I have been a financial analyst since 1989; diligently watching economic news, reading earnings reports, and observing securities markets EVERY DAY. During this period, I spent seven years as an (award-winning) sell-side analyst, three as a buy-side analyst, and four as a bond trader. In other words, you’d be hard-pressed to find someone more “tuned in” to current trends.
Throughout these 23 YEARS, I’ve seen the issuance of thousands of economic and corporate reports, many of which it was my JOB to forecast; particularly, earnings projections for oilfield equipment, service, and drilling companies.
For those not privy to the workings of the sell-side, “EXPECTATIONS” are created by corporate Investor Relations departments; coyly “guiding” analysts toward a certain “range.” Once the range is established, it is up to each analyst to determine if they want to tow the company line, or “go rogue.”
In fact, for widely followed industries like oilfield services, financial data companies like Thomson Reuters publish each analyst’s projections. Thus, analysts can “jerry rig” estimates to fall in line with the consensus, the company, or their own agenda. In other words, “EXPECTATIONS” are anything but subjective.
When it comes to “economic data,” there is no government investor relations office to “guide” expectations. When asked, “Chief Economists” say they have financial models correlating various economic data sets to each other. However, as ALL economic data is now “massaged” at best; and MANIPULATED at worst – such as last week’s NFP report – such inter-data correlations are spurious at best. Thus, WHO is setting “EXPECTATIONS,” and HOW are they reached?
Clearly, the “evil troika” of Washington, Wall Street, and the MSM play key roles; though it is impossible to gauge how much. In the case of the “all-important” NFP employment report, there is no doubt “EXPECTATIONS” are gamed to produce the desired political effect.
That is, the government has countless “data levers” to pull; and thus, creates essentially ANY number it likes – high or low. The birth/death model, “seasonal adjustments,” and the Labor Participation Rate are but three of the many methods of manipulating numbers; a list that grows longer each year. Don’t think for a SECOND Friday’s 7.8% “unemployment rate” farce wasn’t politically ORDERED – or that last month’s NFP DISASTER wasn’t “massaged” to make sure QE3 was announced a week later.
Thus, any time you read an “analyst” or “journalist” cite “EXPECTATIONS,” be very wary. Do your own due diligence and form your own expectations. And if such work is not your specialty, seek out the handful of “good, smart people” who do.
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