Lies, Damned Lies and Statistics
by Anthony Cherniawski, The Practical Investor, LLC | May 2, 2008
PrintThe quote has been attributed to Benjamin Disraeli and popularized by Mark Twain. It could be applied to today’s Employment Report. The press headline reads, “ Nonfarm payrolls down 20,000; unemployment rate unexpectedly falls.” Folks, these numbers have been massaged to get the “right” outcome.
For example, in April, the number of persons working part time for economic reasons increased by 306,000 to 5.2 million. This level was 849,000 higher than in April 2007. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job. 5.2 million workers comprise 3.8% of the alleged workforce.
Another example is the CES Birth/Death Model, which added 267.000 fictitious jobs to the employment data. The reason I say fictitious is the way they are distributed. For example, the model suggests that 83,000 jobs were added in Leisure and Hospitality, 72,000 jobs were added to Professional and Business Services and 45,000 jobs were added to the Construction Sector.
The last example is the most damning evidence yet of the state of our jobs market, called “Alternative measures of labor underutilization.” Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers rose from 9.1% to 9.2% in April.
Does that give you any confidence in the headline numbers on our employment situation?
Avoiding a banking panic?
The Fed said it was boosting the amount of emergency reserves it supplies to U.S. banks to $150 billion in May, from the $100 billion it supplied in April. The Fed took this action and several other moves to boost credit in coordination with the European Central Bank and the Swiss National Bank.
"In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve and the Swiss National Bank are announcing an expansion of their liquidity measures," the Fed said in a statement. The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it is providing to banks and announced that, for the first time, it was willing to accept bonds backed by auto loans and credit cards.
Isn’t this causing a moral hazard in which more and more institutions will ask for a bailout?
A breakout …or a false break?
The stock
market
surrendered its early gains after the “better than expected”
jobs report. My Groundhog Day analysis last Friday hit the nail on the
head. It took an entire week for the S&P 500 to break out above
its resistance line. Today’s action suggests that it may not be able
to keep to the “high road.”
Don’t buy I-bonds, if you want a guaranteed yield.
The
Treasury Department released the new rate on I bonds yesterday. If you
bought an I bond before yesterday, you'll get a better return on the
investment over time. But if you're still waiting to buy, well, you
might not want an I bond at all now.
The rate on new I bonds for the next six months is an annualized 4.84 percent. Not bad, you might think. But that's purely the inflation component. The fixed rate on new bonds is 0.00 percent.
A bear market in gold?
Gold
futures climbed as much as $9 an ounce Friday, with the metals
contract recovering some of the previous session's lost ground even as
the dollar jumped following a report showing that the U.S. labor
market was not as weak as expected in April.
A $9.00 rise in the price of gold is not going to make up the recent 106- point loss in value. It is now due for a rally and this may be an opportune time to lighten your position in gold.
Nikkei climbing out of the hole?
TOKYO,
May 2 (Reuters)
- Japan's Nikkei stock average rose more than 2 percent on Friday to
its highest close in nearly four months, buoyed by exporters such as
Advantest Corp (6857.T: Quote,
Profile,
Research)
on a softer yen and a rally on Wall Street amid growing optimism about
the U.S. economy.
Another article further states that investors “chased gains” in the market. It is clear that speculative fever is back among Japanese investors. Shouldn’t it be, “Buy low and sell high?”
The Shanghai rally nearing an end.
April 30 (Bloomberg) -- China's stocks rose to the highest in more than five weeks, led by banks, as higher earnings helped counter concern that government measures to quell inflation will hurt profits.
Last week I suggested that the Shanghai Index was due for a technical bounce. It now appears that the bounce is nearing its end. Let’s see what next week’s report brings.
Does the dollar have enough of a base to sustain a further rally?
May
2 (Bloomberg)
-- The dollar rose to a five-week high against the euro after a
government report showed U.S. employers eliminated fewer jobs in April
than forecast, indicating the labor market is weathering the economic
slowdown.
It looks to me like the Dollar has built a base on which it can rally higher. First, however, it needs to retest this rally before going higher.
An excerpt of a report from Charles Schwab & Co.
As the Federal Reserve continues to slash
short-term interest rates, falling mortgage rates shouldn’t be
far behind, right? Unfortunately, no. While home equity loan rates
(which are adjustable and follow short-term rates) have fallen,
mortgage rates haven’t dropped in line with the Fed rate cuts—and
in some cases, they’ve increased! Indeed, we believe mortgage rates
will likely remain relatively high as the current market disruptions
continue.
A
welcome change in gasoline prices!
As lawmakers and presidential candidates offer a number of proposals to lower pump prices, they should keep in mind that past laws and regulations have made matters worse. Washington ought to eliminate these mistakes rather than repeat them.
The Energy Information Administration’s This Week In Petroleum tells us that Gasoline inventories built to unusually high levels in early 2008, indicating an excess of supply relative to consumption. Fundamentally, this drop in prices is overdue. Let’s hope that this is a start of a new trend in prices at the pump.
Could we be at the top in Natural Gas?
The
Natural Gas
Weekly Update claims that the elevated prices in natural gas have
followed the spike in the price of other fuels. So, it seems a bit
redundant to see two similar charts.
However, these two commodities affect us in different ways. Natural gas is important for our physical comfort (heating and cooling). But it is also a very important ingredient in fertilizers and a major input in the manufacturing process. There are multiple reports suggesting higher prices. A slowdown in the economy will have a decided effect on the future prices of natural gas.
Sell in May and go away?
Sy Harding does a great job of keeping on the right side of the market. For now, he says that things look good in the market, but it doesn’t pay to be too complacent!
" It’s that time again. Twice a year, in the fall and again in the spring, I remind you of the market’s amazing seasonal pattern.
The market tends to make most of its gains each year in a ‘favorable season’ that begins in the fall and ends in the spring, and to experience most of its serious corrections, bear markets, and crashes in the opposite ‘unfavorable season’ that begins in the spring and ends in the fall.”
It pays to be watchful.
Copyright © 2008 Anthony Cherniawski
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contact information
Anthony Cherniawski | President and CIO, The Practical Investor,
LLC.
State Registered Investment Advisor | Mason, MI USA | Email | Website
The opinions of FSU contributors do not necessarily reflect those of Financial Sense.
