-- Posted Sunday, 8 May 2005 | Digg This Article
Rick’s Picks
Monday, May 9, 2005
For investors who’d rather be smart than lucky
Pack journalism found the easy story in Friday’s Labor Department announcement -- that U.S. job growth was gangbusters in April. Since good news is bad news these days, this was as about as bad as it gets. As everyone knows, evidence of such robust payroll growth will all but clinch another interest rate hike in June. In case there were any doubts about this, figures for February and March were revised upward to reflect purportedly significant gains in those months as well. Here’s the way the Wall Street Journal wrote it up: “The American job market may finally be catching up with the economy’s growth. The evidence early Friday sparked hopes among investors that recent signs of a ‘soft patch’ were overblown, before fears of more aggressive interest-rate increase kicked in by day’s end.”
We’ve come to expect better from the Journal, which may be the only big-circulation daily in America that has deigned to tune out Paris Hilton, celebritydom’s reigning Antichrist. Be that as it may, we searched the paper’s online round-up in vain for Friday’s real story -- that Uncle Sam’s spinmeisters have resorted to a statistical full-court press to condition the American public for more credit tightening. As evidence, consider the following. Non-farm payrolls were said to have grown by 274,000 jobs in April, nearly 100,000 more than “expected.” But according to a source I deem more trustworthy than Labor’s public relations department, 250,000 of the supposed jobs came from a statistical sleight of hand called the Birth/Death Adjustment. Here’s how it works: As companies are born and others die, jobs are created and lost. But because not all such activity is measured by surveys, the government’s statisticians simply try to guess how many jobs they should add or subtract in a given month to account for this factor.
Fudge Factor
Which means that if the government wants to impute strong, or weak, job growth to any particular month, it need only employ the Birth/Death Adjustment in such measure as spin management requires. In this case, assuming 25,000 real jobs were magically transformed into 274,000 “hedonic” jobs, the fudge factor amounts to more than 1,000%. The message to investors could not be clearer: with payroll growth finally kicking in, America’s economic engine has shifted into high gear. News like that is not intended merely to justify another 25-basis-point rate hike, but to make it go down like honey. When news like this hits the tape, bond and stock traders have little choice but to take the numbers at face value. But to believe these statistics are free of political taint or purpose is to succumb to Kudlow-esque delirium – one that sees the weakest economic recovery since the Great Depression as the very picture of health.
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Inside the current Rick’s Picks are my Derby exacta choices. When it comes to playing the ponies, let me warn you that I’ve always been a sucker for long odds.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2005, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Sunday, 8 May 2005 | Digg This Article
