Michael Lewis: The Big Short: Inside the Doomsday MachineA captivating story of the crisis, told from the perspective of the winners, but with lessons for all.
Barry Ritholtz: Bailout Nation, with New Post-Crisis Update: How Greed and Easy Money Corrupted Wall Street and Shook the World EconomyAn informative and entertaining account of the financial crisis. Almost anyone will find this stimulating and useful.
Leonard Mlodinow: The Drunkard's Walk: How Randomness Rules Our Lives (Vintage)Great insight for investors seeking to distinguish real indicators from random noise.
Kate Kelly: Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall StreetGood read, good info -- a building block for anyone trying to figure it out. What the heck happened!??
Michael Shermer: Why People Believe Weird Things: Pseudoscience, Superstition, and Other Confusions of Our Time
Graham T. Allison: Essence of Decision: Explaining the Cuban Missile Crisis (2nd Edition)A seminal work on decision-making.
Mancur Olson: The Logic of Collective Action: Public Goods and the Theory of Groups, Second printing with new preface and appendix (Harvard Economic Studies)
Andy Kessler: Wall Street Meat: My Narrow Escape from the Stock Market Grinder
Roger Lowenstein: When Genius Failed: The Rise and Fall of Long-Term Capital Management
Robert A. Caro: Master of the Senate: The Years of Lyndon Johnson, (Vintage)
Ken Uston: Million Dollar Blackjack
Edwin Lefèvre: Reminiscences of a Stock Operator (A Marketplace Book)
Neil Browne: Asking the Right Questions: A Guide to Critical Thinking (8th Edition)
Ralph Vince: Portfolio Management Formulas : Mathematical Trading Methods for the Futures, Options, and Stock Markets
Malcolm Gladwell: Blink: The Power of Thinking Without Thinking
Brett N. Steenbarger: Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology (Wiley Trading)
Robert J. Shiller: Irrational Exuberance
Gene Epstein: Econospinning: How to Read Between the Lines When the Media Manipulate the Numbers
Edward R. Tufte: The Visual Display of Quantitative InformationThe authoritative work on the subject.
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The monthly employment report is widely regarded as providing the most important economic data. Yesterday's election put an exclamation point on the concern about jobs.
Whatever changes there are in economic policy -- and I expect quite a few -- the results will be measured in employment. This is central to all economic problems, so it is important for investors to understand.
The significance of this report is the reason that I have done so much independent research on employment issues and the controversy about measuring job creation. While many observers look at employment with a conclusion already in mind, I strongly urge a more objective stance.
Let's start by looking at our approach.
The non-farm payroll report is based upon a monthly survey, attempting to estimate the total of all payroll jobs for the week including the 12th of the month. Each month my team asks the question, "What change in payroll employment would be consistent with other economic data from the same time period (the week including the 12th of the prior month)?
My answer to this question is not a forecast, per se, since we do not posit any causal relationship among the variables in our model. They are all concurrent indicators of economic activity.
Our long-term preview record has been very good, especially when compared to the final revised data. This makes sense because our model was derived from the final data. Our approach also makes logical sense, because it involves some factors related to jobs lost, and some related to job creation.
For the current month, our estimate is for a loss of 65,000 jobs. This is a very pessimistic estimate, weaker than the other sources.
I have noted that the preliminary reports have been running "hot" by about 100K jobs, a problem I discussed in this article. This was not true in Q409. You must also keep in mind that the BLS estimate has a 90% confidence interval (just for sampling error) of+/- 100K jobs. There is a wide range of possibilities for Friday's report. The most recent BLS benchmarking data is much closer to the final reported numbers, but is still "over" by about 25K jobs per month. (I am overdue in writing an update on this series).
Other Forecasts
It is always interesting to compare the job forecasts from different sources. We follow several because of the widely varying methods they use. A wise interpretation would be to consider all of these disparate sources of information.
ADP has proprietary data because of its payroll management business. Looking only at private sector jobs -- no government, no census effect, ADP sees a gain of 43,000 private sector jobs.
TrimTabs has another valuable approach -- tax deposits. Their forecast is a gain of 95,000 private jobs.
Briefing.com cites the consensus as a gain of 60K overall and their own estimate as a bit lower. With the end of the census jobs effect, the reason for distinguishing between public and private jobs has been reduced.
To summarize briefly, the market incorrectly focuses on predicting the BLS preliminary estimate -- mostly ignoring the 100K confidence interval, the seasonal adjustments, and the benchmark revisions. I am probably the strongest supporter of BLS methodology and integrity, but I still see their approach as only one method out of many.
The jobs report is so important -- and we are all so interested -- that we seize upon whatever information we have, even when we should accept the limitations.
Investment Implications
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The monthly employment report is widely regarded as providing the most important economic data. Yesterday's election put an exclamation point on the concern about jobs.
Whatever changes there are in economic policy -- and I expect quite a few -- the results will be measured in employment. This is central to all economic problems, so it is important for investors to understand.
The significance of this report is the reason that I have done so much independent research on employment issues and the controversy about measuring job creation. While many observers look at employment with a conclusion already in mind, I strongly urge a more objective stance.
Let's start by looking at our approach.
The non-farm payroll report is based upon a monthly survey, attempting to estimate the total of all payroll jobs for the week including the 12th of the month. Each month my team asks the question, "What change in payroll employment would be consistent with other economic data from the same time period (the week including the 12th of the prior month)?
My answer to this question is not a forecast, per se, since we do not posit any causal relationship among the variables in our model. They are all concurrent indicators of economic activity.
Our long-term preview record has been very good, especially when compared to the final revised data. This makes sense because our model was derived from the final data. Our approach also makes logical sense, because it involves some factors related to jobs lost, and some related to job creation.
For the current month, our estimate is for a loss of 65,000 jobs. This is a very pessimistic estimate, weaker than the other sources.
I have noted that the preliminary reports have been running "hot" by about 100K jobs, a problem I discussed in this article. This was not true in Q409. You must also keep in mind that the BLS estimate has a 90% confidence interval (just for sampling error) of+/- 100K jobs. There is a wide range of possibilities for Friday's report. The most recent BLS benchmarking data is much closer to the final reported numbers, but is still "over" by about 25K jobs per month. (I am overdue in writing an update on this series).
Other Forecasts
It is always interesting to compare the job forecasts from different sources. We follow several because of the widely varying methods they use. A wise interpretation would be to consider all of these disparate sources of information.
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