How do you short government data?
It’s a question more money managers and industry insiders are asking as the dearth of government trust continues. Recent revelations about the IRS, NSA and Department of Justice have many questioning if Jack Welch’s whacky accusations late last year had merit, when he suggested President Barack Obama’s campaign had somehow manipulated the economic or unemployment numbers to favor his re-election efforts.
“If government was subject to Sarbanes-Oxley, the producers of these numbers would be in jail. Statistics is the easiest place for government not to spend money, if that’s what they’re looking to do,” Michael Aronstein, president, chief investment officer and portfolio manager of the MainStay Marketfield Fund, recently told ThinkAdvisor.
"If you have a story you’re writing about the New York State Legislature that is produced by the New York State Legislature, you wouldn’t need to be too innovative,” Aronstein said. “People tend to be very lazy about taking numbers at face value."
Now U.S. economics bear/commodities bull Peter Schiff (left) is sounding a more sinister alarm. Like Welch, he argues it's more serious than simple indolence.
Calling GDP data “unreliable" and “government propaganda,” Schiff, chief executive of Euro Pacific Capital, told Breakout on Friday: “[Government] wants to make GDP appear bigger than it normally would be, and growth to appear bigger.”
To back up his claim, Schiff pointed to the fact that ever since the Great Recession in 2008, two-thirds of the U.S. Bureau of Economic Analysis' (BEA's) preliminary estimates of GDP have been revised downward, while noting that "the size of the downward revisions has also been 50% greater than the upward revisions. I don't think this is an accident."
(The BEA is set to release its second estimate of second quarter 2013 GDP on Thursday morning, Aug. 29. The first estimate was 1.7% growth; High Frequency Economics reports that the consensus revised estimate will be 2.2%.)
What really irks Schiff, according to Breakout, is that no one is complaining about it and that "there's not a word of protest" decrying this practice or the recent revision that was unveiled, which he says changed the very definition of GDP.
"They weren't trying to be more accurate, they were trying to get a bigger number," he concluded, echoing Welch by noting that similar manipulation occurs in the reporting of unemployment and inflation data too, although there, the goal is to make those numbers look smaller.