Posts filed under “Think Tank”

A Conversation About Payroll Data That You Never Saw On CNBC

I am pleased to introduce Bob Bronson. For the past 42 years, Bob Bronson has applied a disciplined, analytical approach to understanding and forecasting capital markets and advising investment advisors. Through his rigorous analysis of capital markets and economic data and his background in mathematics and financial economics, he has developed a number of unique investment concepts and refined portfolio-management techniques that improve returns and lower downside-volatility risk.

To learn more, read his BIO.


A Conversation About Payroll Data That You Never Saw On CNBC

by Robert E. Bronson, III
Bronson Capital Markets Research


Joereal at CNBC: We’re very pleased today to introduce Constant Pangloss for his take on today’s payroll data report.

Pangloss: Thank you, Joereal. I’m delighted to be here. Today’s report was just outstanding! To be factual, July’s loss of jobs was 44% less than June’s jobs loss and a huge 64% less than the biggest jobs loss in February! This “green shoot” is proof positive that the recession has nearly, if not already, ended, which is confirmed by today’s breakout bull market rally to a new intraday high at 1018 for the S&P 500!

Joereal: Did you notice that the 9.4% unemployment rate from the household survey would have been 9.7% rather than 9.4%, if some 422,000 unemployed people had not left the labor force during the four weeks prior to the survey, many of them so discouraged that they did not look for work because they know there are no jobs for them?

Or that the seasonal adjustment of the payroll data artificially created 28,000 jobs in the auto industry, when, in fact, automakers cut 8,600 jobs, so that the reported 247,000 jobs lost in July were really closer to 285,000 jobs or 15% worse than reported?

Pangloss: I’ll take your word for it, Joreal, but I find that hyper-technical, and in any case, it doesn’t change the solid uptrend of “green shoots” in the payroll data because of the current administration’s stimulus and their other constructive interventions.

Joereal: Ok, but we’re putting up on the screen the long term history of the growth in payrolls since the BLS first started tabulating them during The Great Depression.

Pangloss: Well…OK…I guess the more contextual information the better.

Joereal: Ok, here’s the chart that appeared in Rex Nutting’s article illustrating the record-breaking descent in the 10-year growth rate in private sector payroll employment since 1939.


Source NYT

Pangloss: No, no, no…that’s way too much data. I prefer the shorter term chart that the rest of the media is presenting. If you simply ignore the fluke in June, just look at this year’s strong uptrend of solid “green shoots!”


Joereal: I see what you have selected, but do you mind if we also consider both the raw or base employment data, as well as their monthly changes, at least since just before the recession started?

Pangloss: I guess not.

Joereal: OK. Notice that the cyclicality and the downtrends in both of the following datasets, suggest job losses in the coming months may be worse.



6 polynomials

Pangloss: What? I’m just going to ignore the so-called perfect polynomial fit in the first chart. In the second chart, I believe that the linear downtrend is irrelevant, and the cyclical extrapolations are obviously too influenced by both the longer term data since the recession began and by the recent June fluke in the data.

Joereal: Well, here’s a two-month average of just this year’s data, and a curvilinear best-fit of the data suggests the same outcome of lower payroll data coming in the months ahead….


Joereal: …and there’s another consideration. As you can easily extrapolate visually from the downtrend in the last three years of data and from the curvilinear best fit of all eight years of data in the following table prepared by the BLS, their annual payroll benchmark revisions to be reported in early October for the 12 months of employment data through March 2009 (which was the worst part of the banking crisis), along with the regular monthly report of September (2009) data, will likely show a downward change of a whopping 2,000,000 jobs, if not more, similar to the 2,000,000 downward revisions reported in October 2002 as a result of the last recession. A huge, downward revision in payroll jobs expected in the report this October is all the more likely because the BLS data are only sample-based estimates and do not include any business cycle considerations, and because the current recession is much more severe than the last one.


Source: BLS

Joereal: ….Surely you’ll agree that this will raise questions about the “green shoot” proof that the recession has ended, or nearly ended, right?

Pangloss: This is all hyper-technical and I don’t respond to hypothetical questions.


Bob Bronson, August 12, 2009
Bronson Capital Markets Research
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Category: Think Tank

Gold and the S&P’s

There is nothing like a vacation to get some r&r, spend some time with loved ones, reflect on the past and think about the future. With gold now above $1000 again, about the same level of the S&P’s, the $ index just 8% from record lows and 4 more years of B52 Ben, lets reflect….Read More

Category: MacroNotes

Bankers and Beavers

Bankers and Beavers Labor Day, September 6, 2009 Drive north on US Route 1 about 2 miles from Princeton, Maine and turn right on Telephone Road. Five miles of gravel takes you to the edge of Tomah Stream, a serene, magical place on the edge of the Passamaquoddy Indian reservation. We turned onto Telephone Road….Read More

Category: Think Tank

The Elements of Deflation

As every school child knows, water is formed by the two elements of hydrogen and
oxygen in a very simple formula we all know as H2O. Today we start a series that
starts with the question, What are the elements that comprise deflation? Far
from being simple, the “equation” for deflation is as complex as that of DNA.
And sadly, while the genome project has helped us with great insights into how
DNA works, economic analysis is still back in the 1950s when it comes to
decoding deflation. Notwithstanding the paucity of understanding we can glean
from the dismal science, in this week’s letter we will start thinking about the
most fundamentally important question of the day: is inflation, or deflation,
in our future?

But quickly, I want to thank the many people who wrote very kind words about last
week’s letter. Many thought it was one of the better letters I have done in a
long time. If you did not read it, you can read it here. And of course, you can go there and sign up to get this letter sent to you each week for free. Why not become of my 1 million (plus and growing) closest friends?

The Failure of Economics

Among the economists and writers I regularly read, there are some who, if they agree
with me, I go back and check my assumptions – I must have been wrong. Paul Krugman is one of those thinkers. I admit to his brilliance, but his left-leaning philosophy does not particularly square with mine, and I find that most of the time I disagree.

That being said, I strongly encourage you to read his essay in the New York Times Magazine, which comes out this weekend. It is worth the high price of the Times to read it, if you can’t get it online. It is a very hard critique and analysis of the failure of current macro and financial economic
thought, which didn’t even come close to predicting the current financial
malaise. Indeed, as he points out, most schools of thought said the state we
are in could not happen. You can read at the essay if you are a member, or
register for free if you are not.

Krugman writes, as I have in repeated columns, that we have taught two generations of
economists and financial practitioners faulty theories. Even now, believers in
the Efficient Market Hypothesis and CAPM hold to their beliefs in the face of
clearly contrary evidence. It is a very thought-provoking piece and worthy of a
long weekend read. He names specific names and pulls no punches. This is as
close to starting a barroom brawl as you get in economic circles.

Read More

Category: Think Tank

What’s a Four Letter Word for Risk Aversion?

Good Evening: After giving ground in recent days, U.S. stocks found their footing on Thursday. The S&P 500 had been fidgeting around just below 1000 since Tuesday’s downdraft, but the widely watched index managed to finish above this psychological barrier today. Whether this rebound after the 4% pullback from last week’s high signals either a…Read More

Category: Markets, Think Tank

Global stock market performance roundup (thru 8.09)

Global stock market performance roundup (August 31, 2009)

The performance of a number of global stock markets is given in the table below in local currency terms for different measurement terms ended August 31. The numbers speak for themselves, but it is noteworthy that the MSCI World Index (+3.9%) and MSCI Emerging Markets Index (-0.2%) followed separate paths in August as China, Hong Kong and India underperformed.

Click here or on the table below for a larger image.


Top performers during August included Austria (+11.3%), Ireland (+10.9%) and Venezuela (+10.6%). At the bottom end of the performance rankings countries included China (-21.8%), Hong Kong (-4.1%) and India (0%).

The key moving-average levels are also given in the table above. With the exception of the Chinese Shanghai Composite Index, which fell below its 50-day moving average about two weeks ago, all the indices are trading above their respective 50- and 200-day moving averages. The 50-day lines are also above the 200-day lines in all instances.

The gains/declines mentioned above are all in local currency terms. However, converting the movements to US dollar gives a better picture, in general, for the non-dollar countries (see table below).

Read More

Category: Markets, Think Tank



Investment letter – August 26, 2009


Over the last 3 years, most economists have fallen into one of two groups. The smaller group were those economists who saw the housing and credit crisis coming. Granted, most were a bit early and turned negative in 2006. Given subsequent events and the severity of the crisis, being early was certainly not a character flaw. The second and far larger group of economists failed to see almost any aspect of the credit crisis and severe recession coming. Many were still forecasting that there would be no recession as late as last July and August.

What I find fascinating is how these two groups believe the economy will perform in coming quarters. The first group, who correctly anticipated the crisis and recession, believe the economy will bounce and then dip again and form a W pattern. A few think the economy will remain in recession until 2010. For the most part, this group did not see the rally in the stock market coming, and now believe valuations are too high, especially in light of the coming second dip and its impact on corporate earnings.

After failing to see the deepest recession since the Depression coming, and a 50%+ decline in the stock market, the second group of economists are the most stringent supporters of the V-shaped recovery. This view is credible, since economic activity is giving signs of at least bottoming, and nascent signs of improvement. The rally in global stock markets and commodities like oil is based on the expectation of better economic growth. Strategists then cite the improvement in markets as proof of the recovery. This bit of circular logic is taken as an article of faith by those who believe markets ‘know’ something about the future, and are merely discounting better times. I’m not sure what better times the stock market was discounting in October 2007. But this inconvenient truth never fails to dissuade the ‘market discounts the future’ fools from advancing this bit of Wall Street ‘wisdom’.

Something each group of economists and strategists have in common is the omission of technical analysis as part of their analysis. It is a critical omission, and accounts for why each group missed either the significant turning points in October 2007, or March 2009.

Most of the economists who saw the housing crisis coming turned negative on the economy and stock market in 2006. Although housing was clearly rolling over, technical indicators of the stock market’s health uniformly showed that the up trend in the stock market was intact. Throughout 2006, the advance/decline line continued to make higher highs after every decline. As I noted numerous times throughout 2006, there was a very supportive supply/demand dynamic at work. Companies were buying enormous quantities of their own stock and private equity firms were using cheap credit to take over a record number of firms. In total, almost 5% of the supply of existing shares was absorbed thru buybacks and takeovers. This underlying demand was not met with much selling since the economy was in good shape. Had those crisis prescient economists incorporated technical analysis into their fundamental analysis, they would have remained more constructive on the stock market, without compromising their excellent fundamental work.

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Category: Technical Analysis, Think Tank

Worst Month for Equities Set to Begin on a Sour Note

Dan Greenhaus is the Chief Economic Strategist at Miller Tabak + Co. where he covers global economies, markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi). This is his most recent commentary: ~~~ It is well known at this point…Read More

Category: Economy, Think Tank

The Battle Between Politics and Economics Goes Global

Good Evening: U.S. stocks finished a strong August on a down note, causing investors to wonder what awaits them during the seasonally weak months of September and October. With some strong (though admittedly junior) economic data released this morning, today’s downdraft had little to do with the U.S. economy. Global market participants were instead more…Read More

Category: Markets, Think Tank

Shanghai cracks

Category: Think Tank