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"NEW YORK, March 20 (Reuters) - U.S. stocks jumped on Thursday, pushing
the Dow briefly up more than 1 percent, as a reading on factory activity
in the mid-Atlantic region fell by less than analysts' had forecast, improving
views on the U.S. economic outlook."
Tell me. On what basis did "analysts" have to predict what the Philly Fed
March factory activity headline would be? For that matter, on what basis do "analysts" have
for predicting what weekly initial jobless claims will be. At the end
of each week "analysts" are sent forms to fill out as to what their forecasts
are for economic reports to be released in the next week. For many of these
economic reports there is no way to accurately predict the data based on fundamentals -
seasonal variation, perhaps, but not underlying economic fundamentals.
Similarly, in this current environment, how can an equity analyst accurately
predict the earnings of an investment bank when it does not know how that bank
is valuing its Level 3 assets? So an investment bank reports that its earnings
are down 50% and its stock rallies because "analysts," on the basis of very
little, had predicted that its earning would fall by 70%.
The chart below shows the behavior of the headline index for the Philly Fed
region's factory activity. Notice that the headline was in deep negative territory,
but rising, as we entered the 2001 recession. The March reading of the
headline, at minus 17.4, is lower than where it was during most months of the
last recession. Yes, indeed, the Dow should rally on this because "analysts" had
predicted that the headline would be worse than it turned out. What nonsense!
Chart 1

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Paul L. Kasriel, Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675
The information herein is based on sources which The Northern Trust Company
believes to be reliable, but we cannot warrant its accuracy or completeness.
Such information is subject to change and is not intended to influence your
investment decisions.
Copyright © 2005-2009 The Northern
Trust Company
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