The BLS has seriously underreported job losses for the past two years due to their flawed methodology. TrimTabs has identified the following four problems:
1. The BLS employment estimate is based on a survey, and not on an actual count of employees. While the BLS survey is large and supposedly designed to capture the complex nature of the employment market, it is still a survey and therefore subject to error. TrimTabs believes that rapid changes in an employment cycle cannot be captured by surveys.
2. Several times a year, the BLS applies enormous seasonal adjustments to their survey results to account for seasonal fluctuations in the job market. For example, this January, the BLS added 1.92 million jobs to their survey results to report a job loss of 20,000 to account for the layoff of retail holiday workers. In our opinion, the sheer magnitude of the seasonal adjustment which dwarfs the monthly result renders this month’s job loss estimate meaningless.
3. At the time of the first release, only 40% to 60% of the BLS survey is complete and is subject to large revisions over the next two months.
4. The BLS applies a mysterious “birth/death” adjustment to their survey results to account for business openings and closings. While the payroll data was adjusted substantially, the “birth/death” adjustments were left unchanged. In 2008 and 2009, the BLS’ “birth/death” adjustment added 904,000 and 882,000 jobs, respectively, for a total of 1.79 million. By way of comparison, in 2006 and 2007, the BLS’ “birth/death” adjustment added 964,000 and 1.13 million jobs, respectively. We find it highly unlikely that in 2008 and 2009, during the worst recession since the 1930’s, more businesses opened than closed netting 1.79 million jobs.
In our opinion, flawed BLS survey results, month-after-month, do the public a huge disservice. While its results point to a slowly recovering economy, TrimTabs’ results point to a dangerously weak economy.
This is Taleb at his most quotable and least helpful. Of course most human beings shouldn’t get involved in shorting anything. What’s more, Larry Summers actually put on that trade — that long-term interest rates would rise — while he was at Harvard, with disastrous consequences. Even no-brainers can lose you billions.
Here is a little nugget of trading wisdom: the market systematically punishes salience. Show me a strategy that makes use of highly salient information (i.e., information that is likely to stick in the mind at first, casual exposure) and I'll show you a strategy that underperforms. Market technician Joe Granville famously asserted that if it's obvious, it's obviously wrong. That's the salience principle, and it's why impulsive trades so often are losers.
If 90% of your assets are in safe Treasury bills [as Taleb recommends in his book] and a large chunk of the other 10% is being put to use shorting Treasury bonds, essentially what you’re doing is putting on a curve steepener — at a point in time when the curve is already as steep as it’s been in some time. What’s more, unless you’re extremely leveraged, you’re never going to get rich shorting Treasuries. And I’m sure that Nassim would never recommend that kind of leverage.
If factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.
Nov. 20. 1905
J. H. Todd
1212 Webster St.
San Francisco, Cal.
Dear Sir,
Your letter is an insoluble puzzle to me. The handwriting is good and exhibits considerable character, and there are even traces of intelligence in what you say, yet the letter and the accompanying advertisements profess to be the work of the same hand. The person who wrote the advertisements is without doubt the most ignorant person now alive on the planet; also without doubt he is an idiot, an idiot of the 33rd degree, and scion of an ancestral procession of idiots stretching back to the Missing Link. It puzzles me to make out how the same hand could have constructed your letter and your advertisements. Puzzles fret me, puzzles annoy me, puzzles exasperate me; and always, for a moment, they arouse in me an unkind state of mind toward the person who has puzzled me. A few moments from now my resentment will have faded and passed and I shall probably even be praying for you; but while there is yet time I hasten to wish that you may take a dose of your own poison by mistake, and enter swiftly into the damnation which you and all other patent medicine assassins have so remorselessly earned and do so richly deserve.
Adieu, adieu, adieu!
Mark Twain
I tell you sure as I am sitting here, that if banking institutions are protected by the taxpayer and they are given free reign to speculate, I may not live long enough to see the crisis, but my soul is going to come back and haunt you.
Judging from market valuations, I sense quite a gap between consensus market expectations and key political and economic realities, especially in the U.S. If the gap isn’t bridged by the validation of the more optimistic expectations, investors may well find that January’s global equity sell-off was just a precursor to a disappointing year for several asset classes, including stocks.
I am not a political expert but I respect and listen to the insights of many who are. Their messages are eerily consistent, and quite concerning.
The political atmosphere in Washington is tense and increasingly polarized. Bipartisan backing for measures is harder. With the political center shrinking, the ability to “manage to the middle” is growing more elusive while the more partisan wings don’t command sufficient broad-based support.
The situation isn’t helped by the diminished trust in key institutions, both public and private. Policy decisions, past and present, are second-guessed. Banks’ standing in society is severely shaken. The regulatory framework is in flux, with agencies fighting for turf. And the divide between large and small firms is as big as I have ever seen it, as is the disparity between the rich and the less-fortunate segments of the population.
All this comes at a time of great economic fluidity and challenge. The global financial crisis has undermined growth and job creation; it has clogged many of the pipes that allocate funds to productive uses; and it has rapidly taken public debt and the budget deficit to worrisome levels.
I am particularly concerned about the surge in joblessness. In the absence of bold structural measures, most of which face political headwinds, we are looking at a period of persistently high unemployment that will disproportionately affect the young. We risk significant welfare losses and skill erosion, lower labor-market flexibility, and yet another burden on the country’s stretched public finances.
The Federal Reserve Board recently released its "January 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices" (hat tip, TBI) which shows some interesting developments particularly in the consumer credit marketplace.
On Google: We did not enter the search business, Jobs said. They entered the phone business. Make no mistake they want to kill the iPhone. We won’t let them, he says. Someone else asks something on a different topic, but there’s no getting Jobs off this rant. I want to go back to that other question first and say one more thing, he says. This don’t be evil mantra: “It’s bullshit.” Audience roars.
In Apple's fiscal 2010 first quarter, ended Dec. 26, iPhone and related product revenues were $5.578 billion, 36% of Apple's total, compared with $4.45 billion for computers and $3.39 billion for iPods. The iPhone is largely responsible for doubling Apple's sales over three years. While computer sales are up, iPod sales are roughly flat over the period. What's more, Apple's gross margin has risen to 40.8% from 31% in that period, courtesy of the iPhone. The device's gross margin was about 60% in the quarter, estimates Sanford C. Bernstein, helping lift the overall number. So it should be no surprise that Apple's cash from operations has skyrocketed to $5.8 billion in the latest quarter from $1.8 billion three years earlier.
