The Numbers Spell Trouble
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- Published on Friday, 06 July 2012 14:39
- Written by Sara Nunnally, Editor, Inside Investing Daily
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There are not many government figures we can trust these days. But the few we've got tell a dangerous tale.
I'm a numbers girl... I like crunching data, finding obscure figures and comparing statistics.
It's sometimes like a giant game of "Guess how many jelly beans are in this container?" If you can know the size of the container and the size of a jelly bean, you can come close to a good estimate.
Or at least be able to identify a bad one.
But only if you've got the correct sizes.
That's what's been bugging me lately. I've been scouring records from the CIA, the Heritage Foundation, the United Nations Conference on Trade and Development, and the U.S. Bureau of Economic Analysis for data that will tell me if the U.S. is still really top dog.
The problem is, there are so many figures that can be manipulated... fudged. So I've been trying to think outside the box to find information less likely to be monkeyed with.
Things like how much a government spends on education, how much foreign direct investment flowed into the country and the corporate tax rate.
These are figures that are more difficult to manipulate -- unless a government outright lies about them.
Using these kinds of numbers gives you a very different picture of which country ranks where.
Consider today's data: the jobs report.
This morning we learned that the U.S. added 80,000 jobs in June. But did they really? We'll have to wait for next month's report to find out... What do I mean by that?
Well, the very last line in the Bureau of Labor Statistics report reads:
The change in total nonfarm payroll employment for April was revised from +77,000 to +68,000, and the change for May was revised from +69,000 to +77,000.
Whether the change is positive or negative, the actual figure is different from what was originally reported. This is an unreliable statistic, and if you're making your investments based on this, you could be in for a rocky road.
Now, there are some generalizations we can make about this jobs number... It's too small to lift our economy out of the dumps. If reports keep coming in this low, we're headed right back for a recession.
And while the jobs figure does get revised nearly every month, it's not like we're going to see that the BLS shortchanged June's data by 100,000 jobs.
That means the market is reacting poorly to the news.
With the official unemployment rate (another bit of data we take issue with) unchanged at 8.2%, the markets are starting to unravel.
This is a one-year chart of the S&P 500. The green line is the former uptrend, but as you can see, the index is breaking down. I've marked a broadening descending wedge formation in red.
This formation shows the value of the S&P 500 oscillating back and forth, looking for a direction. According to Thomas Bulkowski, a breakout can happen in either direction, but 55% of the time, the breakout occurs in the opposite direction of the prevailing trend.
And since 2009, the prevailing trend has been up.
Now, this breakout could be small, but significant. The average decline comes in at about 20%. And to be honest, I don't think we'll get that much of a decline before the Fed intervenes to prop up the markets.
But the S&P 500 could certainly fall to that bottom trend line. That's sitting at about 1,225 -- well over 100 points away.
And that's before a breakout even happens.
It might be time to let the bear out of the cage. The last drop the S&P 500 had from the top red trend line erased more than 100 points from the index in less than three weeks.
I think the same thing could happen now... and the move might be the beginning of something bigger.
But we'll just start with the 100-point slide, and go from there.
In the meantime, I'll be crunching numbers and getting ready for our annual conference in Las Vegas. You heard this morning that Karim Rahemtulla -- one of the world's best developing-world analysts -- will be joining us there.
I'm excited to get his opinion on how the U.S. stacks up against the rest of the world, and who might be the next top dog.
Anyone want to weigh in? Which country do you think is ranked No. 1? Send us an email with your choice, and why, and we'll start a lively debate right here at Inside Investing Daily.
Happy Investing,
Sara
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