September 13, 2021

A Different Update

Today’s media would do well to analyze the data they have, not the data they want 


The current ambition to achieve smartness is falling prey to the shortcuts that shower the consumer. From summaries of books to widely spread information that would make a skeptic lose sleep, it’s not based on what we should know, but instead what we want to know. This is where analysis from stocks to the economy to politics is too often skewed by what psychologists refer to as unskilled intuition and I call it judgmental bias. This can often come from the common challenges to the many options to choose from countless sources, from Pindudes, Wall Street bets, from the Hedgefiends that swig their opinions like they come curtesy of the grace of you know who. And what do we get? Not a guarantee, that’s forbidden in the financial services business, but using the new strategy, the strategy of a promise. 

 I bring this up because the media plays into this trap in the effort to identify many of these influencers in advance, mostly because they are often negative, and often wrong. And when it comes to valuing companies, although successful companies seem in retrospect to have performed because of their unique qualities, predicting those same qualities to find the next hit product or company is notoriously difficult. This is why following a strategy, which leads us to companies out of the spotlight, is preferable to speculating on the sources that are personally popular. The process of strategy begins with looking at the data there is, let’s try.


This month the Bureau of Labor Statistics (BLS) released the August data for unemployment and the outcome was 235K, less than the consensus expected, 720K, so what? Having tracked monthly employment growth for over thirty years, the most common assumption is that growth of more than 250K was consistent with an economy growing at 3%. That said, I’ve been skeptical of the confidence that economists seem to have when predicting the effects of reopening the economy. Part of the reason surrounds the 7.5 million workers, many who seem to be ignoring the 10.9 million job openings recorded for July. Another possible skew to the data is Amazon’s (AMZN) announcement that additional Whole food stores will allow shoppers to fill a basket that will charge, on the way out, directly to their credit card or bank account without the need for cashiers. Also, consider the impact of AI on the decisions of everything from hiring to bank loans, customer service, retail services and even medical services, and the point is what impact will all of this have in future employment?


One of my favorite charts compares long term quarterly GDP with long term quarterly Inflation, the latter calculated as Producer Prices (PPI), Consumer Prices (CPI) and my favorite, Employment Cost Index (ECI), the measure of increasing wages, which has been rising at over 2.5% annual rate for all industries. The ensuing chart shows two occurrences, when inflation is below GDP, suggesting resources in the economy are not being used, referred to as Slack, and when Inflation exceeds GDP, which currently does, fears of dangerous inflation are not without some merit. Add to that the direct impact of commodity prices, doomed to rise if an Infrastructure bill ever gets passed, food prices and semiconductor shortages, which have no definite timeline to end. In short, the questions surrounding inflation are not if there is inflation, but how long will it last. 

 Infrastructure Legislation

There is little that can be added to the well-advertised challenges the political environment brings to the table. The bipartisan Infrastructure bill has gotten lots of attention, but so has the one party drive to add a 3.5 trillion dollar social infrastructure. The interesting fact about the latter makes considering the above comment on employment make the case that there is much to be considered if the bipartisan bill doesn’t deliver the jobs it promises. Likewise, the changes to taxes make the total package even a challenge within the said party. Lastly, Treasury Secretary Yellen, is yelling to increase the debt ceiling, a pesky little procedure meant to control the amount of new money that can be printed. So far that doesn’t seem to be getting much bipartisan attention. In all, there is wide public approval for the bipartisan bill as recorded by a Harvard poll that keeps the probability of passage worth watching.  

 Much can be added to the research and analysis regarding the economy, the Fed and all of the uncertainties that deliver the amount of data these days in an endless supply thanks to technology. But in the end it shows how developing a strategy that uses data isn’t the same as looking for the data that feeds a predetermined outcome. Simply because the markets are about the future; historically go up and down and are void of precise prediction, and I’d rather be patient than rely on unskilled intuition.


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