Now, an INTELLIGENT Critique of BLS Numbers, and Inoculation Against Animal Spirits
On February 3rd I blogged about a great take-down of Zerohedge and Drudge for their idiotic "headline" critiques of the BLS numbers.
Today then it is only fair to provide an actual intelligent critique of the BLS numbers, provided by John Hussman. You can read it here. Rather than providing you with phoney misrepresentations that he assumes you'll "believe-because-you'll-believe-any-durn-thing-I-write-because-we're-all-on-the-same-predetermined-ideological-team", he attacks the seasonal adjustment factors used by the BLS. You can read the whole thing here.
Note that Hussman correctly predicted the 2000 crash, and correctly predicted the 2008 crash, and his funds have generally outperformed. His credibility has been hit very hard because he remained tightly hedged in 2009 and 2010, and consequently vastly underperformed during that time period. His problem, as he has explained in multiple weekly notes, and explains again in the above link, is that he changed his methodology in 2009: whereas before he had excluded a depression scenario from his calculations, in 2009 he decided it was a possibility, just as the market was turning up, and he consequently missed the model. Notably, though he has never to my knowledge said it, his primary failure was that modeled in a depression based on NUMBERS, without taking into account the divergent fiscal and monetary policy responses, respectively, to the crises experienced in 1929 versus in 2008/2009. (In other words, he forwent a ton of gains because he had an ideological hatred of Fed actions and he did not model in how the Fed's actions, and government stimulus, might change the scenario, at least in the short term.) This is quite clear if you go back and read the old weekly notes in his archives.
Nevertheless, his is one of the most important voices out there, and he is a great antidote to our new prevailing bullishness. With the gains experienced so far in 2012, and with the stocks up yet again today (so far), after some initial weakness, one is tempted to start throwing money into the market. Maybe you yet will do so. Maybe I will. But one should not do so before reading this latest John Hussman weekly comment.
I blog a lot about politics, but my positions are not predetermined. I'm interested in making money. At the end of the day, we are living through a great debate about whether one can get "something for nothing," whether monetary and fiscal policy can be used successfully to amelieliorate the worst effects of a non-normal fiscal crisis-induced business-cycle (a Depression), or whether they can merely postpone it. That is the debate between the Zerohedges/Forbes/Drudges/John Hussmans, etc. of the world, and the Paul Krugmans/Dash of Insights/Obamas/Bernankes of the world. John Hussman is by far the smartest in the former group. And the final conclusion is by no means known, by the way. Anyone who tells you otherwise is either trying to get elected, trying to get reelected, or playing to your ideological preconceptions for some other reason.