THE OTHER SIDE OF THE TAPER DEBATE

Longtime Wall Street denizen and now an adviser at Blackstone Advisory Partners, Byron Wien takes the other in the to-taper-or-not-to taper discussion.

Wien zeroed in on soft inflation and weak employment numbers, saying neither of the Fed's so-called targets had been hit.

http://www.cnbc.com/id/100942829
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GOVERNMENT DATA

Why would anyone trust  government data?

You shouldn't and here's a link to why. Revisions used to be minor adjustments. Now, however, despite so-called more sophisticated collecting means like computers and super computers, these revisions have become suspect if not indeed an outright joke.

But that's not the only problem. The data is often flawed even before it's collected. Few people want to look bad especially if it's going to affect their source of income.

We once knew a fellow who was responsible for tallying the number of lost man hours owing to injuries on the the job for the US Post Office. He said the local people routinely fudged the numbers to look better.

Our own investigation substantiated that claim. That was the good news. The bad news was by how much they routinely fudged.

http://www.marketwatch.com/story/government-pulls-rug-out-from-under-us-2013-08-06?dist=lbeforebell

ECONOMISTS

You'd have a hard time assembling a group who are wrong more often than economists.

The late Laurence J. Peter, most remembered for his book The Peter Principle, said: "An economist is an expert  who will know tomorrow why the things he predicted yesterday didn't happen today."

Never approach an economist without a model in your hand. In his recent tirade about David Stockman, Paul Krugman, the NYT's economic gofer, wrote, he was "...disappointed (in Stockman's) gee-whiz, context-and-model free numbers embedded in a rant..."

An economist without a model is like a severe ED sufferer without Viagra. They both can't get it on.

Harry S. Truman, the nation's 33rd president, spent a good part of his term looking for a "two-handed economist." It seemed every time he'd ask for an opinion his economic advisors would answer with "On the one hand..."  and then conclude with "on the other hand."

An acquaintance who worked at The Federal Reserve several years ago told me he once asked  a cute female economist there for her phone number and she quickly gave him an estimate.

In 1998 William A. Sherder's The Fortune Sellers: The Big Business of Buying and Selling Predictions landed in bookstores. A business consultant, Sherder spent years tracking the predictive accuracy of several important areas that impact our lives from meteorology to economics to investments to technology and futurology.

Back then it was a $10 billion a year business. You can guess what today's take is. But just how accurate are they and just how much are people getting for their money. Not very and not much.

Meteorology, Sherder acknowledged, has a scientific basis, but it's hardly reliable. Studies have shown the orange juice concentrate futures market more accurate at predicting Florida weather patterns than meteorologists. Sorry Dallas.

Then there is the University of Iowa presidential futures market. It's seldom wrong in predicting the eventual winner. But Sherder reserved some his most damning findings for members of the dismal science.

He cites a 1985 article from Economist magazine that compared the accuracy of the predictions from UK sanitation workers with the heads of several top-drawer UK economic firms about the country's future economic growth The result: they tied.

Closer to home Sherder tracked data from 1975-1995 about economic forecasts predicting major turning points in the US economy. Forty-six of the 48 he tracked were incorrect.

Economists, God bless their dismal souls, profess to love data. To put some further bite into Sherder's economic data bark, in July, 1982, with the prime rate at 16.5% the WSJ surveyed leading economists about their outlook for interests rates. Most claimed the prime rate would finish the year at 15%. Their take on equities no less gloomy.

One of the economists, a former clarinet player in a Benny Goodman-wanna-be band, then toiling away on Wall Street, Alan Greenspan, predicted rates would finish the year at 16%. By mid-October, however, the prime rate had been cut 7 times and wound up 1982 at 11.5%.

 The dramatic reversal pumped new juice into the stock market and the DJIA rallied 34% by year end.

Now for those who might argue these examples were then but what about now? Even a cursory search of the literature will show plenty more timely examples that the predictions of the dismal science are at best pretty much, well, dismal.

Greenspan for those who might not recall preceded Big Ben. Depending on one's point of view, some say it's indeed difficult to find two Fed chairman who have screwed things up more than these two.

Risk your personal portfolio on their calls at your peril.
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MONEY MANAGEMENT TIP

"People at the high end tend to use very little debt relative to their incomes, and the debt has accumulated in recent decades at the lower end."
             David Levy

                                        
                                  

Levy is a principal in the economic firm Jerome Levy Forecasting Center in New York. His comment occurred in an interview in the recent edition of Barron's. We cite it here not so much to focus on his outlook about the US economy (He's suggesting investors need to be aware another recession could be in the offing.) as it makes an important distinction about human behavior, something politicians never seem to get.

Debt, like most things in life, doesn't come into one's balance sheet uninvited. And the idea that people are either unable or incapable of saying no to all those credit card inducements is absurd. Much of the previous debt was accumulated at higher interests rates. 

Refinancing it at lower rates as many would discover in this last recession isn't always possible. They have a name for it on the Street, liquidity crunch.  
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SELLING TIME

The Wall Street aphorisms "Straw hats in December" and "Skis in July" have been around nearly as long as the stock market.
                                                             

The implication should be clear: it matters what you buy and when. And so too does it matter what and when you sell. Now some heavy-hitting private equity firms, Apollo Group (APO) run by noted billionaire Leon Black, Fortress Investment Group (FIG) and Blackstone Group (BX), are by all indications putting out the word: It's a good time to sell.

With the S&P 500's move into 1700 Land, US equities are up 20% on the year. This is the same Blackstone firm we told you (Financial Engineering) is preparing to bundle foreclosed real estate they've been accumulating the last couple of years into a bond offering backed by rental income. In other words, they're selling into a hot market hungry for yield.

Here's a link to the rest of the story.
http://www.bloomberg.com/news/2013-08-01/fortress-to-blackstone-say-now-is-time-to-sell-on-rally.html
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BITS AND PIECES

Some people have known for a while that QE in all of its glory has pretty much been one giant economic ruse.

Recall the comment by Larry Summers, one of Obama's favorite choices to replace Helicopter Big Ben. The artful scrambling that took place to undo the damage of that little ditty would make an H-back proud in an Urban Myer's generated offense for those who follow college football.

Here's a interesting viewpoint.

http://www.dailyspeculations.com/wordpress/?p=8540
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           IT ALL DEPENDS

It all depends on who's doing the counting.

The new jobs numbers for July came out Friday and they provide fodder for pundits all, pessimists, optimists and the in between. To call them "slightly negative," as one economist did is akin to damning with faint praise, the way academics do when one of their choice candidates turns out to be less than choice and requests a letter of recommendation so he or she can transfer.

In the hierarchy of academic medicine it's a staple technique. When an intern's or fellow's fund of medial know how turns out to be less than the dude driving to local roach coach, this is how they pass him or her along. It's a mini-version of too-big-too fail.

http://news.investors.com/newsfeed-ap/080213-467065-us-employers-add-162k-jobs-rate-falls-to-74-pct.aspx?ref=HPLNews

ONLY CERTAINTY

This is not any kind of prediction, simply an accounting of what's going on as we head into the final lazy days of summer 2013.

Many of the major stock indexes have recently touched new highs, sustainable or otherwise. US manufacturing in some sectors has turned more positive. Money flowing into stock and ETF mutual funds increased recently to levels not seen in five years.

Bond funds, an investor darling over a similar period, have suddenly witnessed money head for the exits. Volatility as measured by the VIX is about as calm as a pond on a painted picture. Investor confidence is rising, some say soaring would be a more accurate term. We'll leave that to the pundits.

On a valuation scale the market may not be greatly overpriced, but it's hardly cheap either. By historical standards September has been the worse month for the stock market. People generally during this period every year pay less attention to Wall Street happenings. It's an end of summer vacation thing.

Notwithstanding the brief June sell off, this is a market that's had quite a good summer run. Sell in May and go away didn't work this time around. The only certainty about what happens next is: We will see.
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DESHEETING

Desheeting and cheating have strangely similar sounds. But sound is not the only trait they share.

If you've haven't heard the term desheeting, trust us it has nothing to do with changing your linens and everything to do with toilet paper and profit: Profit for them and inflation for you.

It what's known as paying more for less. And that holds true for tissues like Kleenex. The term here is fluffing, a technique to make the tissues appear bulkier without adding any more sheets.

As the WSJ recently pointed out the popular tissue paper Kleenex is 15% bulkier with 13% fewer sheets. That translates into 13 fewer sneezes you can catch and potentially 13 fewer smiles. Pick up one of those smaller boxes of Kleenex people put in their bathrooms or automobiles and you'll see: "Soft tissue will pamper you with indulgent softness that lifts your spirits and inspires a smile."

Tissue paper companies like Kimberly-Clark are not alone in this deception. Food companies across the board from juice to chips fill their containers and bags with more air, less juice and fewer chips.

The devil is, as they say, in the details. Congress isn't alone in hiding unpopular regulations and taxes in legislation. It's an old ploy. For these folks it's a ways to hide cost increases and bolster adjusted earnings.
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BITS AND PIECES

Mark Hulbert, the longtime publisher of Hulbert Financial Digest, posted an interesting piece today on Marketwatch about interest rates and P/E ratios.

The crux is what comes down goes back up. Looking at data going back to 1871, Hulbert notes only two well-defined periods, each lasting more than 10 years, where interest rates remained in an extended uptrend.

http://www.marketwatch.com/story/pe-ratios-to-drop-20-in-coming-years-2013-07-31

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WARMED-OVER KEYNESIANISM

The Summers-Yellen plot thickened Wednesday as President Obama reportedly in a closed-door meeting with Democratic members of Congress rejected concerns that Summers was less aggressive in pushing economic stimulus.

Yellen is viewed by many as the more dovish of the two and more likely to push for more QE. Either way, according to some traders, both represent a warmed-over serving of archaic Keynesianism.
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FINANCIAL ENGINEERING

In the stock market brokerage business there's what's known as sell side analysts. They're mostly the ones who produced the garbage to entice you to buy the crap their firm wants to unload.

It ranges from subprime mortgages to anything they think they can book a spread on. You'll usually find the word bundled in there if you search hard enough.  Now two big Wall Street hitters, Blackstone and Deutsche Bank, are toying with bundling monthly rental payments into some type of bond.

Blackstone, a private equity group LP, sucked up tons of foreclosed properties, spending billions of dollars, a move that buoyed demand and essentially is designed to put a floor under the once sickly RE market. Now it payday time.

Blackstone intends to bundle an estimated 1,500 to 1,700 homes into a bond, in this case a new type of security backed by rental payments. If it sounds a bit risky, head to the front of the class. Renters traditionally have less reason not to walk then even zero-down folks did in the last real estate miasma.

To hawk the deal Blackstone needed an enabler. Enter open-palms stage left Deutsche Bank. If the deal goes down, Deutsche will hawk the stuff to investors. Blackstone will recoup its investment plus a profit and the rest of us will wait to see if the deal is the beginning of the other shoe or, as the late radio commentator Paul Harvey used to say, "the rest of the story."

Blackstone, according to one report, spent more than $5 billion since the start of last year acquiring around 32 million homes in a dozen US markets.

Now that's some engineering.
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