Hyped Headlines

Just about three weeks ago the market was in another panic. It was a situation very similar to August of last year. Job numbers were concerning and the markets were reacting dramatically to every headline. The same point we made then applies this time around. These numbers are a distraction and will only reveal something in hindsight. For example, the confidence level of the jobs report is between -50,000 and +150,000 jobs. This means the true number of jobs gained or lost could be up to 150,000 different than what was reported. That is a HUGE swing when it comes to monthly figures. Monthly figures are very volatile and the only thing you can be sure to get from following these numbers is a stomach ulcer.

Another problem with the jobs report is it is seasonally adjusted. There is some thought that these numbers are having troubles “adjusting” in the current market (Would anyone argue the job market is behaving like it was in 2006 or 2007?). Seasonal adjustments either add or subtract “jobs.” These are not real jobs. The adjustments are supposed to adjust for seasonal changes so you can see the “extra” jobs added. For example, in the late Spring College graduates get jobs but these are only because of the time of year so an adjustment will subtract these jobs from the report. This year’s adjustments can be seen in the graph below:

You can see that 718 REAL jobs were subtracted in May and many FAKE jobs were added in the previous four months. These adjustments should average out over a year, but you can clearly see the problem in making decisions based on one month at a time. They very well could be accurate, but given the volatility of the numbers and the several revisions yet to come it’s not realistic to make any conclusions until many months later, and by then the market will have already moved.

According to the New York Fed there are only about 96 Economic Indicators being followed.  Click here.

If you want to decipher the meaning of 96 different economic signals that may or may not be predictive of the future then you are very brave. We will stick to a proven long term investment philosophy that does not rely on timing the market based on shaky monthly data that has no historical correlation to stock market returns.

P.S. Just as I started to put this article together the Dow Jones made a U-Turn and had its best single day performance all year. Did anyone see that in their tea leaves?

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