zonder, fleck taks about hedonics in the post below
U.S. Pumps Statistical Supplements Into GDP
By Bill Fleckenstein
Special to RealMoney.com
06/26/2003 05:53 PM EDT
Kiss and Mark Up: Last night the world equity markets were little changed, and likewise our stock index futures, but as soon as the market opened, we bolted higher. Semiconductors put tech in the lead, such that over the first few hours, the Nasdaq was up 1%, with the S&P and the Dow lagging. The party was precipitated, I assume, by folks' need to mark up their portfolios by quarter's end. Meanwhile, first-quarter GDP printed at 1.4%, vs. estimates of 1.9% (more about that below).
The early-morning bolt out of the blocks was a harbinger for the day's events. Mr. Market continued to grind higher and never looked back, to close, in essence, on the highs. All the previous speculative favorites did well: SOX stocks, Internet stocks, housing stocks and some biotech stocks. The same things that have been on the march all quarter were on the march today, leading me to conclude that the quarter-end markup is in full bloom. After the recent little smack to the downside, I guess a bounce was to be expected. Likewise, I expect that folks will be set to party hearty tomorrow.
Hell-Bent on Bullishness: It is the generalized bullish euphoria that really strikes me as amazing. I noted recently that Investors Intelligence showed the highest number of bulls and the lowest number of bears in about 17 years. Today, the American Association of Individual Investors announced a reading of 71% bulls and 8% bears. According to my buddy Lance Lewis, who passed along the information to me, that was a new record. It is just stunning when you stop and think that we basically are seeing some of the highest bullish and lowest bearish readings of the last couple of decades at a moment in time when things are so precarious.
To say that folks are discounting some mighty big things is, I think, an understatement. This is why I feel so strongly that the stage has been set for what I call a heartbreak trade if things don't improve radically, as folks expect. I continue to believe that the second half of the year is going to look a lot different than the first six months.
A Soar Point for Yen and Euro: Away from stocks, there was real action again, with the long bond futures down just shy of $2, and with the dollar itself soaring vs. the yen and the euro (though barely up against the Canadian dollar). There's obviously a lot more hot money bouncing around the yen and the euro, based on the action we've been seeing every day. The precious metals also were under pressure, with gold down 1.5% and silver down 1%. It looks to me as though folks who'd like the opportunity to buy currencies or metals at an attractive price will get that juncture in the next handful of days.
Hedonic Hamburger Helper: In honor of today's GDP data, let's take a look at that statistical fantasy called "real" growth. Hedonic adjustments, as I have noted in the past, are quite effective in dressing up otherwise ordinary numbers. (Thanks to Sean for the idea.) It turns out that spending on computers and peripherals, etc., was $76.3 billion this quarter, vs. $75.4 billion the prior quarter, a gain of $900 million. But thanks to GDP massaging by the Bureau of Labor Statistics, via the hedonic quality improvements, etc., that gain magically morphs to $15.9 billion. After a while, $15 billion here and there adds up. Basically, we've magnified the actual gain more than 15 times.
It doesn't take long to figure out that the so-called real gains are nothing more than imputed gains. No one receives any extra wages out of these "real" gains. There's no money there to be spent or used in any way. So, as you can see, folks who like to use "real" data as the basis for improvements in the economy, wage gains or other things like that are mistaken, and their mistakes only mislead others. When I appeared on "Wall Street Week with Fortune" a couple weeks back, I had a little debate about this with Elaine Garzarelli.
The fact is, many of the statistics that Fed fans point to as reasons to be constructive are polluted, via hedonics. It's just a figment of the government's imagination. To get a better idea of what's actually happening in the economy, you have to look at the nominal data as well as the real data, to ensure that the latter haven't undergone a transformation into, essentially, unreal data. |
