Since the President announced his health plan where we add half the free world to our list of those who will have health coverage, and announced that we will save money doing it, I know something is "rotten in Denmark". Under the most liberal of all translations, I had trouble with this claim. Most of my compatriots simply say who cares about what is being said, "If it is being said by a politician then it isn't true." I care because the investment community actually uses these data points to make decisions.
Right now, the figures being used are not helping us and in fact are hurting our chances to come out of the recession in a short period. It's bad enough that as a nation we are borrowing more money than we have since the day this nation was formed. We are arranging the figures to overstate the recovery, which is tentative at best, resulting in pushing the interest rates higher. Why does this happen? It happens because we interpret, adjust and revise these figures produced in our economy, believing that the machinations we go through will eventually lead us to the right answer. Unfortunately, we react to the first look at the figures and by the time all the analysis is done, it is too late to stem the tide. The bond market has made a move, changing a trend and the revisions have much less impact than the original report, even though they are the correct numbers.
It gets crazier when you realize that a number of economists projected their anticipated result and the actual figures are compared to those estimates. The set trend is not from actual raw data, but rather from the difference between the estimates and actual data.
Let me give you an example of a typical monthly employment report. First, the economists decide that the loss of payroll jobs for the month in question is going to be 550,000 jobs. The actual figures come in at 435,000 jobs lost and the bond market interprets this to mean the economy is doing better than we thought, sells off and rates go higher. The reason for the sell off is with a better economy, we not only do not need low interest rates, but in fact may have to raise interest rates to stop what is considered the inevitable return of inflation. The die is cast and interest rates start to increase.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.
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