist one of the most frustrating things about economics and market trading has to be the total lack of structure and reason behind moves in the market. I mean there is no evaluation or set of criteria. A narrative is set and then whatever information comes out is ignored or explained away if it does not fit the current consensus story. This happens on the way up and down. Puzzling.

    Tonight I wanted to look at two examples of this phenomena in action.

    November Durable Goods Report
    Karl Denninger was all over a major revision to the November Durable Goods report:
    Durable Goods "Mistake or FRAUD?
    On January 5th the durables report for November was 'released'.

    It showed a 0.2% increase. I didn't write on it at the time, as it didn't appear to be particularly consequential. The report, of course, came in the middle of the first-week January market rally.

    But now, in the dark of night, the number has been revised - to a decrease of 0.7%. The reason is a claimed "statistical error."
    There is more in the article.

    I sort of remembered this number being trotted out as "proof" the economy was doing the whole "V" shaped recovery thing. A sample of new stories from that data release:
    Durable orders up, jobless claims at 15-month low
    WASHINGTON (Reuters) - New orders for long-lasting U.S. manufactured goods, excluding transportation items, surged in November and new applications for jobless aid hit the lowest level in 15 months last week, pointing to a firmly entrenched economic recovery.

    Capital equipment orders strengthen in November
    Orders for durable goods rose a seasonally adjusted 0.2% in November, held back by a massive 32.6% drop in aircraft bookings. Excluding transportation goods, orders rose 2%.
    "The nation's manufacturers are returning to health," wrote Jay Bryson, global economist for Wells Fargo Securities.

    So here we have a 0.2% positive print being lauded as wonderful, but almost no major media coverage of the massive downward revision can be found today. I wonder why?

    I would also note that GDP played the same game with a +3.6% print initial (Rocket Ship Recovery Baby!) and then was revised all the way down to +2.2% (Backward looking indicator anyway). What makes me uneasy is this kind of massive revision work is starting to happen more frequently. Also worrying is the market's total lack of interest in the data.

    Home Sales and Seasonality
    Existing home sales for December came out today and they were much worse than consensus calls. A -16.7% print was worse than the -10% expected. Of course the downside surprise was shrugged off as unimportant. How this was done makes me laugh though.

    Anyone that follows home sales knows that there is a monster seasonal factor associated with it. Not many people buy homes in the dead of winter and the Summer months are prime time due to children being out of school and other factors. Ok, no problem there.

    Today the fact that December is a slow month for home sales was repeatedly harped on. Nothing wrong there either. The problem is that EVERY May-June-July home sale bump up is celebrated as proof positive housing is turning around when the EXACT same seasonality issue applies as well! You see, just tell a story and stick to it. It works for criminals!

    Of course data being massaged is troubling but at least we the public get to see some of it. If given the choice maybe it could fall under the umbrella of "National Security" like the AIG bailout.

    See this Zero Hedge article and Barry Ritholtz offers his take.

    If this is not all the proof you need for immediate removal of Tim Geithner and the voting down of Ben Bernanke (maybe there is still time?) then you may have a serious problem.

    Have a good night.
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  • Dopamine
    , contributor
    Comments (362) | Send Message
    Please dont blush, now...but I love your very succinct point of the obvious etch and sketch game being played with our statistics.
    Something seriously wrong, with our media. There is no lack of a good story here for the main stream follow. Why do they ignore such important corrections.


    26 Jan 2010, 11:08 AM Reply Like
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