Butch Cooley Comments (Butch is founder of Leg Up House and the Butch Cooley Worldwide Hunting and Fishing . He has been an active trader for decades.)

Market Comments

I get a number of questions each month as to why I challenge much of the data coming out of the Dept of Labor or Commerce Department.  So I thought I would take the time to explain this. The government doesn't exactly lie, in fact, they don't lie at all. But the data we get all too often is politically slanted to a particular agenda.   And it has always been that way.   Most likely it will always be that way.  So I have always said, you have to read through the numbers.  From a psychological stand point, the government actually thinks you all have an 8^th grade education, and everyone watches Rosanne reruns.  However, that is not all that accurate either.  People who handle their own finances, their own investments today, most likely are somewhat smarter than the government thinks you are. So this data is not necessarily aimed at you and I.  But then, they do want us to believe things are better and they do want to sell their “stuff”.  So maybe they are aiming some of it at us after all.
 

The numbers coming out of Washington right now are definitely pertaining to a hopeful recovery in a very bad “recession”.  And any two of us can look at the same data, and both can come up with different opinions as to what it all means.  Quite frankly, both of us could be right.  A lot depends on what your psychological attitude and mind set is at the moment you receive this data.  Suppose you are not working, and have been out of work for 6 months or more.  And you are actively seeking employment, but you just can't find a job? Well, chances are your expenses are rising, simply because your income has diminished. So the number you read  is at 9.4%. And things you buy are down in price.  Does this make your situation any better?  Of course not.  On the other hand, if you are employed, and you don't see a danger of loosing your house, then your mind set is a heck of a lot more positive.  The unemployment numbers might seem reasonable to you.   Bear in mind, this psychological mind set is partly what we track in our charts on stocktiger.com . We rely on this fact.  And the numbers that are reported by the government effects those charts.
 

But are they bogus reports?  There are those out there that certainly believe all the numbers are misrepresented, or skewed.  And all you have to do is read most of this data to know it all gets adjusted and readjusted.  But is is wrong?   Actually, no, it's not.  It is all about how we look at the data collected and knowing that the rules of collecting data keeps changing.  So that is what I'm going to deal with today.

There is a gentleman in California that thinks they are skewed a little.  His name is John Williams and he really is a pretty smart guy.  He runs shadowstats.com which is basically a news letter that adjusts the data that the government puts out, to give people a different perspective.  I call it a more useful perspective.  Williams believes unemployment is more like 20% right now, not 9.4%.  He believes consumer prices are increasing at a very alarming rate, and the GDP is down about 8% currently.  Is he right?  Yes, in a way he is.  I think in many cases Mr. Williams probably is pretty accurate.  Possibility he and I think alike.  I too think we are printing way too much money.  I do believe hyperinflation is going to become a huge problem for Chairman Bernanke.  That is if Chairman Bernanke remains Fed chairman.   I also think deflation is still a more immediate problem, and inflation is a problem down the road.   But it is still looming out there someplace.  I want to know when and where.  I don't think the US government ever fixes anything that is broken.  And I think we are in more trouble economically, than the Bush or Obama administrations wanted us to believe.  And I don't think we are going to see a deep V recovery.  But these are beliefs, and that which we believe is not necessarily knowledge. 

Mr. Williams believes that social security payments would be about double what they currently are if the increases allowed for the cost of living were more accurate.  But the reality is social security still is what it is.   In the Great Depression, between 13 and 15 million people were out of work.  It is generally accepted that about 25% of the workforce was unemployed.  As I have stated in other columns, the government just didn't track this data back then.  But we did begin to track data in the 1930s, and accurate number gathering became feasible.  Statisticians began to use very small groups as a sample to represent with some accuracy a larger population.  It was simply called surveying.  The second development in 1930 was tracking whether or not people wanted to work, or simply weren't looking for work.  And this took a subjective data system and turned into something else.  As most of us know, the BLS reports 6 different groups of unemployment today, U-1 through U-6.

So we survey a smaller group of people to gather the data needed by others to form information that is useful to many of us.  And the key to the data that gets collected is in how and what questions are asked in the survey.  And those questions can change the outcome of many different reports each month.

In 1994, the BLS changed how they gathered data again.  Then we made a change from pen and pencil to computerized data collecting.  We changed the survey with additional questions.  Lets use the so called discouraged worker, who in 1994 was someone who really wanted a job, but had just given up because he figured there weren't any jobs.  By asking new questions, the ranks of discouraged workers could be reduced.  So today, Williams would tell you that if we did add everyone who was really on unemployment, our numbers would be closer to the Great Depression than our current administration may want us to believe or know.  But is that information accurate?  And if it is, does it have value to me?  I'm an investor, a trader, and I take risk.  So the more risk I can reduce, the better I like it.  If I use Williams' numbers of 20% plus unemployment, then in a simple example, the markets should go into shock and go down.   But we are not reporting Williams' numbers, and the 9.4% is what the market is seeing, and that doesn't look to bad, so the market does not go into panic selling.  But, both sets of numbers are accurate and have use to me, just in different scenarios.  In short, to me, neither set of numbers are correct, nor are they wrong.  It is all about what was asked in the survey.  And what use I have for both sets of numbers.  Sounds like double talk, but really, it isn't.  And then there is the data that is collected, reported, but never really seen by anyone.  Like this month's reports on unemployment.  The market actually liked the jobless numbers.  But in the same report Labor reported that 48 States had "deteriorating" numbers. And 8 of those States were at record highs.  Michigan unemployment is at 14%.  Well, this isn't good news at all.
The report also comes out in regions, and the Western Region is over 10% unemployment.  That can't be good.  But on the same day as all this data became available to us, the markets thought the news was good and went up.  Question then becomes, did you see it as good and did you make money that day?

I refer to the unemployment numbers here because they get adjusted upwards almost every week.  But that week is all it takes to be forgotten.  It's not a conspiracy, it's just a sampling that is done differently, to gain a political objective, and then adjusted later on.  The key is to know how the markets will react to the data.
 

BC