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« The Importance of Trading Feel | Main | Test Your Skill: Interpreting Economic Commentary »

November 04, 2007



Blackvegetable -

I am sorry that I did not acknowledge your earlier comment. I have been fighting the flu bug, but trying to do my best to keep up:)

I very much appreciate any comments, especially those that argue a viewpoint with evidence, as you did.

I carefully separate my political views from my investment perspective. I am well aware of David Malpass's background. I think that he has had a good read on the economy for some time, and have written about that. More recently he has become more cautious, although still not seeing a recession as likely.

He is one of many good sources.

Meanwhile, my policy on deleting comments is simple. I delete spam -- that's all.

I hope that you will continue to join in with comments. We all benefit from a diversity of viewpoints.

Thanks again.



My comment remains on the board....


Wow....did my dissent on Malpass, complete with incriminating citations, get scrubbed?

So much for weathering challege, eh?


Very interesting post. I found this to be one of the best posts yet on A Dash. I think the point about all of these numbers being spun every which way is very important. It is amazing how some commentators or perma bulls or perma bears will use the household survey whenever they find it beneficial then the very next month say that the survey is useless. I also think that the bar is spun often too. The bar is set to get their point across to their audience, not to inform or truly guess what the bar is.



You are so right! The Fed rollovers attracted a lot of attention. I guess there is a need for a blog that tracks all of this stuff. I certainly cannot keep up with it.

Those who begin with an opinion about money supply, inflation, and the Fed, will find evidence everywhere, no matter what the reality.

Eventually, the truth will out. Meanwhile, who knows?

Thanks for a perceptive comment.



I think another doozy is "the Fed added 41B in liquidity [the other day.]" so they must be nervous. That's just repo rollovers.

But wait, are you saying that the employment numbers are marked to model?


I like reading the comments here as much as the blog sometimes. Insightful from all involved. My belief is the macro information gets so skewed by the agendas/mind sets of those doing the reporting it provides no useful information in regards to my investing. Longer term trends will show themselves long before the talking heads give up their current beliefs. Jeff, your info on this site is very good and I hope some others get value from it. I surely do.


Bill -

While I do not mention it in every post, I have often mentioned the Warren Buffett attitude of ignoring the economy.

There are many ways to trade and invest successfully. One of the factors leading certain stocks to be undervalued is an attitude of gloom about the economy. In my own investment management, I look for themes like this and select some stocks to fit. Others do the same, so they are the main audience for this type of story.

Thanks for emphasizing this point.



Barry -

It is always helpful to have your comments!

I feel that you are not responding to the major point: Births and deaths of businesses have ALWAYS been modeled. Before this adjustment, the assumption under the old model was 1 to 1. You and I discussed this many months ago. You seem to think that worked just fine. Why?

Your argument implies that it is OK to assume 2.5 million jobs each month from the "old" method, but you are going to highlight the 100K or so from the additional adjustment. Why?

As to the method breaking down during the cycle, I welcome any critic showing a single year where the adjustment has worked worse than the "old" method. The BLS also points out that they monitor this twice a year.

So much of the world follows your views on The Big Picture, that it is almost impossible to correct this erroneous conclusion. It is repeated by everyone.

Thanks for stopping by to engage and explain.


Bill aka NO DooDahs!

Hi Jeff, a clarification and a distillation:

I loved the post, don't get me wrong, and I understand your goal is to re-educate the mis-educated where macroecon-based speculation is concerned; I think it's a laudable goal and one that I share, to the extent that I comment on econ.

Macroecon-based speculation is a two-step process, yes, it can be successfully done, but it has additional complexities over other methods. Unless of course, one is just taking the other side of the bets made by the drastically misinformed who have flawed methodologies ...

I felt compelled to respond to the sentence "Investors must either develop the skill to interpret data for themselves, or they must find the right sources." because there is a third choice, e.g. ignore the data. Perhaps inserting "who trade based on macroecon" right after "Traders" oh, whoops, you typed "Investors" would be good?

Barry Ritholtz


At best, its arguable to say that this B/D has improved the data -- at worst, it is significantly distorting it.

1) The new methodology has been in place for less than a full cycle (recovery, recession, recovery).

I suspect it increases the accuracy of the number in the beginning of the cycle, but then is likely to get it wrong at the end of the cycle. We see evidence of this in the B/D creation of construction and financial jobs as of late.

2) The percentage of B/D, at 80%, has dramatically changed the value of this data point. NFP has ceased to be measured; its now "modeled."

3) The recent BLs benchmark revisions have become increasingly large 800k+ in 2006, 300k in 2007 -- these are much higher than they have been historically.

4) Replacing a measured data point (payrolls) with a hypothesized one (estimated new companies hiring) dramtically allters what BLS is doing -- from measuring to estimating.


There is no conspiracy. To BLS' credit, all of their data -- CES/CPS -- is right on their site or anyone who wants to do the math themselves . . .



As you know, I have read the description of your methods. I also follow your systems, and your approach to testing. It is a good method with strong potential for future profitability.

There are many different ways to profit in the market. One issue is that many people like to focus on "macro-economic commentary." Many of these potential investors have been sidelined for years, missing out on investment gains.

Explaining this is part of my mission, but it is difficult. The criticisms are so easy and so believable for the average person -- government lying or screwing up, etc.

Thanks for an accurate comment.


Bill aka NO DooDahs!

Or, traders could ignore that data. Buffett is a trader who successfully ignores it.

Quite frankly, to use economic data in trading implies not only that one has an accurate interpretation (either one's own, or one from someone other than Ritholtz), but that one also has a model which tells them what sectors or stocks to be long or short in, BASED on the interpretation.

Isn't it simpler to just use a system that works over time, i.e., trend-following, value investing, CANSLIM, or whatever, and ignore the economic data?

IMO the only way to play econ data is from the contrarian POV. My systems tell me to be long; it is confirmed by the plethora of obviously flawed analysis screaming to be "cautious" or predicting a recession. To the point that others actually place money on these flawed analyses, it increases my confidence in what my systems were already telling me.

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