Monday, January 25, 2010

Market Data Means What It Means Unless It Doesn't

Now that was a late night! Plenty of drama for the NFC title game and then of course I was too amped to go to bed and stayed up until about 1:30am watching recaps and interviews. Not fun when my 5am wake up time came!

Conference Championships
I will have plenty to say about football later but here was my quick take from last nights games (that I was SO close to picking the two final scores!)
-The Jets were done the second they went to a crappy zone defense. Partly by choice (they were getting burned by the 3rd and 4th receivers) and partly by necessity (a slew of injuries took away most of their secondary) the result was a second half that looked like a Colts practice drill session. Still, the Jets have plenty to build on after a great season.
-The Saints did everything possible to lose the game and then the Vikings said "Anything you can do I can do better!" and blew the game at the end. Hats off to Brett Favre who took a spectacular beating by the Saints (not all hits were clean!) but that last interception was pretty terrible. Fresh back from a Las Vegas trip, Kid Dynamite had the most hilarious line of the NFL season:
For some reason, I also repeatedly got a kick out of the way Drew Brees crouches down in the huddle - real low, like a ninja. Love it.
Hear that Sonic? Drew Brees is a Ninja too!

Market Data Means What It Means Unless It Doesn't
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.


Anonymous said...

"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."

Perhaps the market, fully aware of seasonality, was focusing more on the year over year (YOY) number which showed sales up 15% over Dec 2008. Just a thought.

Media doesnt like this (up or down). Every movement up is a "surge" or a "leap" and every movement down is a "plunge" or "plumet" - its never just "up" X % or "down" X %. Thus, look for them to focus on the most sensational number (in either direction) they can find.

getyourselfconnected said...

if you read the pice I think it is clear the market will pretty much think whatever they want regardless of the data. The summer bump up is always played as a rebound and not a seasonal thing. I see what you are saying though.

getyourselfconnected said...

Best headline for 2010 so far:

The search for aliens should start on Earth not outer space, says scientist

I can think of several likely candidates for being aliens.

getyourselfconnected said...

Comment test!

getyourselfconnected said...

No post tonight I am a bit tired.

If anyone remembers when I bought the treasure hunter company Odyssey Marine (OMEX) for fun they had maybe their only bit of good news in a LONG time:
"U.K. awards Odyssey Marine salvage contract for SS Gairsoppa"

from story:
"The British ship was reportedly carrying a “significant” cargo of silver, the release said."

Well thats something.

getyourselfconnected said...

More on that ship:

Very interesting history.

sonicninjakitty said...

Is this thing on now? I wanna leave my comment!

Yeah baby–I’m all for the ninjas! :) They deserved it. Favre is a dope. Let those poor Minnesotans do the “Tractor Watch” now–we in Wisconsin are so happy not to have him anymore!! Blech!

PS–if you don’t know, a “Tractor Watch” is, it’s when Favre rides down his lawn on his John Deere to the media waiting on the street edge. Then he takes 5 minutes to answer one stupid question about whether or not he will retire. It’s torture. Ha ha! Good riddance!

GawainsGhost said...

Interesting take on that shipwreck. Torpedoed, eh? With a cargo full of silver. There is a lot of treasure buried beneath the waves.

I've always been fascinated by the sea. She is a cruel mistress.

Both my father and my brother served in the Navy, but I've never been farther out than say 30 miles, on those rare occasions I go fishing for red snapper.

Back in the 1800s maritime adventures were all the rage, as it was the primary means of transportation. And shipwrecks were the subject of many a poem. From Longfellow to Coleridge, disasters at sea were an inspiration.

I'm about halfway through Exiles, by Ron Hansen. It is a beautifully written book, although the subject matter is quite sad. The lives of five nuns doomed to die at sea, and of a Jesuit who was inspired by their fate to write one of the most moving poems in all of literature, "The Wreck of the Deutschland."

I suppose it's only a matter of interest to me, captivated as I am by poets and poetry. But it is a good read. I highly recommend it.

Corporations were invented to protect the interests of shipping magnates, you know. And their perils have long been with us.

These days it's not about ships but banks. However, the wreckage is still the same. Lives and fortunes are lost to the whims of the weather, and recovery is the name of the game.

getyourselfconnected said...

I know what tracker pulls are at least!

Part of my attraction to the firm was the immense amount of material available for salvage. Add to this all the historical fid work they also do and i thought it was a great buy. Nothing but a hard way to go so far from various countries that want to lay claim to the riches (big surprise) but the law so far has been on the side of the countries which is not consistent with maritime accepted practices. Oh well.

"Exiles" sounds a bit gut wrenching for me!

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