A Dash of Insight

The Most Important Stat: Bloggers versus Experts

Market pundits always try to explain modest changes in the broad averages.  Today their stories are all wrong.

Today, the most important statistic came from Jack Hough at Smart Money

The Story

Hough did a piece on the credibility of government statistics.  It is a nice job compared to most prior discussions.  He provides a viewpoint on each of the key issues, citing arguments from the BLS and the principal conspiracy theorist.

It would be interesting for investors to read the entire article and also to read the supporting documents from the conspiracy guy and the BLS.

Almost no one will do this, since they are too lazy to do any real work.  We are now addressing to the handful of people still thinking and reading.

Of the few who try, most will not be able to evaluate the arguments, since it requires some understanding of data analysis to reach a real conclusion.

It is possible for someone to sell snake oil and the reader will not know the difference.

Basically, it comes down to how people feel about government.  Most students enter college -- we know, we taught them -- with a negative bias.  They see movies.  They make the mistake of thinking of Congress -- 535 people with different motives, coalitions, and partnerships, as if it were a rational unitary actor. Simple and facile interpretations can be persuasive.

The Data

As observers of the investment scene, we have documented a long-term process of dis-information.  To our amazement, the story was even worse. 

The data show that 85% of readers do not believe government data.  Wow!

This is an astounding result.  We knew that the big-time blogs were unduly influential.  We knew that the mainstream media sources accorded undue recognition to the extremists.  We also knew that every time we discussed government data in a positive light, we got hate mail -- both aggressive and plenty of it.

We are still astonished.  Normally the highest people in socio-economic-status (SES) also have a higher score on questions related to Confidence in Government.

But it is  an online poll -- tracking an audience known to be unrepresentative, wealthy and conservative. Does this matter?  What interests us here is that the unrepresentative sample  is so far out of touch with reality.

To Summarize

The data are complex.  We believe that any of the Internet pundits (name your candidate) or the conspiracy guy would be beaten like a drum if engaged in a fair fight with someone from the BLS or another suitable representative.

BEATEN LIKE A DRUM.  Any media source wanting to try this could do it.

We cannot cover this in one article, but it is an open challenge to government critics.  Any time, any place.

Investor Implications

Many individual investors are attempting to monitor economic developments.  There is a choice in data sources.

You can take information from one of two sources:

The first source consists of career professionals whose salary and benefits have no relationship to politics.  They develop methods and write articles for peer-reviewed journals. Their career chances depend upon professional performance as evaluated by others in the field.  You already pay millions of dollars for this information.

The second source has a profit motive.  None of the assertions are reviewed by peers or published.  Everything plays upon emotions and pre-conceptions.  There is plenty of support from bloggers who share these motives.

To us the choice seems obvious.  When we learn that nearly everyone disagrees, it makes the trade even more attractive.

Dubious Indicators: Continuing Jobless Claims

Here at "A Dash" we have a continuing commitment to finding important economic indicators.  This means throwing out misleading information and finding indicators that help investors.  We are going to examine some "broken measures."  This analysis will not be biased.  We are going to throw out some indicators that skew bearish, and some that skew bullish.

Continuing Claims -- A Dubious Indicator

There is a new indicator on the economic front -- continuing jobless claims.  Pundits of a bearish persuasion are rejecting the recent stabilization (even improvement?) in initial claims.  They prefer to cite the hockey stick rise in continuing claims.  Here is an example, but we do not mean to pick on any single source.  You can find the chart anywhere on the Bearish Blogging Network, but we are picking it up from a more balanced source, Bill Luby.  Please read his discussion to get the context.  We just want to show the excellent chart.

The chart is alarming to all who see it -- another "worst in history" presentation.  Should we believe it?

The Problem

The key point is that this is not an apples-to-apples comparison.  Jobless benefits have been extended twice (at least for most states), so recent data are not strictly comparable with past periods.

There are some who believe that extending jobless benefits reduces the incentive to look for work.  While we do not endorse that viewpoint, there is an obvious "break" in the time series.  We cannot compare periods where jobless benefits have different time periods and expect to get meaningful results.

 BLS Data

The BLS provides a different approach, available in the table below.  Anyone who looks at the actual data will see the facts, as follows:

• The number of people experiencing 27 or more weeks of unemployment has increased dramatically in the past year, from 1.4 million to 3.7 million.  It is a bad employment situation, as we have frequently reported.
• The mean duration of unemployment has increased from 18.3 weeks to 21.4 weeks, a serious increase.
• The median duration of unemployment has increased from 11.0 weeks to 12.5 weeks.

This is a very negative picture, but not as bad as the popular chart suggests.

Download Duration of unemployment

Our Take

We remain very concerned about job losses, the employment rate, the rate of marginally attached workers, and other indicators.

Having said this, the four-week average of initial claims is an important indicator in our employment models.  It has stabilized in recent weeks.  Most observers do not pay any attention to actual data about new job creation, which is running at a rate of over two million per month or so.

Briefly put, we all know the employment picture is bad.  It is important to look to indicators that are comparable across time periods.  There is new employment.  Some people are finding jobs, although the rate is still poor.

The continuing claims chart is not helpful in this regard.  It should not get much attention.

Bank Failures: Not a Significant Indicator

A bank failure is news.  It is clearly negative news.  What does this information really mean?

Bank failures are a concurrent indicator of the recession.  The rate of failures is bad, but not as bad as the Savings and Loan crisis.  Take a look at this chart from featured site Calculated Risk in an article from a year ago.  Bank failures are up from good times, but nowhere near the levels of the 80's.

News Information versus Perspective

Several sources are highlighting bank failures, announced each weekend.  The information is accurate, but it lacks perspective.  The real question is whether the bank failures provide any predictive information about the economy or the market.

CXO Advisory (another featured source)  has done the analysis. Readers should check out the entire article to see the typically excellent charts.  Here is the key conclusion:

Visual inspection indicates no systematic relationship between the bank intervention rate and stock returns.

and further...

Excluding bank intervention anomalies (1935-1942 and 1982-1993) produces an R-squared of 0.00. These results do not support a belief that the annual FDIC bank intervention rate relates systematically to annual stock market behavior.

and finally....

In summary, evidence from simple tests does not support a belief that there is a systematic relationship between the annual rate of FDIC bank closings and assistance transactions and annual U.S. stock market returns.

Our Take

Bank failures are news.  Objective reporting of this news cannot be criticized.

Having said this, investors must learn to distinguish between coincident negative indicators of an acknowledged recession, and data that has a better predictive value.  At "A Dash" we try to highlight these differences, as we did here.

Monitoring the Economy

Nearly all of us are consumers of economic information and data.  We are interested because economic strength leads to corporate profits and higher stock prices.  We need to know!

The key issue is pretty simple.  Many question the "second derivative" rally in stocks.  Their point is that economic data are bad, very bad.  Evidence showing that conditions are now showing  "less weakness" -- well -- that is not really bullish.  The economy, consumers, credit, and housing are all still very bad.

A Review of Key Sources

 The advance data on 1st Quarter GDP came in worse than expected.  A big decline in GDP is not good.  Some noted a few positives:

• Richard Hamilton at Econbrowser, one of our featured sources,  is a realist with his own recession method.  His rating is negative, but he notes the increase in consumption and cautiously observes that growth could be positive by year end.
• Joe Wiesenthal, citing economist Richard Moody, also suggests Positive GDP as Soon as Next Quarter.  He notes (emphasis from original), "Thus, through the process of what we call addition by less subtraction, the deductions from real GDP figure to be significantly smaller in Q2 than was the case in Q1. As such, a modest increase in real GDP during Q2 is not out of the question."
• Calculated Risk (another featured source) emphasizes that GDP is a lagging indicator, although he is cautious on the strength of the recovery.  Readers should click through to see the excellent charts.

There are other miscellaneous indicators.  Ed Yardeni, one of our favorite economists, sees twelve positive factors drawn from economic data and earnings.

Looking Forward

Most data sources provide analysis of coincident or lagging data.  We all hope to look ahead, but few provide such insight.

The ECRI (Economic Cycle Research Institute) has a strong record of forecasting recessions and recovery.

My RealMoney Colleague Anirvan Banerji does a careful explanation and defense of the ECRI indicators, which were excellent in predicting the recession.  (Subscription required and worth it.  Regular readers know that we subscribed to RealMoney for years before joining as a contributor.  Consider a trial subscription.)  The key quote is as follows:

The "giant error of pessimism" is now rampant. This is why many will be blind to the light at the end of the tunnel that marks the exit from this recession. But to ECRI's array of objective leading indices, designed specifically to spot recessions and recoveries, the end of the recession is now in clear sight.

The indicators show that the economy is "on the cusp of a growth rate cycle."

Our Take

We expect pre-occupation with the stress test results, due for release on Monday.  Many are suggesting that the assumptions in the test are too soft.  Meanwhile, there are strong indications that the assumptions might be acceptable.

We expect another bad payroll employment report next week (a lagging indicator) and continuing skepticism about the economy.  It all fits our explanation for why the market has defied the lagging economic news.  Current equity prices started building in depression scenarios after the fall of Lehman and the first TARP debate.  The market is now climbing the wall of worry.

Successful Financial Blogging

Let us suppose that one wants to start a successful financial blog.  The start up costs are low, so many will take a shot at this. What defines success?

Part of our experience is advising early-stage companies.  It is a good model for a blog.  What should one do?

• Learn the market.  The blogger needs to understand the readers -- who they are, their viewpoints, and what they want to hear.
• Understanding behavioral finance.  Most readers track on what worked most recently.  That is how the heroes are found.
• Go for the rankings.  The various ranking services start -- and mostly end -- with traffic.  If you write something that appeals to the online audience, you have a better chance of success.  Most of those doing rankings are not qualified to evaluate the content, so ratings dominate.
• Post frequently.  The more you write, the more people visit your blog.  Many raters use frequency of posting as a filter.
• Exchange links.  Be willing to trade links with nearly anyone.  Offers abound.

Identifying the Online Audience

Here is a dramatic example of what works online.  The best example is the recent online poll by Time.com.

In a stunning result, the winner of the third annual TIME 100 poll and new owner of the title World's Most Influential Person is moot. The 21-year-old college student and founder of the online community 4chan.org, whose real name is Christopher Poole, received 16,794,368 votes and an average influence rating of 90 (out of a possible 100) to handily beat the likes of Barack Obama, Vladimir Putin and Oprah Winfrey. To put the magnitude of the upset in perspective, it's worth noting that everyone moot beat out actually has a job.

This tells us very little about who is most influential, but a lot about those taking the poll.

The frequent polls on CNBC and other sites tell us a great deal about the trading audience -- what they believe, their positions, and what they expect.  These polls are mostly skeptical of any government program, the future of our country, and the prospects for the economy.  They are widely divergent from polls that use a scientifically selected group.   These polls show a wide acceptance of Obama and his policies.  This is not a political statement, but merely a look at some facts.

It pays to cater to the online audience.  Andrew Leonard's Prophets of Doom list is also a list of the most popular blogs and commentators (with a few prominent omissions).

Popularity Pays -- for Someone....

Popularity clearly pays for the bloggers.  They are wisely following a successful model for an early-stage effort.

Our mission is quite different.  We attempt an objective interpretation of data, an effort to find the best sources, and a willingness to alter short-term perspective.  In particular, we are skeptical of sources swinging outside of their "happy zone" (hat tip to Ted Williams -- click through to see the famous strike zone picture).

For the individual investor trying to find help from the Internet, this is a minefield.  The information from the popular sources is unrelentingly negative.  Meanwhile, the real story is not so clear.

Investors should pay attention to data, not opinions -- and especially not political opinions.  There is a time lag in the impact of government policies.  It is time to start monitoring the lagged effects of lower interest rates, innovative Fed policies, and the stimulus package.

Does Blogging Enable Market Manipulation?

The greatest strength of financial blogs is also a potential weakness.  There is so much information that readers frequently rely upon the interpretation of the writer.  Most people do not click through to the supporting links.  They go to their favorite sources for information, and generally rely upon the interpretation of the writer.

We know this is true from our own stats, even when we strongly encourage readers to check out an entire article.  Readers rely upon us to make accurate representations of source material.  We are expected to provide a fair summary and accurate illustrative quotations.

Fair enough.  No one has time to check out all of the sources, no matter how carefully we try to document.

This is in sharp contrast with mainstream print sources, where editorial procedures review material before it is published.  Not so in the blogosphere.

The issue can be simply stated:

Blogs with a wide following have a special responsibility to check and re-check accuracy before posting.  If the authors do not do so, there is an easy means of manipulation.

Step one:  Get a dubious story out there somewhere -- anywhere.

Step two:  Get a noted blogger or pundit to mention the story.

Step three:  Mainstream media sources race each other to be first with this news.

Trust in link sources is vital.

Strong Sources

We feature several blogs where the authors provide plenty of links and summaries.  Some of the sources are anonymous bloggers.  We believe this conveys a special responsibility, since the reader does not know the background or skill of the writer.  It takes more evidence to be convinced of these sources, but the proof is evident in the work.  If one checks out the links, the accuracy proves out.

Here are examples of sources where the links are fairly interpreted with very high reliability:

• Abnormal Returns.  The summary tells you what you will see.  You can choose whether to read it.
• Charles Kirk.  Always interesting, always accurate.  Many interesting links.
• Alea.  Anonymous, but with special insight on credit markets.
• Calculated Risk.  Respected by everyone -- earned through accuracy.
• Paul Kedrosky.  Especially useful in finding interesting academic papers.
• The Big Picture.  Barry has a viewpoint, but his sources are always carefully documented and accurate.
• Muckdog.  We like the "everyman" viewpoint, which often captures the spirit of the market.  The links support his statements.
• Dr. Brett.  Unchallenged authenticity, with widely varying interests.
• David Merkel.  What you see is what you get in links at The Aleph Blog.
• Adam Warner.  The quotes are always representative.

We are leaving out many, of course, but this is designed to illustrate.  The WSJ blogs, for example, are carefully sourced.

The Jury is Out for Some

Like many others we follow the work of the anonymous blogger "Tyler Durden."  Seeking Alpha assures us that this person is an authority. He has rocketed to a high level in the new Seeking Alpha rankings -- a position of influence and responsibility.   Many of the articles display interesting and informative insight concerning the inner workings of big firms and hedge funds.

Since there does seem to be a viewpoint in the Durden work, we have great interest in the sourcing and evidence.  Let us look at an example of links from the prolific Durden.

Must read on CNBC propaganda: "Immelt and NBC Uni CEO Jeff Zucker supposedly told top CNBC executives and talent to be less critical of President Obama and his policies" This explains why nobody with half a brain watches CNBC anymore (THR hat tip Guest)

Since we have opined on CNBC politics, this was of great interest.  Our viewpoint is that opinion shows like Kudlow's in the evening are interesting and informative.  Viewers know what they are getting, and it is a lively debate.  We do not like the intermingling of politics and journalism during the business day, when CNBC anchors get to interview authoritative guests.  We are not very interested in the opinions of the journalists, and viewers should not be either.

If one reads the link, one can readily see that the quoted section does not accurately represent the article.

First up was a woman asking about a reported meeting in which Immelt and NBC Uni CEO Jeff Zucker supposedly told top CNBC executives and talent to be less critical of President Obama and his policies.

Immelt acknowledged a meeting took place but said no one at CNBC was told what to say or not say about politics.

During the woman's follow-up question, her microphone was cut off.

The key point is that Immelt denied the charge in the Durden quote.  Perhaps he suggested that journalists should be journalists in non-opinion shows.  We do not know, of course, but that would be a good thing.  Helping investors to separate political decisions from their finances is good advice, as we have frequently suggested.

Even more telling is this section from the rest of the article:

Later, during the umpteenth question about MSNBC, another shareholder's microphone was cut, according to multiple attendees.

"The crowd was very upset with MSNBC because of its leftward tilt," one attendee said. "Some former employees said they were embarrassed by it."

One specific complaint about MSNBC concerned Keith Olbermann's interview of actress Janeane Garofalo, who likened conservatives to racists and spoke of "the limbic brain inside a right-winger."

We spend very little time on MSNBC, but from what we have seen, we can understand the criticism.  Once again, the key is whether the program purports to be journalism or opinion.  This part of the article is exactly the opposite of the theme of the Durden quote.

Briefly put, we do not think that the Durden summary of the link is a fair and accurate representation of the article.

Another recent  example is the unsourced claim that SPY is hard to borrow.  This was challenged by Doug Kass (full disclosure -- Kass is a valued colleague at TheStreet.com).  Kass checked this out and found no problem with a borrow.  Here is the Durden response:

Update 4: Doug Kass disagrees:

I have received emails from several trading sources, stating that the market is rising because the SPDRs (SPY) are hard to borrow now and arbs are being squeezed.

This story is hogwash, as I just tried to borrow 500,000 SPDRs and had no problem doing so!

Position: Long SPY; short SPY puts and short SPY calls

Maybe Doug can disclose at what term and rate he got the borrow. Doug - I am dead serious - can I borrow 5 million SPY right now at 0% from you? Hell, will give you 1%

We expect to hear more about this dispute.  Meanwhile, anyone wanting to short the market can do so through a futures account.  There is no problem in "borrowing" e-mini's to go short, the method favored by those of us in Chicago.  There is an arbitrage opportunity with SPY.  The claim of a problem in shorting does not have face validity, so we look forward to some evidence.

Our Take

It is easy for investment readers to be swept up by apparent authenticity, especially from a source that everyone seems to follow.

We hope that "Tyler Durden" will balance frequency of posting with accuracy in representing links.

We have a continuing concern about the "leaked stress test" story, where he is a supporter of a dubious source.  That is a question for another day.

Recognizing an Expert: The Stress Test Issue

Many years ago the old prof was an aspiring prof, traveling back from a bridge tournament with the team.  There was an appealing place to stop -- a truck stop, in fact -- so we entered and sat down at a table.  A waitress (and in those days that was the politically correct term) came over instantly and took our order.

A minute later another person entered, looked around, and sat down at our table!  We were very surprised, but unsure about what to say.  The new party to our table starting talking  immediately -- smokey's, crazy drivers, how the wind was whipping the rig around, etc.  He was using terms unfamiliar to us.

At this point one of us noticed the sign over our table:  Truckers Only!  It was a table for truckers to meet and talk.  We were out of place.  Our conversation would have been instantly identified by a real trucker as that of a regular motorist.

Meanwhile, the trucker could not have discussed limit raises or double squeezes, but it was not a table for bridge players.

There is a simple point.  Experts can identify experts and also impostors.

The Stress Test

With this illustration in mind, let us consider Monday's highly-publicized "leak" of the stress test results.

While the source did not provide exact quotes, it is obvious to anyone familiar with government documents that this is not a real report.

• The breathless tone.
• The inclusion of a non-US bank.
• The emphasis on current insolvency.
• The inclusion of other topics, like overall debt.

The stress tests involve a number of different scenarios, examining how a given bank portfolio might do under difficult circumstances, mostly drawn from economic projections.  It is not expected to reveal "insolvency" but to identify problems and lead to solutions.  Banks that might need additional capital will be identified.  The government will work with them to explore various options.  It is not intended as an overall verdict on the banking system.

The examination is bank-by-bank, with the emphasis on dealing with potential problems.

Briefly put, the summary of the report does not "ring true" for anyone with experience in reading government documents.

What Happened?

The most likely explanation is that someone provided a fake document, for motives that can only be guessed.

The amazing result is that so many are willing to accept such information at face value, in the face of explicit denials from the Treasury Department.  It shows the willingness of traders and bloggers to believe in leaks and conspiracies.

The original source now has "corrections and additions" which correct some of the original problems.  The most important of these is the assertion that there is already official acknowledgment that the results are known.  Let us examine this "evidence."

This morning, the United States Treasury issued a statement (HERE) claiming they do not yet have the results of the Stress Tests, rebuking our report

How do we know its a lie?

Because of this from April 10th:

April 10 (Bloomberg) -- The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.

The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.

How can you be ordered not to release something you don't have?

This is pretty easy to answer.  The Fed made it clear -- in anticipation of specific results -- that they did not want banks claiming that they had "passed the test."  It would call into question any institution that did not make such a claim.

Think about it.  There is nothing in the statement from the Fed that suggests that results were already known.  It was made before the tests were completed.  In no way does it suggest that there is "a lie" about reports.

Investment Conclusion

From the always reliable Abnormal Returns we know that this was still an issue today.  So many want to believe in the failure of the banking system.

Several pundits have argued that if the stress test shows that banks are OK, they will not believe the results.  If it shows problems, it will be time to sell the financial stocks.

Briefly put, many traders and investors are not very interested in the evidence.  In the long term, this is a contrarian opportunity.  Meanwhile, we should expect plenty of skepticism when there is an official report on May 4th.

Jim Abbott and the Wall of Worry

Regular readers of "A Dash" are familiar with our loyalty to the University of Michigan and also our notion that sports can provide valuable insights for investments.  Here is a good example.

Jim Abbott

Truth is stranger than fiction.  Who would think that a person missing the fingers on one hand could be a successful big-league pitcher?

Jim Abbott is the implausible hero.  This weekend his number "31" will be retired by the Wolverines.

When Abbott was still in grade school, one opposing coach ordered his batter to bunt, forcing Abbott to field the ball. Abbott pitched with his glove resting on his right hand. After he released the ball, he slipped his left hand into the glove, fielded the ball, then performed a nifty maneuver where he'd stick the glove under his right arm, let the ball fall into his left hand, and throw it to first base.

"I don't ever remember it being something I had to master," he says. "It was just something I did." He made the play as smoothly as a magician pulling a nickel out of your ear. One down.

Thinking it was a fluke, the coach ordered the next batter to bunt—and the next. Finally, after six batters had bunted, and Abbott threw all six out and the coach called off the experiment—making the coach the only embarrassed person in the park.

Abbott's career included the following highlights:

• Winning the 1988 Gold Medal Olympic game against heavily-favored Japan.
• Vaulting directly to the major leagues, one of a handful of players to skip the minors.
• An 18-11 record and a 2.89 ERA in his third year in the majors.
• A no-hitter in 1993.
• Providing an inspiration to handicapped kids everywhere.

Investment Implications?

We see Abbott as a symbol of the Wall of Worry -- the current market condition.  In January we wrote the following:

We expect that market skepticism will be a "wall of worry" and that market gains will require actual evidence of improvement in housing, the economy, and corporate earnings.  The market will anticipate improvement, but some evidence is needed.

There are many economic problems -- all well noted and discussed by many (including us).  Most observers seem to believe that this means that markets should always move lower, with no particular destination in sight.  The skeptics tell us to ignore any evidence to the contrary.  Consider some examples.

• Wells Fargo pre-announces good earnings.  The punditry rushes to tell us how wrong this is.  Check out Tom Brown for some detailed analysis of the critics.
• Goldman pre-announces good earnings.  The punditry rushes to tell us about the "hidden month" as they shifted, as expected for their new role as a bank holding company, to a calendar year.  Writing about this shift generated a lot of page views, but those looking ahead might have a better grasp of the earnings potential.
• Intel announced good revenues and earnings, and suggested that there was a bottom in the PC market.  Pundits complained and the market weighed to the sell side.  Why?  The company did not give "hot" guidance.  Is this a surprise?  Companies will remain cautious in guidance until well beyond the economic turn.
• The stimulus will not work, say the political critics.  They are confident about this even before they see any data.
• The PPIP will not work, say the pundits.  They are confident before the participants are even announced.
• Anyone who booked the 20% gain in the last month has enjoyed a "sucker's rally."  If you Google this term you will see 500,000 hits, all telling you how stupid you were.

Our Take

We have no illusion that every story will turn out to be wonderful.  Our own position has varied both with economic events and the tape.  Over the last several weeks there have been many positive signs and we have identified many profitable sectors.

The media and the blogosphere remain skeptical of any positive news.  This is the definition of the Wall of Worry.  The average front page at Seeking Alpha has a rash of featured bearish bloggers.  The links from Abnormal Returns now include many sassy skeptics.  The comments everywhere tilt heavily bearish.

It is like Jim Abbott's opposing coach in Little League.  It seems implausible.  It is how sustained market advances occur  -- one step at a time, with setbacks.  Each new piece of evidence is greeted with skepticism.  It may take several good plays in a row before the many skeptics get on board.

(Full Disclosure:  Long INTC and GS)

Interpreting Government Data: Is a Conspiracy Afoot?

Nearly everyone agrees that there are many economic issues and that government policies are an important part of analysis and forecasting.

So much for the non-controversial statement.

Investors Need to Know

As investors, the key questions we all face involve interpreting data.  We want to know whether there are signs of a change in the economy.  We want to know what data can be trusted.

When it comes to interpreting government data, we find three different groups:

1. Those who see a conspiracy around every corner.  They believe, to take a prominent example, that the Bureau of Labor Statistics (BLS) is a pawn of any President.  They watch too many "B" movies and have never taken a class in political science.  They have a ready audience of those who already share their opinions.  It is like the Rush Limbaugh of financial blogging.  We have no idea how much market power these folks have, but we have no hope of convincing them, whatever our evidence.
2. Those who are intent on serving investors and have the purest motives, but who suspect BLS data.  This is an honorable group of commentators.  We disagree with them.  We should all understand that disagreement is OK.  It gets issues out in the open for forthright discussion.
3. Those who are political science and/or public policy experts.  As far as we know, we are alone in this category.  The Street seems to feel that there is nothing special to learn from those who actually know about government.  We note the many blogging economists and the dearth of  blogging public policy or poli sci types.

The Public Policy Perspective

In understanding government data, there are a few key points to keep in mind.  Let us begin with a story from our days in Wisconsin.  We were once invited to a meeting in the office of a key legislator, the Chair of the key committee with oversight of the state's Department of Revenue.  On the wall of his office was a row of pictures -- many pictures.  One of us inquired about them.

"These are all of the Revenue Secretaries who served while I have been the Chairman."

If you understand this statement, you have taken a long step to understanding how government actually works.  For example, President Obama cannot dictate to the executive agencies on data, nor to legislators on policy.

The BLS

The single most important concept to grasp about those generating government data is that it is NOT like a private company.  The government workers have tenured civil service jobs.  The administrations come and go, but they have career positions.  If you talk to them, as we have, you would understand that their career objectives are geared to a high standard of professionalism.  They do not flip around with each new administration.  They certainly do not sit around tweaking data to fit the needs of "bosses."

Anyone who suggests this is showing a lack of experience with actual government agencies.  As part of our service to government, we worked with these people.  They all knew that they would be around long after the political leaders were gone.  They were doing a job as well as they could.

Investment Conclusion

Now more than ever it is a time to understand economic data.  There are many who disparage official reports.  It empowers them to use non-quantitative evidence.  Following this lead is a mistake for investors who are wondering when the economy will turn.  If one is free to reject actual data, the field is open to opinion and preconceived notions.  It empowers those who do not do quantitative research, relying instead on impressions.

It is one of our missions at "A Dash" to engage those whose disagree, but have who have pure motives.  We seek to convince them, and through them, their readers.  We often send emails to economic observers whose well-intentioned efforts miss the mark.

We will have some future specific posts where we cite those who disagree.  This should be interpreted as a mark of respect.  If we did not think that these influential pundits sought the truth, we would not bother with them.

We look forward to some constructive discussions.  Those who want some good background should revisit this article, where we discussed the conspiracy issue.

A Problem: Business Journalists and Political Opinions

At "A Dash" we take the investor perspective.  Put very simply ---

We seek credible news sources where astute journalists draw out the expert opinions from leading experts.

We frequently express dismay when business journalists substitute their opinions for a presentation of facts, when columns have a clear slant, when bloggers start with a conclusion, and when anchors intermingle opinion with questions.

A New Voice

It is important to identify these errors.  They are not obvious to the average listener.  This intersection of political comment and business news has stimulated a reaction.  There is now a new fact-checking source, Financial Media Matters.  Readers following politics may already be familiar with Media Matters, which describes its mission as follows:

Media Matters for America is a Web-based, not-for-profit, 501(c)(3) progressive research and information center dedicated to comprehensively monitoring, analyzing, and correcting conservative misinformation in the U.S. media.

We should all understand the approach and possible bias.  Having said this, the reports are factual and worthy of evaluation.

We do not engage in political advocacy, but the intersection of political discussion and the economy is crucial right now.  Investors need to understand what is factual and be willing to consider fact-checking in an open-minded fashion.  This is a new source, and a valuable one.

The First Impact

Media Matters challenged CNBC, suggestion that Larry Kudlow was using his platform as the basis for a possible Senate race.  CNBC responded with a clear denial of a Kudlow Senate run.  This is positive and important.

We have been long-time fans of the Kudlow show, which brings together many experts and draws out opinions.  We have also been concerned about political commentary in Kudlow's anchor segments on CNBC.

The clarification of this point is a good positive step.  We followed these developments via the excellent blog from the University of North Carolina, Talking Biz News, now added to our featured sources.  We commend the work of Chris Roush, the distinguished journalism prof at North Carolina.  This is a good time for investors to monitor his work, and that of his team.

Conclusion

Successful investing means putting aside personal political viewpoints.  The election is over.  It is time to consider the investment implications of the policies in place.  This is not a discussion over cocktails -- it is about your money and your investments.

The overwhelming trend in market commentary is that no government program will work.  The criticism of each announcement is immediate and pervasive.

The critics often disagree based upon personal values or politics.  They are not engaging in a dispassionate analysis of the programs.  Government efforts are not perfect, but they will have an impact.  Mainstream economic forecasts recognize this, and diverge widely from those of the punditry, mostly non-economists.  Check out this disparity in a  nice pickup of some key observations by SF Fed President Janet Yellen at Calculated Risk, another of our featured sources.

Getting this right is the most important challenge for investors.