I got a great comment this week from reader Steve, on my post about why the appointment of new Fed Chair Jay Powell just doesn’t matter. Steve wrote:
Lee your commentary is always intended to be fact based and well informed. Thanks. It does appear at the moment that your shorting call based upon liquidity is too early. You originally discussed having a small short position and we have had the short-term LAMP red for weeks. Further, your commentary discussed huge financing requirements for the US Treasury based upon TBA advice. And – diminishing foreign demand for US treasuries. Therefore, where is commensurate the liquidity crunch and the pull back in stock prices.? So far, just seeing record high after record high. For now, it appears that the liquidity crunch is non-existent and at best temporary – if the markets significantly retrench, the Fed will again go back to Q/E. Look at the BoJ – they have expanded their bank balance sheet to 70% of GDP. The US can do the same. Grateful for your view. Thanks.
As I’ve told you many times, the news is either misleading, or just irrelevant. What’s relevant is Rule Number One, “Don’t fight the Fed, and Rule Number 2, “The trend is your friend” aka “Don’t fight the tape.” So I concentrate my work in attempting to get a handle on the market strictly on liquidity analysis and technical analysis. (See my LAMPP update at the bottom of this article).
But it’s still really important to understand as much as possible, exactly what the US economy is doing. We need to know that because we need to be able to cut through all the Wall Street noise and sales hype to get to the truth about the direction of the economic data. That data does not directly drive the market trend, but it does correlate. It’s helpful to know when that correlation is based on a false narrative. That can help us with our timing on betting with the trend or seeing patterns of market behavior develop that indicate the trend change is underway.
The problem is that the economic data, and the reporting of it by outlets like the Wall Journal and CNBC, is often confusing. It is often based on the extrapolation of tiny survey samples. The data is heavily statistically massaged, particularly with the use of seasonal adjustment, which is an indefensible obfuscation of what actually transpired in a given month. Sometimes it approximates the real trend, and sometimes it doesn’t. Furthermore, the data is always reported with a lag, sometimes a few weeks and sometimes a couple of months. Things can change during those weeks and months.
The incomplete and misleading nature of the data and the way it’s reported often leads you and other investors, both individual and institutional, to bad investment decisions.