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More Fuzzy Numbers - Durables

Wednesday, March 25, 2009, 2:10 PM

Okay, this is really just desperate and sad. No I am not referring to my fixation on parsing government numbers, although I suppose I could be, but instead to government statistical wizardry and the press' unquestioning rhetorical support for these tortured numbers.

First up, here’s the verbiage:

Durable goods jump 3.4

WASHINGTON (Reuters) -- New orders for long-lasting manufactured goods unexpectedly rebounded in February, rising for the first time in seven months, according to a government report on Wednesday that could bring some cheer to an economy mired in recession.

Here’s the NY Times’ opening take on the situation:

In a glimmer of surprisingly upbeat economic data, manufacturing orders for goods like metals, machines and military equipment rose last month for the first time after six months of declines, the government reported on Wednesday.

That’s quite amazing. Durables “unexpectedly rebounded,” bringing the cheer of “a glimmer of surprisingly upbeat economic data” to an economy mired in recession.

Well, it turns out that there’s another little game that is frequently played with these numbers and it’s called “the downward revision.” The game is played like this: In a prior month, in this case January, a slightly “better than expected number” is posted, causing the stock market to react with glee (at least temporarily).

Later on, that number is adjusted wildly downward, thereby creating a lower benchmark to “beat” next time, hopefully causing the stock market to again react with glee. I’ve been watching this “beat by a penny!” game played for years with both earnings announcements and government releases. The funny part is, it works every time. A friend of mine has dogs that he prefers to lock away in a back room when guests come, and he fools them into willingly entering that room with treats. It, too, works every time. That’s my mental image for this process.

At any rate, here’s the game in more detail. The first thing is to set the “expected number” off of the original reported number. In the example below I have arbitrarily set the baseline durables number to “100” for demonstration purposes.

As you can see below, the reported January number was “95.5” in this example and then economists set their consensus expectation for a final reading of 94.4 which was a minus 1.2 percent decline from 95.5.

Durables_1.jpg

Now that the expected reading of 94.4 has been set, the next task is to then lower the bar so that it can be easily beaten. Below we see two rows of example data. The upper row reflects the fact that the January data was revised downward somewhat heavily, to minus 7.3 percent. The lower row shows how the February data beat that revised number by 3.4%, which led to all the happy articles quoted above.

Durables_2.jpg

But with sharp eyes, we might note that if economists expected a reading of 94.4 but we got a report of 95.9, this only represents a difference of 1.6%. This is a LOT lower of a difference than the reported difference between minus 1.2% and plus 3.4% which is a gap of 4.6%.  

Further, we might say that since the data is so noisy and since February will almost certainly be subjected to revisions, that we shouldn’t compare “reported” to “revised” at all. Instead we might want to compare “reported” to “reported.” What happens if we do?

Durables_3.jpg

Then the surprisingly cheery gain evaporates into statistical insignificance.

Put graphically, the “cheer” reported by the media seems comical and overreaching, and possibly desperate and sad. I’ve taken the liberty of using a red arrow to point out the source of cheer.

Durables_BriefingdotCom.jpg

Source: Briefing.com

It also bears noting that the durables number is a very noisy data series, and any and all monthly “wiggles” are really not worth focusing on. The year-over-year change, however, can be quite revealing.

On that front, February 2009 orders were down 28.4 percent from the year prior.

One might question how an economy based on exponential expansion will fare with such a wrenching downward adjustment, instead of the expected and preferred percentage gains.

Also, one might wonder how Jiminy Cricket has managed to sneak into so many press rooms all at once.

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20 Comments

FireJack's picture
FireJack
Status: Silver Member (Offline)
Joined: Feb 8 2009
Posts: 156
Re: More Fuzzy Numbers - Durables

The market ticker has been very interesting today and I can't help that despite all this "good" news the markets were dropping. 

This morning Derrenger posted this : The End Game Approaches

We're about done here folks.

By "done", I mean done with the government's ability to screw around
with markets, game the outcome and hide the sausage, if you will, at
least to any sort of positive effect.

Today we heard from The Fed that their threatened program to start buying the long end of the Treasury curve will begin tomorrow:

The big drop (this is the 10 year Treasury rate) was when Ben made
his announcement.  But over the last few days the rate has crept back
upward, erasing about half of the drop.  While this is expected
behavior (higher rates) when the stock market is on a tear (like
yesterday) as people sell Treasuries to buy stocks, both Friday and
today the market was down - but the Treasury market was also being sold.

That's not supposed to happen, but it did.  It denotes selling - on a day when people should have been moving into Treasuries, not out of them.


He gave an optimistic 6 months but then later today he posted this:

Bond Market to Bernanke and Obama: F*ck you

 

NEW YORK (AP) -- Stocks lost ground after a weak auction of U.S.
government debt stirred worries about how easily Washington will be
able to raise money to fund its economic rescue program.

Investors gave an unexpectedly cool response to a $24 billion
auction of 5-year Treasury notes Wednesday, which also sent prices for
Treasurys lower.

You wouldn't think that would happen on the day that Ben
came into the market to buy Treasuries, but it did.  Ben had roughly
three times the amount he took submitted to him: SOLD TO YOU BEN, and oh by the way, we're not interested in buying any more of this trash either!

Worse, indirect bidding (foreign interest) essentially collapsed, down by some 50% from last month.

As if that's not bad enough the BOE (England) actually had a failed Gilt auction, with insufficient bids for the amount pushed out. 

That's coming to America and soon Ben.

...

Well Ben?

When I wrote my Ticker from this morning, which I
actually penned last night, I had no clue that the first piece of this
dislocation was going to happen today.

It did.

Ben came into the market and bought Treasuries today, and in response yields moved.... up?

 

No matter what kind of lies the papers spew out it can't work anymore. The fundamentals are sooo bad any attempts to make it look good are failing. Time to start stocking up on fundamentals. 

 

 

Farmer Brown's picture
Farmer Brown
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Re: More Fuzzy Numbers - Durables

Thanks, Chris.  I was wondering how long it would take you to take this apart, which was 25% faster than my unrevised expectations. 

phredd's picture
phredd
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Re: More Fuzzy Numbers - Durables

Jiminy Cricket's motto was, "Always let your conscience be your guide."  That doesn't seem to apply to these reports....

cmartenson's picture
cmartenson
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Re: More Fuzzy Numbers - Durables

Jiminy Cricket's motto was, "Always let your conscience be your guide."  That doesn't seem to apply to these reports....

Then again, maybe it does and that's that's the problem.   Surprised

Also, if we all just wish hard enough upon a star, all our dreams will come true.

 

 

switters's picture
switters
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Re: More Fuzzy Numbers - Durables

Chris,

You are the man.

This work you offer is invaluable.  If only our journalists had one-tenth of your analytical capabilities and devotion to the truth.

Our public schools don't train us to think, and unfortunately, most of us don't.  It's beyond me how a journalist can read the census data (from your last post on new home sales) and not notice an 18.3% margin of error.  It's even more incredible that they could fail to point out that home sales last Feburary were worse than any month on record.

That is almost criminal negligence in my book.

Do these people even read the stories they write?  Do they do any research at all?  Do they think about it for one second?

I'm absolutely confounded by the apparent ignorance and lack of integrity of the mainstream media.  Not surprised by it - just continualy blown away by its boundlessness.

Nichoman's picture
Nichoman
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Re: More Fuzzy Numbers - Durables
cmartenson wrote:

Also, one might wonder how Jiminy Cricket has managed to sneak into so many press rooms all at once.

You took the words out of my mouth.  With all that's happening...part of last ditch efforts that can't or won't work?

Also...do we really have a media looking out for us? 

 

Nichoman

DWShultz's picture
DWShultz
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Re: More Fuzzy Numbers - Durables

Can we start picketing and coming up with solutions yet? Or do we still need to make more people aware?

 Numbers like this are just ifuriating, especially watching Timmy and Bernanke say everything is going to be better when it is not. 

CB's picture
CB
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Re: More Fuzzy Numbers - Durables

Here is the AP wire spin - they do state the contrary opinions but the whole tone is positive - lipstick on a pig:

Quote:

Business

Hopeful signs, but economy not out of the woods

Mar 25th, 2009 | WASHINGTON -- Glimmers of hope for the economy --
better home sales and higher demand for goods, plus optimism from the
White House and a nearly 20 percent rally in stocks -- have some people
wondering if the worst is over.

Not so fast, say many economists. Layoffs are still mounting and
home prices are still falling in an economy shrinking at an alarming
rate. A recovery anytime soon doesn't seem likely.

"We may be seeing the end of the beginning of this recession, but it
is not the beginning of the end of the downturn," said David Wyss,
chief economist at Standard & Poor's in New York.

Still, the recent news has been better than expected. On Wednesday,
the Commerce Department said demand for big-ticket manufactured goods,
which had fallen for six months in a row, actually rose by 3.4 percent
in February.

And reports this week have shown sales of both new and existing homes rising by about 5 percent last month.

On Wall Street, the landscape looks better. The Dow Jones
industrials gained about 90 points on Wednesday to close a fraction of
a point under 7,750 -- an 18 percent rally from its low point on March
9.

And President Barack Obama struck a more hopeful tone during his
televised news conference Tuesday night. "We're beginning to see signs
of progress," Obama said, adding that Americans should have a "renewed
confidence that a better day will come."

"The good news is that we don't have the sort of unrelentingly
persistent declines we had been seeing," said Nariman Behravesh, chief
economist at IHS Global Insight, who thinks the economy "may be
approaching a bottom."

The GDP fell at an annual rate of 6.2 percent in the fourth quarter.
Behravesh expects an even more severe decline for this quarter, and
even a slight positive by the end of this year.

For now, in five key areas of the economy, there are both signs of life and reasons to believe the worst is not yet over.

 

SagerXX's picture
SagerXX
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Re: More Fuzzy Numbers - Durables
cmartenson wrote:

Also, if we all just wish hard enough upon a star, all our dreams will come true.

 

Hm.  What happens when the stars go out?  The figurative sky seems pretty dark at night these days. But the MSM doesn't seem to have noticed.

Viva -- Sager 

Subprime JD's picture
Subprime JD
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Re: More Fuzzy Numbers - Durables

I have a friend, law school school graduate, pretty smart guy. He believes the party line hook, line and sinker. He assumes that the people in charge "are pretty smart people" and that they know what they are doing. He is pretty corrupt as a individual so maybe, just maybe, the amount of corruption in the hearts of the people is so pervasive that they are unwilling to face the truth and accept the consequences of our actions.

 

God destroyed Sodom and Gomorrah for these reasons: "These are the sins of your sister Sodom: she was arrogant, overfed, and unconcerned for the needs of the poor"

 

America is fat, arrogant as all hell, and could give two sh*ts about the millions living in tents and under freeways throughout the country.

 

George

Subprime JD's picture
Subprime JD
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Posts: 562
Re: More Fuzzy Numbers - Durables

Here is a list of some great trading vehicles i have been using to profit BIG TIME from the market volatility:

SKF- 2X short the financials

TZA- 3X short the RUSSELL 2000 Index

TNA- 3X long the RUSSELL 2000 index

DDM- 2X long the dow jones

DXD- 2X short the dow

DXO- 2X long crude oil

DTO- 2X short crude oil

GLD- Gold etf

DZZ- 2X short gold

FAZ 3X short the financials

FAS- 3X long the financials

SSO- 2X long the S&P 500

SDS- 2X short the S&P 500

TBT- 2X short treasuries

REW- 2X short the technology sector

I have been trading these pretty much on a daily basis. If you have the time, money and MOST IMPORTANTLY OF ALL the EXPERIENCE i strongly suggest that you use these. The 3X leveraged funds are the most dangerous but also the most rewarding. Im trading to raise cash to prepare for the worst as the US is on a crazy spending binge that the world is no longer willing to finance. Dollar collapse in 18-24 months? We will see...

joemanc's picture
joemanc
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Re: More Fuzzy Numbers - Durables

Here's an interview with Peter Schiff, aka Dr. Doom, on MSNBC Morning Joe this morning. Check out what pops up at the bottom of the screen at about the 8-minute mark. Here's a hint - it has to do with this blog!

capesurvivor's picture
capesurvivor
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Posts: 963
Re: More Fuzzy Numbers - Durables

Those triples are not for the faint-hearted and you need to be a near a computer all of time, IMHO.

No can do. I'll risk the doubles if Ihave a sense of something.

 

SG 

Rosemary Sims's picture
Rosemary Sims
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Re: More Fuzzy Numbers - Durables

"I have a friend, law school school graduate, pretty smart guy. He
believes the party line hook, line and sinker. He assumes that the
people in charge "are pretty smart people" and that they know what they
are doing. He is pretty corrupt as a individual so maybe, just maybe,
the amount of corruption in the hearts of the people is so pervasive
that they are unwilling to face the truth and accept the consequences
of our actions."

Er...I believe only the very priviledged can believe such hogwash these days, so perhaps he has this image of what he is that is not what he really is outside of our totally corrupted economy.  Anybody who gets down on the streets these days finds some amazing "former wealthies and successfuls" there who are not riddled with corruption (psychopathy in the current jargon). Like Anne Frank, I believe there are many, many more quite fine people out there than our headlines or "war news" would lead us to believe.  So I'd suggest that your friend quit watching TV and reading the Newspapers.  There is little truth there, so how about getting down on the street and quit taking other's word for what is going on there?  Our press is so very manipulative, whether intentional or not.  It is all driven by the advertising that allows it to exist financially, or the people who own them, a tortuous journey to find who owns who, but when you do, things do seem to make more sense as far as happenings reported go.  And I must tell  you that I do believe that most of the drivel sp? we see is meant simply to distract us from what is much more important to our day to day lives.  So why not get down on the streets and find out what life is really like?

Most corrupt people are by definition psychopaths or sociopaths who really don't give a rat's a$$ about another human being (forget for the moment why this is the way any human being turned out - that is a whole 'nother story)  But they are definitely not the majority of your neighbors.  By psychopaths and sociopaths, I am describing most of our big time banksters and politicians involved in our current and surely terminal fiasco as well as our drug dealers operating in this country. That we thought of these people as caring about what happened to the majority of the population of our country, or that they would care at all about the country itself in a global sense was I think because they allowed/encouraged us (fat, healthy Americans) to become so ignorant and uncaring about events (read baffled us with "expert" BS), that we  did quit listening (as most folks do when listening to BS that makes them feel ignorant).  I can remember so vividly consciously turning past the economic or  political news in the newspaper in the early 70's because I didn't understand what the hell they were talking about.  And then I was totally shocked to see the headline on a streetside vending maching of our local newspaper in New Orleans to see that our vice President had resigned.  It simply felt other worldly and there was no resource in those days to explain it to me. That is total dislocation, I think.  I think that this experience we have now is already a much worse reality dislocation, but most people don't even know it has happened.   They will have to hurt before they do realize what has happened.We should protect the internet as a source of information with our whole hearts as though it were the only source of truth.

Now,  we  have "suddenly' realized that our country's finances (supporting our personal security) has been built on a criminally based Ponzi scheme.  Most people don't even know what that is yet, but they sense it and the American public is beginning to realize what is happening, which is partially why stuff is crumbling so vividly.  Today a youngish couple, one you'd think would listen to the current "good news" coming out of mainstream media, came into our apartment house exploring eligibility for their 76 yo uncle who lives in a huge metropolitan area in Texas.  Their reason?  To get him here to the village before "everything falls apart".

At least some of our folks still have good instincts, which is why most have cut out of the credit crap marketed to us and are in their own ways starting to prepare for worse times to come. 

Nobody knows what the fall of the mirage of our nation will be like, but I do believe that there are enough good, caring people here to start anew.  

Rosemary

 

 

RussB's picture
RussB
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Re: More Fuzzy Numbers - Durables

After reading Chris's last few posts, I find myself noticing how also almost every NYT business article says something or other is "surprising" or unexpected. There were several examples this morning.

I don't always know how surprising the good news is in each case (or for that matter if it really is good news or just propaganda), but at least I know to always be skeptical, thanks in large part to the Crash Course and the content here in general.

Bill MacGregor's picture
Bill MacGregor
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Posts: 28
Re: More Fuzzy Numbers - Durables

Another great unpicking of the clogged knots of financial reality. Thank you Chris

As to why the supposedly educated and intelligent members of the fourth estate and world of finance continue to believe their own spin I suggest we look no further than the concept of cognitive dissonance, whereby our brains will internally spin what we see and hear so that it fits with our prevailing paradigm.

As Oscar Wilde observed, "most men would rather die than think, in fact most men do"

Best regards from the UK

Bill

SteveS's picture
SteveS
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Re: More Fuzzy Numbers - Durables

And it's even more dubious:

From NPR

"The uptick in durable goods orders was led by orders for military aircraft and parts, which shot up 32.4 percent."

djhester1940's picture
djhester1940
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Re: More Fuzzy Numbers - Durables

Here is a perfect example of the lack of a moral compass in the financial arena:

http://www.mysanantonio.com/news/local_news/Cisneros_ex-friend_admits_to...

"A former Texas A&M University classmate and friend who managed
money for former Mayor Henry Cisneros pleaded guilty in federal court
Wednesday to stealing $473,000 from Cisneros over a three-year period.

Cisneros' acquaintance, Fred L. May III, appeared before Judge
Orlando Garcia in U.S. District Court and as part of a plea agreement
pleaded guilty to one count of wire fraud.

May was arrested March 4, a day after the U.S. attorney's office
filed an FBI affidavit naming May as a financial account manager in San
Antonio who had defrauded an unnamed client.

The client, identified as Henry Cisneros in federal court Wednesday,
became May's customer in 2000 when May established various accounts for
him.

Starting in October 2004 and continuing until about August 2007, May
“devised a scheme to defraud” Cisneros and his employers, court
documents show.

May was a financial account manager with the securities firm Planto
Roe Financial Services in San Antonio, which offered investment
services through Securian Financial Services Inc. of St. Paul, Minn.

From Oct. 5, 2004, to Aug. 22, 2007, May transferred $473,241 from
Cisneros' accounts to his personal accounts at a San Antonio bank,
records show.

May forged Cisneros' signature on the transfer orders, an FBI affidavit said.

“It's very sad, because I really like Fred and trusted him totally,”
Cisneros said by phone. “I cannot for the life of me understand why he
did it. And I'm saddened for him. But on the other hand, you don't want
it to happen to anyone else.”

 

 There just does not seem to be an end to all of this.

Don

mainecooncat's picture
mainecooncat
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Re: More Fuzzy Numbers - Durables
Chris Kresser wrote:

That is almost criminal negligence in my book.

Exactly.

And this touches upon a broader issue that is, not surprisingly, never touched.

How much culpability does the press/broader media have in our current situation, which is quite unique I think in terms of its degree of severity historically? 

Meaning, yes, we've had crises before, but this one is clearly global and clearly deeply infrastructural on all kinds of levels, and never before have we been so electronically and digitally hooked into a media system that is so pervasive and influential as our current one is. Combine that truth with the fact that media consolidation has continued to the point of zero diversity and we essentially live in a world of pure propaganda that is disseminated solely for the purpose of complete distraction and supporting the status quo of a corrupt financial and political establishment.

During the genocide in Rwanda various media outlets at times facilitated the slaughter by broadcasting or otherwise making known the whereabouts of safe haven for individuals on the run, basically orchestrating the killing then. Later some of these depraved individuals were held accountable for these actions.

I wonder when we look back at this period, regardless of how the next few years turns out, how we'll perceive the media's role. I imagine we'll see it as one that knowingly soft-peddled and blatantly lied about significant issues that actually resulted in people being severely under-prepared for the storm that ultimately came, resulting in untold suffering over the broad swath of 300 plus million people. And all this just so their sychophantic selves and their bosses could whether the storm better in the gilded cages that their homes became. More or less like those actively orchestrating the slaughter of innocent human beings.

Dog King's picture
Dog King
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Re: More Fuzzy Numbers - Durables

So, if the numbers are fuzzy is this really a bad thing? Since the markets are so psychologically motivated anyway can't we take these fuzzy numbers and use them to our advantage? Has there ever been a time when the data was calculated accurately? Granted, it seems that the financial fundamentals of this country are not in line but what if this glimmer of positive news could actually lead to a real rally.....

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