Thursday, April 2, 2009

Spin Doctors Tornado Of Data Destruction

World stock markets soared Thursday, with Hong Kong's benchmark vaulting more than 7 percent, as stronger-than-expected U.S. economic figures boosted confidence that the world's largest economy is on the mend.

LOL! "Stronger-than expected". What else? It goes far beyond amusement that the World Economy pins it's hopes to the never ending mantra of "stronger-than-expected", or "better-than-expected" economic data.

Let's use March car sales figures to point out the BS that oozes from most every headline we see in the financial news media the past several weeks:

Glimmer of hope in March's steep auto sales drop
US auto sales fall 37 pct in March, but improvement from February could mean momentum shifting

Automakers sold 857,735 light vehicles last month, a 37 percent decline from a year earlier, according to Autodata Inc.

General Motors Corp.'s sales fell 45 percent, while Ford Motor Co. reported a 41 percent drop. Sales at Chrysler, Toyota, Honda and Nissan were just a few points better.

Despite the declines from a year ago, GM, Ford, Chrysler and Toyota all posted double-digit improvements from February, when industrywide U.S. sales hit their lowest point in more than 27 years.

Sales are generally better in March as warmer temperatures help drive people to showrooms, but industrywide U.S. sales increased 25 percent from February's figures, beating the typical increase of about 20 percent and giving rise to optimism that the worst may be over.
http://finance.yahoo.com/news/Automakers-post-steep-US-apf-14817908.html?sec=topStories&pos=1&asset=TBD&ccode=TBD

LOL! Car sales fell 37% from a year ago, but they were better than February's 27 YEAR low. O momma, cars must be racing off the showroom floors! Car sales SUCK! The financial media, however, can not point out the obvious because the truth would hurt too much. And you know what a fragile lot we Americans are. Ooh look! Sales increased 25% from February and beat the "typical increase of about 20%". SO WHAT! Car sales still SUCK. 25% of next to nothing is still next to nothing. It is a HUGE stretch to infer that March car sales signal anything positive. But, if you twist the numbers around enough you can make them "appear" better than they really are. In other words, you may not be able to polish a turd, but you can change its shape if your willing to play around with it.

If car sales were so great in March, why was the price of Oil down again yesterday? All of this "better-than-expected" economic data, and the price of Oil is down? It would seem to me that if this data were representative of REAL improvement in the economy, the price of Oil would be marching higher. After all, hasn't the price of Oil been driven lower by "demand destruction" caused by the weak economy.

Pending home sales numbers? Same story, up from January, but worse than a year ago.

New Home Sales Fell 41% in February 2009 [insightful read]
By Barry Ritholtz
WSJ: Sales of new homes rose in February for the first time in seven months, the Commerce Department reported Wednesday, another sign that the housing market is thawing

Bloomberg: Purchases of new homes in the U.S. unexpectedly rose in February from a record low as plummeting prices and cheaper mortgage rates lured some buyers. Sales increased 4.7 percent to an annual pace of 337,000 . . .

Marketwatch: The U.S. housing sector continues to see signs of improvement. The latest government data showed new home sales climbed in February for the first time in seven months, sending shares of home-building companies soaring.

A parade of the mathematically innumerate business writers (and even worse headline writers!) continue to misread data. The latest evidence? New Home Sales.

After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes.

No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved.

Why did the media report this as positive? If you only read the headline number, you saw a positive datapoint: February was plus 4.7% over January.

To get the the facts, you need to read below the headline. In the present case, it wasn’t the seasonality factor that was confusing, it was the “90-percent confidence intervals” — or as it is more commonly known, the margin of error.

From the Census Bureau:

Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±18.3%)* above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.

The median sales price of new houses sold in February 2009 was $200,900; the average sales price was $251,000. The seasonally adjusted estimate of new houses for sale at the end of February was 330,000. This represents a supply of 12.2 months at the current sales rate.
Note that the month over month data at 4.7% — plus or minus 18.3% — is statistically insignificant. (i.e., meaningless). The reported data does not inform us if sales improved month-over-month or not. It is a range, from down -13.6% to plus 23%. Since “zero” is part of that range, we can draw no conclusion. As the Census Department itself notes, “the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.”

The data does however, tell us that the year-over-year sales fell 41.1% plus or minus 7.9% gives us a range of -49% to -33.2%. The entire range is negative, therefore we can conclude sales fell year-over-year.

These are facts. This is data. This is how you interpret it. Most of the MSM reports (WSJ, Marketwatch, Bloomberg) were simply wrong.

Not nuanced, not shaded, but 2+2=5 wrong.

http://www.ritholtz.com/blog/2009/03/new-home-sales-fell-41-in-february-2009/

Construction spending was down for a fifth straight month in February, but "better-than-expected". Shocking!

The Institute for Supply Management reported Wednesday that its March manufacturing index stood at 36.3 from 35.8 the month before. While that reading marked the 14th straight month of falling activity for this hard hit part of the economy, it was an improvement over the prior month.

The theme is pretty obvious isn't it? Hope. There is still way too much hope in the market. Hope must be crushed for a bottom in the economy to be established. Look, we want things to be better, we want things to get better, but facts are facts. The economy sucks.

Did any of the fools on Wall Street see this glaring headline?

ADP Says U.S. Companies Reduced Payrolls by 742,000
April 1 (Bloomberg) -- Companies in the U.S. cut an estimated 742,000 workers in March, pointing to no relief in sight for the labor market amid the longest recession in seven decades, a private report based on payroll data showed today.

The drop in the ADP Employer Services gauge was larger than economists forecast and the most since records began in 2001. February’s reading was revised to show cut of 706,000 workers, up from a previous estimate of 697,000.

It doesn't take an graduate degree in economics to understand one simple FACT about any economy: it is ONLY as strong as its workforce. The economy is presently losing jobs like the Detroit Lions lose football games, losses week after week. I don't care how you want to spin the economic data, it's all irrelevant in the face of mounting job losses. All the economic data above is coddled statistical mumbo jumbo. Jobs make or break an economy...there is no way around this simple fact.

Another simple fact. Equity markets are only as strong as the underlying earnings of the companies in the market.

While some analysts believe that the March 9 lows could very well be the bottom, others warn that much uncertainty still overhangs the market — particularly surrounding companies' first-quarter earnings reports.

"We're in a wait-and-see mode for earnings," said Brian Bush, director of equity research at Stephens Inc. "And not just what the earnings were for the first quarter, but what the earnings outlook will be for the rest of the year."

Analysts largely expect the reports to be negative, but with the bar already set so low, it's possible the market could move higher if the reports meet or exceed expectations.

"If the reports meet or exceed expectations." LOOOOOOOOOOOOOL! When will the truth ever be told again?

The truth is being suppressed again this morning. The Dollar is DOWN, Oil is UP and Gold is down $15? OH look! The ECB only cut interest rates 25 points instead of the much expected 50 points. I guess the Europeans have to sell their Gold and buy the Euro instead. In the old days this kind of move by the ECB would have sent Gold soaring as the Dollar was pounded. But I digress, the "price" of Gold is a joke...and I will maintain that sentiment as long as the "price" of Gold remains below $960.

Gold's Key Reversal
Gold had a very important day on March 18. The previous day we wrote in our Smarte Trader newsletter: "There is still a chance that it will make one more trip below the $900 area." We were looking for $885 for a target in case that happened. Well, it did happen on March 18, as gold tumbled in the early hours to $883 but then soared after the Fed meeting and the announcement. It reached a high of $954 within 90 minutes. It was spectacular.

That's a huge reversal, and the volume before and after the low was very high. That makes this a "key reversal." Such reversals usually signify that an important low is in place. Furthermore, the chart formation I see now is very bullish -- the next target is over $1,000 and then $1,050. However, I believe we should first look for a pullback.

With the financial stocks rallying strongly, the "safe haven" money that went into gold is leaving. That causes lower prices for a short period. But then comes the "inflation hedge" trade, and that involves much more money than the "safe haven" trade. A pullback in gold when the financials are strong should thus not cause concern.

As the CEO of AngloGold Ashanti , one of the world's largest gold miners, has said, "As the world deals with the global economic crisis, the value of gold, as the only true "hard currency," is coming to the fore, as evidenced by the investment choices of some of the world's most seasoned investors."
http://finance.yahoo.com/news/Golds-Key-tsmp-14815471.html

This raises an interesting thought. Perhaps we should embrace the financial news media's spin and root for higher equity markets as this will work to bring down the US Dollar and sweep aside the current "safe haven" sentiment for Gold and establish the "Inflation hedge" sentiment. Gold should perform with much improved vigor as an inflation hedge, it's work as purely a "safe haven" may be nearing an end. With sentiment in Gold turning to an "Inflation hedge", investors should pour into the metal and the mining sector. Recent strength in the HUI and XAU may be a sign investors are "waking up" to the Fed's dirty tricks.

Opinion: Bernanke uncovered: buy gold! [good read]
By Neville Bennett
Last week, the Fed gave markets their biggest shock in living memory. I believe Bernanke tried a de facto devaluation, one he could not admit lest others follow suit.

Bernanke shocked markets last week by lowering interest rates across the board. The dollar took a massive hit. The “helicopter speech” foreshadowed this: One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure — that is, rates on government bonds of longer maturities.

He also thought yields on privately issued securities could be reduced by offering loans to banks with private assets being accepted a collateral. He mentioned the possibility too of buying foreign government debt without explaining precisely how it would inject money in the economy. But he insisted that intervening to affect the exchange value of the dollar has been an effective weapon.

Franklin Roosevelt devalued the dollar by 40% against gold in 1933-4: The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly.

Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.

Ben Bernanke added that 1934 was one of the best years in the century for the stock market. He also advocated tax-cuts as a “helicopter drop” of money. He believes Japan’s difficulties with deflation are bound up with political constraints “rather than a lack of policy instruments”.

Ben Bernanke has now almost exhausted his strategies, one trembles in anticipation of more easy money drops whether by helicopter or a broad carpet-bombing.

The antidote to Bernanke’s mayhem is to invest in inflation-proofed assets like precious metals.
http://www.interest.co.nz/ratesblog/index.php/2009/03/27/opinion-bernanke-uncovered-buy-gold/

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