Are We Too Gloomy?

That’s the question asked by the Washington Post:

"Soft? You betcha. In recession? Quite possibly. And a crisis in the financial markets has rattled nerves for months now. But so far, the economy is holding up better than it did during the last two recessions in 1990 and 2001. Employers haven’t shed as many jobs, the unemployment rate is still relatively low, and gross domestic product has kept rising. Things are nowhere near as bad as they were in the Great Depression, or even during the severe recession of 1982-83. The last time consumers were this miserable, in May 1980, the jobless rate was 7.5 percent and inflation was 14.4 percent. Now those numbers are 5.5 percent and 4.2 percent respectively."

The naked comparison between the stats today versus 25 years ago — without some context — is misleading, and perhaps revealing of economic naiveté. Even if you take the headline data at face value (which you never should), one must acknowledge the many changes which have been made over the years to how the BLS models are constructed. It becomes an apples to oranges comparison. Perhaps the fault lies not within ourselves, but within our data.

Instead, we should be asking different questions of our financial media"How economically literate Is our press? What degree of statistical naiveté is endemic to mass media? Why our some of the financial media mere stenographers? What happened to critical thought, analytical rigor or investigative journalism? Wasn’t the charge of the press at one time to "afflict the comfortable?"

To be blunt, any scribe that trots out the headline data on Unemployment or Inflation as gospel are fools or liars.

Of course, there are other possibilities:  IIt could be that we Americans are ungrateful; we are morons, too dumb to understand just how good we have it. Or, another other option is that the official models, like every mathematical depiction of reality, are flawed. It is not that they are worthless, it is that they are an imprecise and inaccurate depiction of the real world. They cannot be anything but, as they are merely a partial depiction of the universe.

Do not think that the present issue is whether any model is right or wrong; All models are wrong. The true question for interested statisticians, mathematicians and economists is just how wrong are they?   

Here are a few clues for those who do not seem to understand why so many Americans seem so unhappy despite the current state of economic affairs in the world:

• Prices have far outstripped wage and income growth, leading to the first major decrease in the standard of living in the US in the modern era.

• Its more than food and energy prices — medical care and education costs have gone up 10-15% per year, local municipal and property taxes are rapidly rising, and yes, even free-falling housing remains considerably higher relative to median income.

• The US savings rate flipped into negative territory for the first time since the Great Depression. That doesn’t mean we are going to go into a depression — but its no reason to be cheerful.

• Curiously, this article on sentiment failed to mention either of the words "Iraq" or "War." How in a discussion on psychology, can there was no mention of War fatigue? There is a weariness related to the ongoing costs and casualties of the Iraq War, even as it slides off the front pages. It has worn on the national psyche for more than 5 years. Yet that was not worthy of any mention; That reeks of hackdom.

• We are barely a quarter or two into what is still not acknowledged as a recession by many. The danger, reflected in Sentiment data, is that the economy rolls into something far uglier –a deeper and more prolonged contraction.

As to the broader state of the economy, let me direct the author of this one column to yesterday’s Federal Express (FDX) earnings. The economic bellwhether’s report were nothing short of fugly. FedEx management issued an inflationary-recession view of the
economy
. FedEx lost $241m due to what they called "soaring fuel costs and a very
difficult economic environment."
They are primarily a business-to-business shipper, but UPS, their more
consumer oriented competitor, had very similar things to say. In terms of future guidance, FedEx CFO Alan Graf said that the coming
year will be “very difficult due to the weak U.S. economy and extremely
high fuel prices.”

Gee, that doesn’t sound like our economic woes are psychosomatic. 

~~~

We have discussed over the past 5 years how inflation is so much worse than reported. The latest pushback against this meme has been not only wrong, but lame. Its a difficult argument to make, and this is a typical weak example of exactly why that is.

I’ll have more on some other inflation related nonsense later today; tomorrow, we will look at those who accuse we who challenge the official data as tin foil hat wearing, grand conspiracy theorists . . .

>

Previously
Consumer Sentiment Hits 28 Year Lows (June 2008)
http://bigpicture.typepad.com/comments/2008/06/consumer-sentim.html

Sources:
Why We’re Gloomier Than The Economy; Consumer Anxiety Outstrips the Data
Neil Irwin
Washington Post, June 18, 2008; Page A01
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/17/AR2008061702463.html

FedEx Has First Loss in 11 Years; Profit to Decline 
Mary Jane Credeur   
Bloomberg, June 18 2008 
http://www.bloomberg.com/apps/news?pid=20601103&sid=aBPgROetK_Oc

Related:
Hard numbers: The economy is worse than you know
Kevin Phillips
Harper’s Magazine, Sunday, April 27, 2008
http://www.tampabay.com/news/article473596.ece

~~~

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What's been said:

Discussions found on the web:
  1. Vermont Trader commented on Jun 19

    I found 3 things interesting in FDX.

    1. they talked a lot about demand being elastic. Consumers are trading down from express to ground.

    2. trends continued to get worse after the qtr ended.

    3. they currently plan to maintain service levels at the expense of margins. They can’t pass all their higher costs on.

    If you want to listen to a really gloomy call listen to KMX. They are the largest used car dealer in the country. CEO said the used SUV market crashed last qtr.

    “During the quarter, wholesale industry prices for SUVs and trucks declined nearly 25%, which is approximately four times the normal depreciation expected over this period and well in excess of the depreciation expected over a full year. “This is the most rapid depreciation of any vehicle segment that we have experienced in our 15 years,” said Folliard.”

    Everyone who has an SUV and a loan is underwater.

    ~~~
    Just a nitpick but FDX didn’t have an operating loss. The loss was due to writedown of Kinko’s.

  2. austincompany commented on Jun 19

    Though the economic/inflation/war items listed above are indeed bad, they are being brought to a spoiled and self-centered American society. It is different now than in the past. And as such, the “recession” appears to the media and those involved to be much worse than it really is.

    Our grandparents, who had to pee in an outhouse or down the hall, work from morning to dark, pay cash for the medical care they needed, thought that eating out was a treat and only bought “stuff” when they had the money to do so, would laugh and have little sympathy for us today. We are a spoiled, over-weight, big house, eating out and SUV driven society. Quite frankly, living standards would need to fall a very long way before they even approached what they were just 50 years ago.

  3. PHB commented on Jun 19

    Given the inevitable, as an investor, does it not make sense to take action now? History is fairly clear, and Barry you’ve made the point prior, that in protracted bear-to-sideways (at best) capital markets, investors need to carefully pick their spots and rely on tactical allocations rather than indexed choices. My query is even more fundamental, are the capital markets even reliable enough to provide opportunity for “fair” return? Are we experiencing a “Black Swan” moment in history where investment will soon be more prevalent in private deals than in public capital markets? Will investment management for the wealthy become management of multiple private equity/VC deals? Seems that with the instant access to information that we are afforded today, investors need very little “public” assistance and the growth of going “private” will become one of the few ways to succeed as an investor. How far off base am I? Help! Thanks…

  4. steveeboy commented on Jun 19

    Always remember:

    Don’t Mention the War!!!

  5. zell commented on Jun 19

    The stats don’t reflect the destruction that is taking place deep in the fabric of the economy. There is a substantial lag betwen anecdote and evidence.

  6. KathyP commented on Jun 19

    I recall an article from Salon.com, entitled “Are we falling behind our parents?” It was an interview with an author of a book about the declining fortunes of the middle class. Part of the discussion addressed the shame felt by people who cannot “keep up,” and their self blame for their circumstances, because they have embraced the rehtoric of “personal responsibility.” It seems to me that articles like the one Barry has cited from the Post contribute to this idea – “gee, the economy is going great guns . . . why am I having so much trouble?” Is this why there hasn’t been a greater outcry from those who are suffering the most from price inflation and wage stagnation? Here’s a link to the article if anyone’s interested:

    http://www.salon.com/mwt/feature/2008/05/14/mooney/

  7. dblwyo commented on Jun 19

    IMHO your point about not writing on the headlines and failing to dig into the data is the key one. One need not appeal to problems with government indices, an objection with which I’ll argue a bit. Both arguments are based on the same underlying analysis – the data has time-patterns, linkages and relationships and structural characteristics which one can see, as you’ve pointed out several times, and on which we should be focused. And on which the MSM and the talking heads are NOT reporting. May I suggest this review of the data and our current economic situation and outlook:
    http://tinyurl.com/6saenr
    As for the markets the reactions to a surprise in the Unemployment Rate tells us that no downturn is accurately priced while the surprise on the Retail Sales number tells us the outlook is both too sanguine and also NOT based on anything other than headlines – very scary and dangerous. The market is fully and accurately valued (cf the recent Barron’s Roundtable) but IFF none of these economic data turn worse, as they in fact are. For the record Real Retail Sales was -1.6% yoy and ex-gasoline was -2.6% ! OUCH. All of the high-frequency data is tipping over. One needn’t get excited about changes in the indicators when looking at the patterns. http://tinyurl.com/6h9kqu
    Todd Harrison of Minyanville, in his inimitable style discusses these downside disconnects in his most recent MarketWatch column – recommended. Let the data speak for itself – and it’s talking loudly.

  8. John commented on Jun 19

    BR: I read this piece too and rolled my eyes. The author, despite as you point out his complete economic illiteracy, is almost certainly amongst the top 10% of income earners. In fact most of the authors of opinion pieces like this are either highp paid journalists, financial operatives or opinionaters and most of them are doing a bit of moonlighting for various conservative think tanks as well. There has now been so much dicussion in the media and on blogs of the apples and oranges syndrome and indeed it’s widely recognized in the financial community although they forget it sometimes. Also the main elements in public pessimism are well recognized although there’s a a claque of upper middle class shills telling the middle and working class they are imagining things. So why does someone write such a load of codswallop as this and why didn’t his sub editor spike it. For the answer to that you’re going to have to talk to the ed board of the Post which seems to have lost almost all its scepticism since the great days of Ben Bradlee.

  9. Marcus Aurelius commented on Jun 19

    It’s not enough to understand that the common person is being lied to (or spun) by The Powers That Be. We need to understand why the story being advanced does not resemble the reality we see.

    The answer, as I see it, is that TPTB need to instill confidence in the public, because confidence is the essential element of of a continuing con game. (The Iraq war was the test-case for determining the willingness of the mark to participate in their own fleecing).

    As soon as the mark understands what is truly happening (the they are being robbed), the jig is up, and things become very dicey and unsafe for the perpetrators of the con. The minute the mark realizes they are being or have been ripped-off, the pitchforks, shovels, torches, tar, and feathers come out. (Their reaction will be all the worse, being compounded by the embarrassment and subsequent rage of having been made fools of).

    It is slowly dawning on the middle class that they are the subjects of a coordinated effort to disenfranchise them from the system they rely on for their relatively comfortable lifestyles. When the full scope of the scam is realized, the big trouble will begin.

    Of course, there are willing participants in the scam (the press being the most obvious) who, for one reason or another, continue and will continue to believe that if they play along, they will get part of the booty. These are the biggest fools of all. These are the folks who will never admit to having been been raped, robbed, and left by the side of the road (despite their empty pockets, skinned knees and elbows, and all of the used condoms and KY jelly left behind as evidence).

    As conditions continue to deteriorate for the common person, they’d be doing well to keep in mind that the victim of a crime is never made whole after the fact. What was stolen is gone forever. The time to protect ourselves has long since passed.

    Suckers.

  10. bonghiteric commented on Jun 19

    I don’t believe the majority of the business press has nearly enough of a grasp on the fundamentals of economics, finance or accounting to accurately assess with a critical eye financial statements, economic data, etc. I think that budgetary constraints and deadline pressures are contributing factors to this “naivete”.

    Its why I read BP et al.

  11. rj commented on Jun 19

    “Are we experiencing a “Black Swan” moment in history where investment will soon be more prevalent in private deals than in public capital markets?”

    I think our country in general will experience a move away from corporations and public stock markets and more toward private companies with not all information disclosed. This is a gut feeling more than anything. Think about it, private companies don’t have to report quarterly numbers, report insider transactions to the SEC, make public their earnings, etc. Take Red Bull for example. It could be swimming in debt up to its eyeballs, and yet it still is marketed everywhere. We don’t know, cause the company is privately owned by Austrian billionaire Dietrich Mateschitz.

  12. Mark E Hoffer commented on Jun 19

    Will investment management for the wealthy become management of multiple private equity/VC deals?– PHB, above

    Bud, where have you been over the last decade?

    you may care to review the massive growth of the PE (Private Equity)/ Hedge Fund Universe..

    “How far off base am I?”

    Not at all. Further, if you ask me, we’re going to (have to) reverse the Charlie Merrill effect, if we’re going to rebuild this Economy/Republic, or, barring that, we’ll be hoping that we have the right color Coupon on the right day at the right time at the right depot..

  13. DownSouth commented on Jun 19

    Just a couple of observations:

    ☺☺Point 1:

    Outstanding Household Debt in 1980 was $1.4 trillion. Today it is $14.0 trillion.

    Domestic financial sectors in 1980 had outstanding debt of $578 billion. Today they have $15.9 trillion. I’m not sure what this figure means, but could it have something to do with a graph BP posted the other day showing financial stocks growing from only a few percentage points of the market to almost 25%?

    http://www.federalreserve.gov/releases/z1/Current/z1r-2.pdf

    ☺☺Point 2:

    I live in Mexico where the American Dollar is in free fall relative to the Mexican Peso. The Dollar has lost almost 10% of its value in the last year..

    http://finance.yahoo.com/currency/convert?amt=1&from=USD&to=MXN&submit=Convert

    On top of that, according to the Dallas Moring News, inflation in Mexico is currently running 4.95%.

    http://www.dallasnews.com/sharedcontent/dws/news/world/mexico/stories/DN-mexicofood_19int.ART.State.Edition2.b1f822.html

    Wouldn’t that indicate that inflation in the U.S. is running much higher than the official numbers, perhaps as much as 12% or 15%?

  14. Stuart commented on Jun 19

    Economic statistics are every bit as political tool as a they are a pure reflection of what they are intended to measure. When the measurement moves outside acceptance range of political purpose, the formula is “adjusted”. Always under the cover story that the old formula too dated and does not reflect current economic processes of course. Those whom report on these figures just go with the figures. Many out of time constraints or sheer laziness do not delve into intricacies of adjusting for historical comparative integrity, rather they crank out verbatim what is reported or simply as a fail-safe in the event they are challenged on their “covert” purpose of making more salient needed adjustments for more clarity. Politics, eEconomic data, journalism, is every bit tied to it.

  15. cinefoz commented on Jun 19

    And it’s going to get worse at the rate of a Chinese Water Torture until the commodity bubble is burst.

    The WSJ buried a piece at the end of a section today about how long only commodity index funds contribute to the commodity bubble. I won’t pretend to understand how they work except for some points the story mentioned.

    Since they are long only and since huge volumes of money are pouring into them, there is nobody taking the short side. Thus, the only risk of loss is from the index fund falling like any other mutual fund. While I suspect the liars would claim the funds are only following the price of oil, I suspect it is a case of the tail wagging the dog in some complicated interaction. This needs to change.

    Also, I suspect some in the shadows at ICE are up to no good in some way not being properly supervised. Plus, the large investment houses are unregulated in how much money they can pour into commodities, unlike individual investors. Thus, when GS says oil is going up, they have the money to prove it.

    Thank the media for explaining all this using the path of least resistance. “Hmm, oil is going up and a book says peak oil is coming. Maybe it’s here now?” And thus, the cycle of stupidity continues as sheep believe it is true because it’s on the internet or in the newspaper.

    Thank the CFTC and other regulators for keeping their assholes clean by making regular thumb insertions. Hygiene is good, but they are nearly useless.

    Congress apparently created this mess back in 2000 by passing a commodity oriented law that made this type of trading activity just peachy. This is a different law from the Enron Loophole that is said to be closing soon. When will these congenital retards fix the problem by passing remedial legislation for the loopholes opened and to close the newly created ones that benefit only a few at the expense of the greater society?

    Like I said, I’m not an expert but I think I hit most of the important points well enough for horse shoes. While a few are making money by gaming the commodity markets, it is at the expense of 98.5% of the rest of the population. The only price finding mechanism in play is how much each memo can ‘roll the market forward’, to use a commodity term and probably make a factual statement on several levels. The other commodities are just along for the ride.

  16. HCF commented on Jun 19

    I would tend to say that as a whole, we are far too OPTIMISTIC. For example, did anyone see Tobias Levkovich (chief equity strategist for Citi) on CNBC today? He basically said about conditions causing high oil and commodity prices (floods, drought in Australia, etc.): “These are distortions in markets, these are not real.” I had to rewind 2-3 times to make sure I wasn’t hallucinating.

    WTF? That’s like saying World War II was merely a market externality. I guess the issue with most analysts is that they always say that things will get back to ‘normal’ assuming that the most recent period is ‘normal,’ never acknowledging that perhaps the recent period was very very abnormal. I believe (unfortunately) that cheap food, cheap fuel, and easy money are the exception rather than the rule: We are on our way back to “normal” right now, not the other way around.

  17. techy commented on Jun 19

    reinforcing downsouth comment.

    inflation in india as per official measurement is around 7.5-9%.

    but indian currency has gone up around 15% in the last 3-4 years.

    but i dont think its only because of inflation……i think it is correction of the imbalances built over the last 10-15 years.

    cost of living to income is still much better in usa than india/australia/norway etc..

    I being a DINK…living in rental…able to save 40% of my income….if i max out 401k….i may be able to save 50%.

    we drive old cars…old furnitures….dont eat out much…..kind of boring life…but it looks like early retirement is not just a day dream.

  18. Jack commented on Jun 19

    Many of the underlying problems have yet to be addressed in major publications. They are key players in the ad game business and consumer spending is positively correlated with feeling good.

  19. Mike in NOLA commented on Jun 19

    techy:

    Maybe I am overpessimistic about the use of acronyms. Are you a turkish journalist, midget wrestler or character on Nickelodeon? :) (Google DINK)

    Maybe I’m just old and out of touch…and grouchy this morning. In any case, don’t keep all that 401k in dollar assets or even long right now.

    BTW, good rant over here about Goldman’s new employment, or rather disemployment, program:
    http://epicureandealmaker.blogspot.com/2008/06/overheard-at-85-broad-street.html

  20. bluestatedon commented on Jun 19

    Barry, the problems with mainstream “professional journalism” are obvious enough with respect to business reporting, but unfortunately the problem doesn’t begin and end there. The same abysmal quality of “journalism” afflicts the reporting in virtually every other topic, especially in politics and current events. If I had a dollar for every time I’ve read or heard a witless, inane, credulous, naive, or spectacularly misinformed statement by an alleged mainstream “professional journalist” over the last 15 years I could take my family on a long vacation. In particular, it’s become obvious that the vast majority of mainstream “professional journalists” regard the internet as little more than a source of cheap airline tickets and porn, and have no clue whatsoever that there is, among all the crap, a tremendous amount of valuable and accurate information about the real world published by informed bona-fide professionals in their fields, of which BP is a shining example. Even the smallest amount of effort by these alleged “journalists” would open up worlds that they appear to be completely ignorant of, and the only obvious conclusion is that the vast majority of these “journalists” are lazy, complacent, and arrogant individuals who are more concerned about happy hour at 5pm than they are about actually doing the hard investigative work that informs them and their readers. There’s no doubt that the hours and hours you, Tanta and CR, Mish, the Minyanville folks, just to name a few, would literally be unimaginable to the lazy “journalists” who go through the motions for the mainstream print and broadcast media each day.

    I would bet that the prime sources of the problem are the journalism schools in this country. They must have watered down their admissions standards and academic guidelines so thoroughly that graduates honestly believe that a journalist’s role is to dutifully transcribe what is told to them without question, and to regurgitate it back to the public, with a big happy smile. Stenography could not be a more apt term.

    If you want a very recent example of how low the field of “professional journalism” has fallen, the National Press Club yesterday saw fit to rent its facilities out to convicted criminal and moron Larry Sinclair, who’s been desperately trying to peddle a pathetic tale of drug and sexual escapades involving Obama for months. The fact that Sinclair has well over 20 convictions for a variety of criminal offenses and has changed the details of his lurid tales repeatedly didn’t make any difference to the NPC. The comical ending of the press conference was the topper, as Sinclair was arrested on an outstanding warrant by the state of Delaware.

    Not only that, but the NPC also allows Jeff Gannon, the former male prostitute and fake White House press corps “journalist” who Bush and other administration officials would call on for softball questions, to maintain a personal blog under the NPC banner. When a “professional” association supposedly devoted to maintaining standards of “professional” integrity and credibility gives frauds like Sinclair and Gannon a platform, that’s all the indication you need that the “profession” as a whole is thoroughly corrupt and rotten. I know there are exceptions, but that’s the problem: they’re exceptions, not the rule.

  21. Ben H commented on Jun 19

    I’m very pessimistic for many reasons. (1) How will our levels of government pay for the $53+ trillion dollars promised to various constituents via Medicare, Social Security, pensions, etc. Will the temptation to hypertax & (hyper)inflate away this debt prove too strong? How will we reconcile the promises & fact that the money is not there? (2) Our federal government will not change its awful spending habits until (I guess) it can’t borrow money anymore. I don’t see the fundamental change in attitudes necessary in our leadership to change this. (3) Cheney & Bush have bogged us down in wars that have no end in sight. (4) I don’t see how the dollar can stop losing value given our empire of debt. (5) In summary, this country borrows too much & passes the bill onto future generations & the responsible savers. There’s not armed rebellion yet because not enough people have been presented with a bill & payment demanded. It makes me wonder if I should learn to repatriate capital & pick a country to move to when things get a lot worse; which language should my family learn?

    The bright side of this is that much of our nation is slowly learning how or being forced to consume less, which is good for our pocketbooks & environment. If we have a broken fiscal system, then we are moving towards to a breakdown & hopefully it can be restructured in a simpler & smarter way.

    Good luck to all of you,

    Ben

  22. zell commented on Jun 19

    Housing is locked on it’s glide path into a mountain of debt. Get up in the A.M. to se oil in the $130’s and that’s al you ned to know.

  23. DonKei commented on Jun 19

    The difference in sentiment between today and the early 80’s is that by the late 70’s/early 80’s, things had gotten so bad that the depths of despair had been already reached. America was on her knees politically, militarily and economically. The dollar was in free fall internationally and domestically. OPEC had seemingly limitless power to manipulate the price and supply of the blood of the economy. A bunch of rag-tag Iranian students had attacked sovereign US soil (the US Embassy in Tehran) and taken hostages, and it seemed there was nothing we could do about it. A feckless rescue operation seemed to cement our impotence. And not least, the Soviet Union was ascendant, so much so that invasion of Afghanistan seemed a good idea. High oil prices masked the Soviet Union’s utterly broken and fraudulent command economy, but that was hard to see at the time. The US was reeling.

    Once we hit bottom with the failed Iran rescue effort, with vivid images playing on TV of burned-out hulks of US helicopters lying in the Persian desert, it seemed grit and optimism were all the choices we had left. The mood started turning with an ice hockey championship over the Soviet Union, which, symbolically at least, showed that perhaps America was not quite yet through. People began to believe that things might get better, if only because it would be hard for them to get worse. Beating the Soviets gave credence to their beliefs.

    Shortly afterward, the real economic bottom was reached, and then began an amazing run of economic, political and military superiority never before seen in human history, culminating in an America poised at the very top of the precipice of human affairs. There were only two very mild economic hiccups along the way that temporarily stalled things. Elsewise, it was a more or less straight shot up.

    Unfortunately, from the top, all roads lead down. This, I think, explains the paradox of pessimism and despair even while things are still very, very good. People have come around to the notion that the age of American hegemony is drawing nigh, and life is always more satisfying and meaningful on the way up than it is on the way down. How far we might fall is the question striking fear in the hearts of Americans, and they know there is no easy answer. This has only just begun.

  24. grumpyoldvet commented on Jun 19

    MSM today are not schooled in anything other than stenography. It’s all about getting the headline and the scoop. Yesterday in the NYT it was noted that it’s Broadway scribe was going to Iraq to report on the war. Weird.

  25. The Financial Philosopher commented on Jun 19

    Perhaps someone can help me with a few questions…

    1. If the press is naive, and I agree with that assessment, then what good can it do to consume their information, especially if we know it is, at best, misguided, and it often results in our own frustration?

    2. If the press has any effect on investor psychology, then could a trader not take advantage of that disconnect with reality? If so, we should cheer the press’ naivete, not jeer it, or at least be indifferent to it or even be entertained by it.

    3. Assuming broad market movements are significantly affected by investor sentiment and psychology, especially in the short-term, rather than fundamentals, does this not make the quantitative data essentially useless?

    4. Once we prove the press and the feds are idiots, which I applaud Barry’s talent in doing this, and their respective spin and data are mis-reported and innacurate, what does one do with that information?

    5. If the answer to #4 is to find the disconnect and leverage our “good information” against their “bad information,” then shouldn’t a trader wish for more idiots to spin an even greater disconnect?

    Thanks, in advance, for any help with my questions…

  26. owl jolson commented on Jun 19

    they write jaunty songs in times like these…..

    “Soft? You betcha.
    In recession? Quite likely,
    but happy days are just around the be-eeend.

    The numbers? They’re pretty!
    So why feel so shitty?
    when happy days are just around the be-e-end

    so far the nation’s holding up much better
    than it did
    in them crazy lazy days yer granddad knew as a kid

    So while you still have a job
    don’t be an ungrateful slob
    cause happy days are just around the be-eeeeeend”

  27. grumpyoldvet commented on Jun 19

    MSM today are not schooled in anything other than stenography. It’s all about getting the headline and the scoop. Yesterday in the NYT it was noted that it’s Broadway scribe was going to Iraq to report on the war. Weird.

  28. Ed Miller commented on Jun 19

    Comparison of economic stats between today and 30 years ago is an apples to fries comparison because today’s numbers are thoroughly cooked!

    With enough grease to …. (you can fill in the rest) ;^)

    Seriously, the problem I find with these comparisons is that once you change the rules you no longer have a baseline for a valid comparison. Today’s numbers are more like the punchline to an old joke involving computation and accountants – “What do you want the number to be?”

  29. Darkness commented on Jun 19

    Excellent post. You should start a “top_posts” keyword and stick this one in it.

  30. whosonfirst commented on Jun 19

    I happen to be reading J.K. Galbraith’s book on the Crash of ’29. As this was unfolding you heard the same things from authority figures that Bernanke and Paulson are saying today – “everything is fundamentally sound” etc.

    Then, as now, no one had an accurate handle on the current situation. And, more importantly, nobody had any idea what would happen next.

    We’ve known for thirty five years that we had an energy problem which was not going away and yet have done nothing about it. I think one of the ultimate casualties in this mess we find ourselves in will be the so-called “greens”. These people are too damn dumb to know what’s in their own, or the country’s, best interest.

  31. rj commented on Jun 19

    “While a few are making money by gaming the commodity markets, it is at the expense of 98.5% of the rest of the population.”

    But how do you correspond the notion that people shouldn’t buy into commodities with the notion that the markets should be free and fair. If I want to go out and buy a ton of steel, I should be allowed, shouldn’t I?

    Commodities are higher, and maybe people are buying into them. Why? Because that’s their job! If you are stating that you think this should not happen, in my opinion you’re stating that the stock market and Wall Street and corporation and 401(k) system are all broken and should be scrapped immediately.

  32. RGR commented on Jun 19

    It’s a little rash to slap down a reporter for comparing labor stats from 1980 to today’s. [BR: fair criticism, and I will slightly tone it down] Ya know, the BLS revised and re-revised those old stats to make them comparable with current methodology. The reporter doesn’t go to microfiche to look up the old numbers. And it’s the damn truth, when you’re afraid of unemployment going to 8% and a good mortgage is double digit interest rate, it’s a lot worse than we have it now.

    What’s hard now is we have the most consumerist, buy-and-throw-away-expensive-things society since Rome, and a big swath of the population can do little but envy. I actually know people who are beyond barely getting by and are making extremely difficult choices. Should I get this month’s medicine, or fill up the Chevy? To have food prices rising fast at the same time is like God and Satan teaming up to turn the thumb screws.

    Most households in this country don’t have those problems, and we have an older, wealthier population on balance than we had in 1980. Manufacturing is down to 12% of private jobs, so the most volatile component of the work force has a far lesser effect on the economy as a whole.

    Initial jobless claims averaged 645,000 per week for three months in 1982. Was eligibility relaxed, yes, but because it needed to be. These days eligibility standards aren’t keeping anyone out on the street, as the fast-adjusting industries are getting close to insignificant.

    The author of this piece seems to suggest that today’s 5.5% unemployment rate is at least as bad as 7.5% used to be. Underemployment, skills mismatches, these may be real problems. Don’t pretend, though, that we’ve gotten anywhere close to the way things were from 1973-82.

    Vietnam
    Nixon
    End of Bretton Woods
    Arab oil embargo
    Double-digit inflation
    American hostages in Iran
    OPEC Arabs dial down production
    Failed hostage rescue
    Double-dip recession
    Forced spike in unemployment as the cure for inflation
    Boycott of Moscow Olympics

    We’re not even close.

  33. rj commented on Jun 19

    “While a few are making money by gaming the commodity markets, it is at the expense of 98.5% of the rest of the population.”

    But how do you correspond the notion that people shouldn’t buy into commodities with the notion that the markets should be free and fair. If I want to go out and buy a ton of steel, I should be allowed, shouldn’t I?

    Commodities are higher, and maybe people are buying into them. Why? Because that’s their job! If you are stating that you think this should not happen, in my opinion you’re stating that the stock market and Wall Street and corporation and 401(k) system are all broken and should be scrapped immediately.

  34. John D commented on Jun 19

    DonKei,

    Great post. You nailed it.

    Plus you could have added the death-of-equities BW cover.

    Today’s sentiment feels closer to a top than to a bottom.

  35. John Wheaton commented on Jun 19

    How frightening it will be if the Average Joe wakes up and realizes that his government, it’s media, and it’s banks, have all been built on perpetual lying. A 3.2% inflation rate? A 5.x % percent unemployment rate? All fiction. I think the clarion call will be when the Monoline AAA ratings are cut to reality – the first domino of a long chain of coming catastrophes – that once in play will stir people awake.

    Was wondering what happens when all of the nonessential spending McJob employers (Starbucks, ColdStone, etc) fold due to consumer spending pull backs and thousands of low wage, low skill citizens try to make a go of it in this economic environment. Are we going to see a revolution in the making, or will an entitlement program be created to soothe the populace back into a REM state?

  36. JL commented on Jun 19

    Americans are feeling gloomy because they are actually realizing that reality has caught up with them….as it ALWAYS does. Every time we are flying high (Reagan years, the 90s dot-com boom, the recent real estate bubble) we keep thinking that, this time, it will last. We conveniently forget that it never ever does and the price we pay at the end is always higher than we ever imagined.

    It’s like we load up our plates at (what we think is) a free lunch buffet. Problem is when we get to cashier, we realize that we actually have to pay by the ounce…and this time we went heavy on the shredded cheese and cubed ham.

    The medias part of all this? To promote the buffet with little knowledge of what’s in it.

  37. Mike in NOLA commented on Jun 19

    John:

    Don’t think there is any chance of even a peaceful revolution once the plebes wake up. We are living in an almost Rollerball I economy. But no Jonathan E can ever win a position of power. Big money controls the MSM, the elections and thereby the government.

    Witness the recent Democratic nomination race. The most honest about curbing the power of big money was Edwards because of his background. Even though I would have voted for him, I knew he had no chance because he wouldn’t get big contributions and the MSM wouldn’t help him. Hillary and BO were getting more contributions from big business than anyone in either party.

    After he fell out and Hillary started trailing, Hillary saw that Edwards had a good cudgel and took it up, handily defeating Obama in almost all real elections in states that will count in November. But she wouldn’t do either, so Obama got most of the big money and the MSM backing. Now we are likely to have a president who has a big sign saying “change” on the podium when he really represents the Chicago machine and business as usual, although it remains to be seen if he is as good at big time influence peddling as he was on a small scale in Chicago.

  38. Risk Averse Alert commented on Jun 19

    Has anyone seen Alexander Hamilton and Ben Franklin? I’m asking because a government whose financial wherewithal serves the general Welfare and a press whose freedom of expression elevates domestic Tranquility are the key to sweeping aside the few cowardly contemporaries who have hijacked the Great American Experiment.

  39. wunsacon commented on Jun 19

    >> I think one of the ultimate casualties in this mess we find ourselves in will be the so-called “greens”. These people are too damn dumb to know what’s in their own, or the country’s, best interest.

    Uh, excuse me? Who blocked mileage standards improvements for 20 years? You understand that “a barrel saved” is “a barrel pumped”. Right?

    And, although I’m in favor of drilling off our coasts, which party had absolute rule between 2000-2006 and did NOTHING about it (and about ANWR)? There aren’t even enough rigs built to take advantage of it right now. Since it’ll take years to exploit these resources, the time to act was 6 years ago.

    And who avoided tilting the energy landscape in favor of wind and solar for so long? We’d be much further along if we’d funded those initiatives instead of say, run up huge budget deficits and cut interest rates to multigenerational lows, to “stimulate” the economy.

    The opportunity for the “Republican” party to act has passed. To avoid being a hypocrite, then first complain to the mirror before you complain about anyone else.

  40. wunsacon commented on Jun 19

    RGR, you’re right. It’s not the same. But, let’s see combine a few overlapping issues and added the (comparables):

  41. Estragon commented on Jun 19

    Financial Philosopher,

    Good questions. FWIW…

    1. The press exists primarily as a means of delivery for paid advertising. As such, the non-paid content is designed to attract readers in the target audience. What good does it do to consume their information? Look at the information not for the content itself, but as a reflection of what the target audience wants to read.

    2. Can we take advantage of the “disconnect with reality”. Maybe, but the key is understanding the difference between reality and the public perception of reality. We need to front run perception, not true reality.

    3. Does this make quantitative data essentially useless? Yes and no. On short time frames, the absolute quantitative data matters less than how the data relate to expectations.

    4. What does one do knowing everyone else is an idiot? Ask the question, if I was an idiot too, what would I do next.

    5. Shouldn’t a trader wish for more idiots? Only if:
    a) You can predict their future actions, and
    b) You are able to use this knowledge to your benefit.

  42. Joe commented on Jun 19

    Man, I just really, really appreciate this blog.

  43. SteveW commented on Jun 19

    “The naked comparison between the stats today versus 25 years ago — without some context — is misleading, and perhaps revealing of economic naiveté.”

    The same logic should be applied to consumer sentiment. At least the BLS discloses its changes over the years – consumers dont disclose what motivates their changing sentiment over the years.

    Are consumers just parroting back what they read in the news?

  44. anonymouse commented on Jun 19

    The problem with most financial journalists is that they’re journalists. The culture of journalism is profoundly broken because it’s based on the model of objective reporting of events. You see it, you hear it, you write it down. It celebrates the human story, the anectdote. Not the balance sheet analysis, not close reading of the 10k, not stress testing of a model’s assumptions.

    I worked at Bloomberg TV and though there were great people there, there were too many stenographers who reported what companies reported and what ‘analysts’ said, rather than doing their own analysis. There were too many who were much more viscerally interested in politics than credit markets. Too many who are looking to get on TV so they can make their next career jump to a ‘real’ channel.

    Can you blame them? Let’s pretend you’re a recent grad from a top college with an economics degree and some quantitative skills. Do you choose Wall Street for $100k or business news for $30k? How about if you’re graduating from B-school with some real tools?

    On a different note, I like Marcus Aurelius’s image of the marks realizing they’ve been had then the “pitchforks, shovels, torches, tar, and feathers come out.” I’m not sure I buy into it though. More then likely there will be some symbolic prosecutions, a la Mssrs. Chioffe and Tannin, but the overwhelming number of the culpable will get away, mostly because the crimes were not crimes per se. Of course, if the pain is too great, if this were to turn into a ‘great depression’ scale catastrophe, then all bets are off.

  45. VJ commented on Jun 19

    DonKei,

    Shortly afterward, the real economic bottom was reached, and then began an amazing run of economic, political and military superiority never before seen in human history…

    You must be referencing a country other than America:

    * Economically, in addition to the Standard of Living of the vast majority of Americans going backwards by about 20%, both Unemployment and Poverty spiked, there were massive federal deficits and debt as a result of failed tax cuts for the Rich & Corporate, as well as a widening inequality.

    * Politically, we were seen as regressive, unenlightened, and a pariah around the globe.

    * Militarily, they sold chemical and biological precursors to Saddam Hussein, supported the Mujahadeen, and they are still unearthing mass graves of men, women, and children, in both Nicaragua and Honduras, as a result of their political, economic, and military support for RightWing Death Squads in Central America.

    This, I think, explains the paradox of pessimism and despair even while things are still very, very good.

    WHERE ?

    * Bankruptcies are at the HIGHEST level in history

    * Home foreclosures are at the HIGHEST level in history

    * We have the LARGEST Inventory of unsold vacant homes in history

    * Federal budget deficits are at the HIGHEST level in history

    * The savings rate went NEGATIVE for the first time since the Great Depression

    * Poverty has INCREASED every year of the past seven years

    * American worker’s wages have DECLINED every year of the past seven years

    * We are down MILLIONS of jobs since 2000

    * The S&P 500, in inflation-adjusted dollars, would need to be over 15,000 just to get back to where it was in 2000
    .

  46. Unsympathetic commented on Jun 19

    Barry, counter to the poster above, I respectfully submit that you didn’t slap down the WSJ reporter enough.

    If he’s going to go through the trouble to compare apples to apples (use the 70’s methodology for today’s numbers) for the employment stats, he needs to do his digging and learn how to report the stats similarly.

    “The last time consumers were this miserable, in May 1980, the jobless rate was 7.5 percent and inflation was 14.4 percent” — spiffy, yet when you use the same metrics as in that era.. voila, the jobless rate is ABOVE that (shocking) and the annualized inflation rate is ABOVE that (19%, just in case anyone’s counting.)

    I’m frosted when I see people trotting out whatever collection of metrics serves some bizarre short-sighted purpose without including… the big picture. Core inflation has no meaning or relevance to anything – the guy who “invented” it repudiated it before he died. The chief theory behind core is what? Energy prices don’t change. Not “are rising consistently” – nope, that the dollar value for one BTU today is the same as last month and next month.

    Bottom line: WaPo is part of the MSM. They truly believe (as a matter of faith) that if they jawbone with enough editorial space, their readers will somehow “believe” the fantasy world of people who make more after-tax in one month than they do in a year.

    Much like leaving Ben Stein to Felix Salmon’s rapier, couldn’t we dispense with the notion that ANY mainstream economics reporter has a single globule of sense? Seriously – I’d bet money that the factually correct, useful, interesting economics articles in the print media are under 5% of the total written. Anybody want to cover? :)

  47. GreenAB commented on Jun 20

    great write, thanks barry!

  48. AARP: Generations of Struggle commented on Jun 20

    Data collected by the 2007 Consumer Bankruptcy Project reveals that bankruptcy rates for older Americans are rising sharply.

    The story from these data is one of rising risk with age. The average age for filing bankruptcy has increased, and the rate of bankruptcy filings among those ages 65 or older has more than doubled since 1991. The corresponding decline in filing rates among young Americans might signal better financial security than that of their earlier counterparts. But the fact that previous generations show a sharp rise in filings in their early middle age may signal instead that people are living with financial stress for years, putting off the day of reckoning in bankruptcy for as long as possible.

  49. AARP: Generations of Struggle commented on Jun 20

    Data collected by the 2007 Consumer Bankruptcy Project reveals that bankruptcy rates for older Americans are rising sharply.

    The story from these data is one of rising risk with age. The average age for filing bankruptcy has increased, and the rate of bankruptcy filings among those ages 65 or older has more than doubled since 1991. The corresponding decline in filing rates among young Americans might signal better financial security than that of their earlier counterparts. But the fact that previous generations show a sharp rise in filings in their early middle age may signal instead that people are living with financial stress for years, putting off the day of reckoning in bankruptcy for as long as possible.

  50. AARP: Generations of Struggle commented on Jun 20

    Data collected by the 2007 Consumer Bankruptcy Project reveals that bankruptcy rates for older Americans are rising sharply.

    The story from these data is one of rising risk with age. The average age for filing bankruptcy has increased, and the rate of bankruptcy filings among those ages 65 or older has more than doubled since 1991. The corresponding decline in filing rates among young Americans might signal better financial security than that of their earlier counterparts. But the fact that previous generations show a sharp rise in filings in their early middle age may signal instead that people are living with financial stress for years, putting off the day of reckoning in bankruptcy for as long as possible.

  51. AARP: Generations of Struggle commented on Jun 20

    Data collected by the 2007 Consumer Bankruptcy Project reveals that bankruptcy rates for older Americans are rising sharply.

    The story from these data is one of rising risk with age. The average age for filing bankruptcy has increased, and the rate of bankruptcy filings among those ages 65 or older has more than doubled since 1991. The corresponding decline in filing rates among young Americans might signal better financial security than that of their earlier counterparts. But the fact that previous generations show a sharp rise in filings in their early middle age may signal instead that people are living with financial stress for years, putting off the day of reckoning in bankruptcy for as long as possible.

  52. Mark Thoma commented on Jun 20

    If you ask instead, “why are people so gloomy when the economy has all these problems, reduced economic security, stagnant real wages, rising health care costs, falling home values, rising college costs, rising food costs, loss of employer based retirement programs, rising energy costs, worries about the future, etc., etc.,” there’s really no mystery.

  53. reeza commented on Jun 20

    Sorry, noticed someone’s already pointed out that FedEx’s 241m loss is a result of Kinko’s.

    Just hv to say tho after reading your piece on constructive criticism; this’d be a good time to remind ourselves sometimes to read thru the fine print as well instead of just the headlines wouldn’t it?

    That said I do enjoy your work, Sir. Only bringing this up because I caught myself doing it, too.

    God Speed!

  54. fred c dobbs commented on Jun 22

    If you read “The Geat Bu$t Ahead” by Daniel A. Arnold, I believe you will conclude we are not gloomy enough. It is downright scary. With a long term decline in the biggest spending part of the population beginning in 2009/2010, consumer demand will slow and fall, and the economy with it. A lot worse than ’29+ Arnold ties population in general to our GDP, and our economy’s rises and falls to the biggest spending portion of the population, the 45 to 54 year old group. It would be fun to ignore, but the fact is, he has a lot of data to support his thesis. If he is right, we are not gloomy enough.

  55. The Big Picture commented on Jul 4

    Pervasive Pollyannas of Prosperity

    David Leonhardt discusses a few items today which are regular discussion points here at TBP. My favorite lately is why the public is so much gloomier than the pundits: Pundits have been scratching their heads about why the public mood is so grim. Last …

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