Wednesday, January 6, 2010

Apologies Accepted in Advance

Well it is Wednesday and I am over the hump for the first week back at work. Not as bad as I thought it was going to be! Maybe I like getting up early? Maybe it is playoff weekend?

The Phantom Menace
What is most difficult to consider right now is just how much is data being manipulated, if at all? Sometimes things take a while to became acknowledged. During the boom years of the housing bubble some writers (hello!) had issues with NAR reported stats but no one cared. Of course now the NAR is not even taken seriously, everybody always knew they were biased, right?

So what to make of government data? Unfortunately government data moves markets yet never before has their been a time when the information will be second guessed as much as right now.

Friday is going to be a litmus test for the bullish and bearish type. Today the ADP jobs number came in at -84k which was "in line" with expectations of -75k or something to that effect. This is unimportant because the markets are bubbling beneath the surface on the whisper that the Friday government BLS numbers are going to blow the roof off. Estimates vary from a slightly positive print (boring) to a jaw dropping positive print of over 300k! Now that would be a blockbuster. Zero Hedge has some numbers:
A +316,000 NFP Print On Friday? The BLS Seasonal Fudge Factors Make It Very Likely

The litmus test is:
After a positive print, be it up slightly or up massively, you:
-Feel better about things going forward in respect to job creation
-Feel the numbers are so fabricated why not just print a positive 12 million jobs on Friday and get it over with already

My take is that a positive print is not to be unexpected, but anything over 50k will not pass my laugh test unless proven by hard numbers, which never happen due to the birth/death model.

You want more on data corruption? There is plenty to go around.

Jesse had plotted the jobs numbers based on where they HAD TO BE rather than any line fitting stuff. It comes out really close to, um, reality?:
December 2009 Non-Farm Payrolls Report Preview and Forecast
Creepy, yes?

Has the government bought 60-70 Billion a month on stock futures to pump a volume less market for the benefit of the circus audience? Quite possibly:
Trim Tabs and the Plunge Protection Team via Tim Iacono
I say yes.

Apologies Accepted in Advance
"Apology Accepted Captain Needa" - Darth Vader, The Empire Strikes Back

I have written plenty of time about the serious dreaming going on amongst many major writers about the effect the FED MBS buying program has had on mortgage rates and mortgage availability. There are some that think the FED has only helped rates lower by about 35bps, which is absurd on its face. Even my favorite investor Bill Gross says "We Don't Know" how much rates were influenced. If the FED had such a small effect, then certainly the end of the program, slated for in or about March 2010, will be a non event in the annals of history. If that is the case, one may wonder why the talk has already started to renew the program as not to panic those long lines of investors just waiting to buy this stuff and not just sell it to the FED. Why indeed is a great question, but do not expect it to be asked this early in the game.

My evidence, should it please the court:
Zero Hedge offers:
FOMC Minutes: More MBS Purchases Coming
From the FED:
The Committee emphasized that it would continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. A few members noted that resource slack was expected to diminish only slowly and observed that it might become desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee’s large-scale asset purchases and continuing them beyond the first quarter, especially if the outlook for economic growth were to weaken or if mortgage market functioning were to deteriorate.

It will deteriorate.

Housing Wire offers:
FOMC Eyes Extending Scope of MBS Purchases

My favorite FED watcher, Calculated Risk, had a neat tidbit up tonight which brings to mind why I still like CR but feel he is out to lunch on some issues:
New Research on Mortgage Modifications and Principal Reduction
Story details that the only real way to keep a repeat foreclosure from happening is to lighten the load via a principle reduction and not just extend the term of the loan at a low rate for 100 years (kidding!).

Of course nobody would expect banks to take these hits to their loan books, so the answer is right in front of you should you care to look. CR and Diana Olick miss the boat however:
But the authors don't suggest who should pay for the reductions in principal. If this was a government program, it would be very expensive and unpopular.

Diana Olick wrote today at CNBC: Are Principal Writedowns the Answer to Housing Crisis?
"I would honestly rather see my home's value go down than see the guy next door ... who made a poor/negligent financial decision get a mulligan at my expense."

I think that would be the overwhelming public reaction.

Remember that game Connect Four? Allow me to put this into perspective:

-Housing is seen as the number one item on the government agenda
-FED MBS purchases will be extended
-FNM/FRE caps removed even though they are no where near the old cap limit (yet!!)
-Mortgage reduction is the only thing that works

That's four. Did you connect them yet?

I still could be wrong and would have to do a full blog post mea culpa if I am, but I am accepting apologies in advance right now for anyone that took the FED at their word about all this stuff.

Added Bonus for tonight:
Government intervention gone wild will know no end:
GM: Hundreds of dealerships could be restored
DETROIT (AP) -- Hundreds of the 1,350 General Motors Co. dealers who lost their franchises last year could see them restored in a congressionally mandated arbitration process that begins later this month, the company's interim CEO said Wednesday...

...Whitacre said GM had a "pretty arbitrary cutoff point" for shedding dealers, and that it probably made mistakes in getting rid of some of them.

When pressed, he said "hundreds of dealers" may be closer to 100 than a thousand, but it's a "substantial number."
Now we know where all those jobs will come from!

Have a good night.


Anonymous said...

Interesting point about the govt data - my perspective is that the data "is what it is"

I cant tell you how many bulls loved the data when it was going up, only to point out it was "flawed" or somehow "inaccurate" when it was going down.

Likewise, the bears all loved the data til a few months ago...Now that some of its going up, its all "manipulated" or "fabricated" or "worthless" (take your pick).

The problem I have with both camps is that (a) if the data is screwy, when, if ever can you ever tell if a true downturn (or recovery as the case may be) is legitimate? Moreso, if (b) you are of the opinion that the data is "manipulated", assuming it continues on that trend for months or years, when, if ever does it become "unmanipulated" again?

Either way, while I do keep my skepticism radar in place, I do find that its best not to fight the tape. I think you said it best once. Sometimes the data punches you in the mouth. When that happens, dont quibble with it - just get up and keep moving.

getyourselfconnected said...

certainly you bring up some key points. I know the exact types you are talking about, when things do not go their way they sya it was due to manipulation, etc.

What I am saying is that I really do not have a horse in the race. I just want a fair race and nothing I see now shows the race to be fair. I have gone after data on many things (inflation, unemployment, etc) for years and i still have the same complaints about it!

If you are a trader then the last 6 months has been a gift, a one way government sponsored bet to the upside. Of course, you are making money on market moves paid for by, wait for it, your own money, so there is always that. LOL

My main point of contention sis at what point is it ok to play a rigged game? IF you can compromise priciples for a few bucks, where do you stop?

Anonymous said...

My main point of contention sis at what point is it ok to play a rigged game? IF you can compromise priciples for a few bucks, where do you stop?

The game has been rigged since 1913. I figure you just gotta get a copy of the new rule book for 2010 read it and figure it out.

getyourselfconnected said...

I have trouble reading and find it hard to understand big words so I guess I will just have to press on the best I can. Do they have "2010 Stock Rules for Dummies" at Amazon yet?

You missed my point yet again.

Dave in Denver said...

psyche for playoff weekend!!! i sprained/broke my wrist so i get to stay home and watch 4 games instead of my babe dragging me up to the hills to ski in freezing weather!

getyourselfconnected said...

Oh Man!

Are you Ok? Be careful on the couch with that wrist, lifting a beer can reaggravate that injury!

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