The Wall Street Deception

The Wall Street Deception

by David Reavill

Sometimes, the world seems so strange that it’s hard to imagine what is really happening. There is a grave deception taking place in our society. A sleight of hand that occurs nearly every day. It’s the reason that you often say to yourself: “I don’t understand this.” “This doesn’t make sense.”

Suppose you feel that way at times. It is because you are being misled. And increasingly, it’s intentional.

Let me illustrate.

Currently, the World Series is playing. As any baseball fan will tell you, on Thursday night, the Houston Astros beat the Philadelphia Phillies by a score of 3 to 2 (boo!)

We all saw the Game or at least heard about it. We likely don’t need anyone to tell us what happened. It was straightforward enough. The Phillies lost.

But that’s not how it works in the financial world. Somehow we got it in our heads, or more likely, we’ve been convinced that seeing something isn’t enough. We need to have it explained. What happened? Someone will need to tell us exactly how the Astros won and what it means.

Enter the Wall Street Analysts, the Financial Press, Pundits, and other members of the “Chattering Class.” These are people whose job is to offer their opinion. They tell us how and why things are going on in finance. Incidentally, finance isn’t alone in having members of the “Chattering Class,” as English Journalist Auberon Waugh coined the term more than 50 years ago.

Imagine that the Chattering Class was to report on Game 3 of this year’s World Series. The reporting would go something like this. First, the Chatterers would estimate the Game’s outcome ahead of time. Something like this: We’ve cranked up our computer models. Input all the data, and we now estimate that the Phillies will be shut-out. They won’t even score a single run, and the Astros will win 5 to nothing.

Flash forward to the Game. As we know, the final score in Game 3 was Phillies 2 Astros 3 in a tight, nail-biter game.

Here’s how the Chatterers would describe that Game.

Philadelphia outdid themselves, scoring much higher than expected. It was a marvelous performance by the Phils, who are hitting above their average for the Series and seem destined to perform well in the upcoming Sixth Game of the World Series.

Now, see how it works. After reading that report, are you confused about what happened? Still trying to figure out who the real victor was? Of course, and that was the fundamental objective of the Chatterers.

For those who believe this doesn’t happen in the real world, I present the Payroll Report from Friday.

Each month the Bureau of Labor Statistics provides this survey of the number of new workers placed on company payrolls. It is one of the most authoritative reports on the performance of the Labor Market. Along with Unemployment, these make up the two most closely watched views of workers in the country.

These two reports represent a critical benchmark of our Political Leaders’ Labor Policies’ performance. At a glance, we can look at the Payroll and Unemployment reports and tell that the demand for workers is getting better or worse.

So here’s how the Chatter’s described the Payroll report on Friday: “The US Economy added a stronger than expected 261K new Jobs in October.”

Who was expecting? Why the Chattering Class was expecting, of course.

Remember, this is just how this process works. First, the Chatterers have provided a lowball estimate, one easily exceeded. They can then tout that the Phillies “beats expectation.” An expectation that the Chatters set themselves, not something real. Something that never happened before and will never happen again. Chatterer’s expectations are pure fantasy. But in Friday’s reports, you would think they’re real. They’re not.

Again the comment, repeated in all the press reports of the day:

“The US Economy added a stronger than expected 261K new Jobs in October.”

Sounds great. It sounds like the economy is humming along. There is nothing to worry about here. Give those politicians up in Washington a pat on the back. Their policies must be working.

Here is reality.

The Payroll Report on Friday was the worst, by far, of any of the reports this year. That  261K new jobs added was 54K fewer than the month before. It is also 40% less than the average number of new jobs added each month this year.

This Payroll Report wasn’t simply dismal. It was a disaster. And if anyone thinks this report reflects a more robust Economy, you’re sadly mistaken. This report is a reflection of an Economy that is declining precipitously. And of a labor market that is hitting the skids.

The labor sector isn’t getting healthier; it is getting sicker. If you would like more confirmation, please look over the Unemployment Rate. Unemployment just jumped from 3.5% to 3.7%. That represents a rise of over 300K in the newly Unemployed.

You don’t need the Chatterers to explain this to you. You don’t need to work yourself into a pretzel trying to figure out how Unemployment rises while Payrolls look just fine. The answer is that Payrolls were not favorable. And these two reports: payrolls and Unemployment, are perfectly consistent: payrolls declined, and Unemployment rose just as you would expect.

The Chatterers who are helping you do not understand this. They are hoping to obscure what happened.

Bottom line: this was the worst Payrolls Report of the Year, combined with the worst Unemployment. Bad news for Labor and bad news for those political incumbents who try to tout their economic policies.

Does that sound like a “stronger than expected” Economy?

Oh, and by the way: the Astros still won 3 to 2.