Here at "A Dash" we are distressed at the virtual absence of constructive debate among bloggers. The most popular sources always seem very aggressive in taking positions. This is consistent with what mainstream media seeks on their confrontational segments -- strong opinions, aggressively stated. This is the road to high ratings, but not to investment success.
It is fine to disagree. It is the nature of a free press, a free Internet, and a cornerstone of the scientific method. Why is it that disagreement on the Internet so rapidly strays from a careful examination of the issues at hand?
Disagreement is Fine
In our world, we are surrounded with very intelligent, very successful people. These include university professors, government officials, business leaders, top traders, and email networks including all of the above. Those who have strong egos are not afraid of intellectual engagement -- on the substance, and on the merits.
It goes with the territory that everyone in the group makes some mistakes. Pretending otherwise is self-aggrandizement.
In our own efforts to educate, to assist, and to lead, we often find arguments that seem completely wrong. We wonder about the motives of the writers? Are they catering to advertisers? Managing big investments for certain hedge funds? Wise analysts of demographics and Internet traffic? Or are the writers simply misguided "true believers?"
Who can know? And what difference does it make?
Economists disagree all of the time. Market bloggers should be able to do the same in a civilized fashion, without assertions about motives.
A New Approach
In our suggested approach, recommended to other blogging colleagues, we shall look for an article with which we disagree. Without any implications about the author or about motives, we will raise a specific question, preferably one where factual discussion is possible. Discussion of how the argument is presented -- exaggeration, symbolic language, etc. -- is fair game.
We can find such a candidate several times each day, but let us aim for a weekly article on what we shall call "One Simple Point."
This Week's One Simple Point
For our first entry, we choose Steven Hansen's interesting interpretation of the Leading Economic Indicators. Just to be clear, we read Hansen's work regularly and find it to be a valuable contribution. We share his general skepticism of the LEI. Having said this, his long, well-received article seems to have a certain tilt. Many people would look at the same set of facts and see significant economic progress, in distinct contrast to his conclusions. For our one simple point, we choose the discussion of consumer sentiment.
Hansen writes as follows:
There is consumer sentiment, and there is consumer sentiment. Most indexes use the consumer sentiment results of the University of Michigan who released their September 2009 data this week. They claim consumer sentiment is rising and is now higher than January 2008.
And then there is the ABC consumer confidence results issued this week which says the consumer still feels he is in the toilet.
Which would you believe?
Our first reaction is to the language, where the University of Michigan "claims" a certain result. This is not a neutral and dispassionate comparison. The U of M survey is an objective method, executed for many years. It is a "report" not a "claim." The final line, inviting the reader to go with pre-dispositions, is the key tell. If you do not agree with data, go with what you already think. This is not the road to investment success.
We invite Mr. Hansen to take a fresh look. Since we spent some years at Michigan, including many hours at the building where this work is done, we have a lot of background (and perhaps some bias). The study is the only one using a panel format. It also has better results in our own predictive models than alternative approaches. This may be why it has been chosen as a part of the LEI.
Here are some questions:
- There are many consumer sentiment surveys. What is the consensus? (U of M lagged the Conference Board, and is now catching up. There are others.) Why choose one over another?
- Are you looking at absolute levels or change? It makes a difference.
- Do you have any empirical data to support choosing one over another?
- Shouldn't the investor choice be based upon data, rather than a pre-disposition about the consumer?
We seriously hope for a constructive response, with an analysis of various sentiment indicators.
Finding our weekly choice for this series will be a challenge. Here is this week's runner up:
John Mauldin writes an article on business employment dynamics. To our surprise, he never cites the business dynamics series from the BLS, acknowledges the proven level of job creation, or the demonstrated success of the birth/death adjustment. Investors will never understand business dynamics until they go back to the basics. It starts with recognition that the economy creates at least 2 million new jobs each month, usually more. The problem is that more jobs are lost. The question is when, or if, this will end.
Investors who wish to understand economic data need a dispassionate and objective viewpoint.