Posts filed under “Really, really bad calls”

Birth Death Adjustment Coming Under Fire

One of our favorite bugaboos is finally getting its due: The horrifically misleading Birth Death adjustment.

It is finally being recognized in the mainstream as the massive data distorter that it is. The latest BLS analysis and data revision shows that during 2008, the Birth Death adjustment caused NFP payrolls to be  significantly under reported.

NYT’s Floyd Norris:

“It now appears that during the first half of 2008, when the recession was getting under way, job losses averaged 146,000 per month. That is nearly three times the average of 49,000 jobs shown in the initial estimates.

How did the government get it so wrong?

The official job numbers are based on a monthly survey of employers, augmented by something called the “birth-death model,” which factors in jobs assumed to have been created by employers who are too new to have been included in the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the latest survey.” (emphasis added)

Triple the job losses than reported, and right at a crucial part of the economic cycle! Is it any wonder policy response from central bankers and pols was so off? At the most crucial time, they failed to see the oncoming headlights, because they were lost in a fog of data so massaged as to have it completely and totally misrepresent reality.

About time this nionsense was recognized for the bullshit it is. We need to have BLS needs to toss out the 2003 modification to the B/D. We should get back to actually counting, rather than imagining, jobs.

As noted in Bailout Nation, this fundamental reliance on garbage data led to one of the world’s greatest economic catastrophes of all time.

Reality matters.

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click for larger graphic

norris-700x415

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Previously:
NFP: Birth/Death Adjustments (December 6th, 2007)

http://www.ritholtz.com/blog/2007/12/nfp-birthdeath-adjustments/

Overstated Job Growth, Understated Inflation (January 4th, 2008)

http://www.ritholtz.com/blog/2008/01/overstated-job-growth-understated-inflation/

Source:
The Jobs News Gets Worse
FLOYD NORRIS
NYT, October 3, 2009

http://www.nytimes.com/2009/10/04/weekinreview/04norris.html

Historical Net Birth/Death Adjustments

http://www.bls.gov/ces/cesbdhst.htm

CES Net Birth/Death Model
Current Employment Statistics – CES (National)

http://www.bls.gov/web/cesbd.htm

Category: Employment, Really, really bad calls

Why Have 2009 Earnings Forecasts Been the Worst Ever?

Jim Bianco has some comments on this year’s horrific analyst misses:

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At Bianco Research, we have demonstrated that earnings forecasts are missing by their widest margin ever in 2009. While we have over 140 years of actual earnings data, IBES earnings estimates date back to 1985.

The chart to below shows the error rates in forecasting operating earnings for both top-down forecasters (strategists) and bottom-up forecasters (company analysts). It measures the forecast one-year forward versus what actually happened one year later. The data covers the period from 1985 to 2002, and unfortunately we have been unable to secure an update. It shows that the largest forecasting errors ranged from +30% in the late 1980s (meaning the forecasters were far too optimistic) to -20% during the recession of 2000 (meaning they were far too pessimistic). Data from 2002 to 2006 is missing, but it is a safe assumption that the earning misses that occurred during this period were not as extreme as the previous records set.

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error rates

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The next chart uses Bloomberg data for bottom-up forecasts. By mixing IBES and Bloomberg forecasts, we risk comparing apples to oranges. But, if the surveys are done properly they are both surveying the same people and should offer a very similar data set. As highlighted on the chart below, the current forecasting error is now near 100%, more than three times the largest error seen from 1985 to 2002. No other period has ever come close to the current period.

Read More

Category: Earnings, Really, really bad calls

Can Irrationality Be Rational?

There is an interesting (albeit flawed) analysis in this month’s New Yorker by John Cassidy: Rational Irrationality. The subject is “the real reason that capitalism is so crash-prone.” The author’s main point seems to be its rational to pursue profits even in an irrational manner when everyone else is profiting from it. Indeed, to miss…Read More

Category: Bailouts, Corporate Management, Credit, Psychology, Really, really bad calls

The Myth of Sideline Cash

A quick look a chart on Money Market Mutual Funds belies the common belief that “cash on the sidelines” is what powers markets higher. As the chart below reveals, the Market goes up, and as we saw in the 1990s and from 2005-08, so too MMF goes up. This is evidence against the standard sideline…Read More

Category: Markets, Really, really bad calls

Giuliani: Clueless about Economics, Crisis, Bailouts

I’ve always been grateful that Rudy Giuliani was NYC mayor during the 9/11 attack. He was reassuring during a moment of crisis, when leadership was otherwise missing. He stepped into the void after the attack, while others seemed to disappear. Giuliani’s political career — which was in tatters at that time — was rescued by…Read More

Category: Bailouts, Really, really bad calls

Lessons to Be Learned From Dow 36,000

“This book will convince you of the single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher…Read More

Category: Investing, Markets, Really, really bad calls, Rules

Speech-Less: Tales of a White House Survivor

There is an excerpt of Speech-Less: Tales of a White House Survivor by ex-Bush speechwriter Matt Latimer in this month’s GQ. I wouldn’t have paid much attention to this — although some of it is hilarious — except for the knee jerk response from the former Bushies. See Bush vets: Who is Matt Latimer?. I…Read More

Category: Politics, Really, really bad calls, Weekend

So Much For High Frequency Trading

The Securities and Exchange Commission has proposed halting high frequency and flash trading. In response, Nasdaq (and others) are now prohibiting flash orders. Supposedly, the NYSE is also considering banning the practice. This was a given. The real question that remains unanswered and demands a thorough investigation is this: WHAT EXCHANGE OFFICIALS APPROVED THIS? WHO…Read More

Category: Really, really bad calls, Regulation, Trading

Bernanke Says Recession Over; Should You Care?

Ben Bernanke has declared the recession over. This leads to one simple question: Why should you care what his recession forecasts are? Based on his track record as a forecaster and his acumen in identifying economic problems before they exploded, his views on starts and finishes of recessions are, to be blunt, irrelevant. Recall it…Read More

Category: Economy, Federal Reserve, Really, really bad calls

Happy Anniversary !

While everyone is so focused on the anniversary of Lehman Brothers (9/15) and AIG (9/16), today is a different sort of anniversary: Its been exactly one year months since the single dumbest column ever published in The Washington Post appeared: Quit Doling Out That Bad-Economy Line. Breathtaking in its ignorance, shocking in its fallibility, astonishing…Read More

Category: Really, really bad calls