Just A Taste

One of the continuing themes of these endeavors is that quant isn't always the best guide to the future; moreover, the data which is ground, finely, through the mill stones isn't always understood for what it is. This is particularly vexing for the macros in the crowd. The micro folks tend to have population data to hand, so aren't really doing stats as a math stat would define the effort.

Chief among these are the government (any one, by the way) economic activity data. Floyd Norris saves me the time to recite the problem(s) once again. The main point is that only the weekly UI numbers are population data. All else is sample data, of varying "quality" and source. Census does most of the actual surveying, for BLS, Commerce, and such. There are periodic censuses for economics, mostly in non-population census years for obvious reasons.

Having been a Fed quant, although not for any agency which produced public macro-economic numbers, I will attest that the grunt quants took no shit from the political appointees. The recent "scandals" that seem to come from the bureaucrats were actually perpetrated by what were known as Supergrades for decades. They're now called The Senior Executive Service, but the issue remains: they're a bit fish and a bit fowl; some of their moolah is scheduled and some arbitrary from the Suits. They sit (or sat, depending on how one looks at it) in the top three rungs of the ladder of civil service. Some argue that this change, which happened under Carter and while I was there, has weakened the Chinese Wall betwixt the grunts who try to be honest and the appointees, who aren't.

Anyway, Norris does a decent job of explaining the situation, without getting into talking about stratified random samples and such. [Aside: with the current hard on for Big Data, one might wonder whether the expertise, across the profession, for sampling might just go poooof???]

My favorite quote:

[Paul Singer, a hedge fund billionaire and top Republican donor], in his denunciation of official figures, questions adjustments that are made for the quality of goods and argues that government indexes understate the costs for the wealthy because prices of things like luxury real estate and art have increased far more than the prices of goods purchased by the middle class.

Oh, the poor little rich kid!! And such folks just don't understand why the French finally had enough and separated some heads from some bodies?? These are the same folks, of course, who bet that house prices would keep going vertical forever, and when they didn't came to the taxpayer begging. And, having gotten their billions, bitch and moan about any small attempt to keep them from desolving the economy, again. I think that's a working definition of ingrate.

As to quant not being the best avenue to understanding the direction of the road ahead, the NYT has another article today which tells you more than any time series. Both Japan and China have forced working folks into mortgages as the sole investment vehicle available. Various reasons why, but the consequence is, mostly, that mortgages aren't productive use of capital. Any return comes from the holder's ability to shift moolah from consumption to paying the mortgage. Psychic income is baloney. The notion of safety in home mortgages was true before the 1% sucked up so much of national income; mortgages were made and held locally, and so on. So olde fashioned. But we didn't get chaos. Change the rules, and you change the incentives, and you change the money flows. Kind of like a switch in a train yard. That Giant Pool of Money is still out there, and continues to grow. American corporations continue to: sit on it, buyback shares, buy each other, and otherwise spend it on non-productive (in the macro sense) allocations. So soon you forget, heh?