By John Mauldin

Data, Information, and Opinion

As I wrote in last week’s Outside the Box, I visited Bill Bonner’s rather isolated hacienda in the Andes, where he lives two months of the year. (His ranch has expanded to some 500,000 acres, by the way.) Bill is the founder of Agora, now the largest investment-letter publisher in the world, but he started from scratch some 30 years ago in Baltimore. As the rest of the group was out riding horses, Bill and I stayed back, waiting for our turn; and we began to reminisce about old times. The first time I met Bill was back in 1982, when I went to Baltimore. The city had sold him two buildings for $100, and he had paid too much. To say it was a dangerous neighborhood back then is an understatement. As a rather naive young Texan, I was scared to get out of my car and walk a half block. (For good reason, I later found out.) But the price was right and the low overhead was an advantage to a young entrepreneur in an industry that was still just a hope and a dream in some of our eyes. We had lots of hard work and hard-won knowledge ahead of us!

We talked about the evolution of the newsletter business. We both started in the days of printed letters and large promotional mailings (remember those?) And we were both lucky enough to transition to what was to us a very new and unknown thing called the internet early enough to get some advantage. But some things stay the same. We are still dealers in information, trying to help readers understand what is going on and helping them with their investments.

There is a hierarchy to what is offered in publications these days. The first and lowest level is data, the raw numbers. On top of that come the levels of information, news, analysis, opinion, and actual actionable advice. Each adds to our depth and breadth of understanding. Yet, even as they add to our store of knowledge, we find ourselves drowning in information and knowledge. All too much of it is random noise, serving only to drown out clarity and wisdom .

The highest form of writing, I said to Bill, is storytelling, and he agreed. (Bill is the master of the story in our business.) Both of us, with our Irish ancestry and proximity to the Blarney Stone, come naturally to the storytelling medium. In an earlier time, we might have been fixtures at the local pub, spinning our tales for a pint of Guinness. But the fates have been kind to us, and we get to earn more than a few pints here and there.

Our goal (and that of many of our friends) is not to be the teller of old tales, but to seek to find the analogy, the resemblance of what is happening in the world to what we can readily understand. If the reader can come away with a fresh insight into the mysteries of life and markets, of our larger social contracts and how they impact our financial future, then we have done our work.

Our craft is part of the human heritage, harking back to when our ancestors sat around the fire at night relating the events of the day to the larger picture. (I once had a very-late-night discussion with Anatole Kaletsky about whether economists were not in fact modern-day shamans; but rather than discerning the future in the entrails of sheep, we deduced certainty from government data. I mused that some economists might be better off peering at intestines.)

Scientists have found that we humans actually get an endorphin rush when we arrive at an understanding of an event that that has perplexed us. Sadly, that understanding does not have to be true, but merely believed, to release that ancient chemical rush.

The problem is that we writers often have to challenge accepted wisdom. The “facts” are often slippery things, and it is our job to corral them carefully, lest we and our readers be led on a horseback ride into the high Andes of faulty assumptions.

And thus we come to employment. Each month in the US, on the first Friday of the month, we breathlessly await the release of the employment numbers. Markets move on the whisper of a trend, only to reverse when that whisper turns out to be just one more bit of random noise. It is said that one should not want to know how sausages or laws are made. I would add government statistics based on surveys to that list. But let’s now turn to the book Dunk and I are writing on employment, and take a look at our first draft of the chapter on government employment data.

Will the Real Unemployed Please Raise Your Hands?

The old saying about liars, damn liars, and statistics contains more than a grain of truth. Statistics are especially hard to swallow when we don’t like what they tell us. How many times do we question the validity of some statistic when it disagrees with our preconceived notions? (Statistical surveys say, a lot!) And unemployment numbers for the last few years haven’t given us reason to celebrate.

Let’s start with what you already know: millions of people are unemployed. How do you know this? The same way you know how many Americans believe UFOs are real, or how many watch the Super Bowl or own a foreign car. Almost all such data comes from surveys.

Surveys can be wonderful tools, giving us insights into data our minds can’t otherwise process. What we have to remember is that every survey is based on a sample. There is no name-by-name database (as far as we are aware) containing information on all our UFO beliefs. If there were it would be outdated almost instantly, as every minute thousands of people are born, die, enter the country, leave the country, change their minds, or get abducted and leave the planet.

Most national surveys use a sample of, at most, a few thousand people. From this, we extrapolate conclusions about a country of 300 million people.  Real-world experience indicates this is usually sufficient, too – or at least close enough for most purposes.

Survey respondents can only answer the questions they are asked, however, so it’s important to ask the right thing in the right way. Otherwise the results won’t reveal the information you want to know.

BLS: Everyone’s Favorite (Whipping Boy) Agency

“Official” information about jobs, or lack thereof, comes from the Bureau of Labor Statistics, which is part of the US Department of Labor. BLS gathers, analyzes, and publishes a staggering amount of labor-related data.  The website is a treasure trove for people who are interested in employment trends.

For the purposes of trying to understand what the BLS does, let’s look at their “Employment Situation” report. The one we will consider emerged from the BLS womb on Friday, January 4, 2013, at precisely 8:30 in the morning, Washington time. The 41-page news release summarizes the survey data BLS gathered the prior month. A new report is born each month, typically on the first non-holiday Friday. It is the source of the “unemployment rate” reported in the media and closely scrutinized by economists.

The report began with the two key numbers:

·      The monthly change in nonfarm payroll employment, and

·      The unemployment rate

This particular month those numbers were 155,000 and 7.8 percent, respectively.  The first number is supposed to reveal how many new jobs the economy generated that month. The second is the percentage of the workforce that was unemployed during the same month.

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