Can You Handle the Market Truth?

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Earlier this week, I wrote about strong US employment numbers pushing the market higher. It elicited the following response from a dear reader:

You don’t actually believe the US job numbers do you?

They use creative accounting and seasonal adjustment.

The unemployment numbers? They don’t count people who have been unemployed for more than 12 months or discouraged workers who have stopped looking for work. John Williams shadow statistics measures unemployment figures the way they did in the 80s, and the true unemployment number is 23%, not 5.9%. The US government is trying to present itself as the only country not to be affected by global slowdown, but it is Enron style accounting.

In answer to the question, no, I don’t believe the numbers. But it doesn’t matter what I believe. Nor does it matter what you believe. What matters is what the market believes. And if the market takes the employment numbers seriously, then so should you.

I don’t mean you should accept every bit of data unquestioningly. That’s not my point. You should question everything, even well-meaning people who compile ‘real’ statistics.

Let me explain…

The Daily Reckoning is a free publication. We write for people like you; people who are interested in managing their own money because they don’t trust others to do it for them.

Our aim is to provide you with ideas about investing, showing you how the investment world works through insights that you won’t read anywhere else. Unlike the mainstream media, we don’t survive on advertising. Therefore, we have no agenda and don’t care whose feathers we ruffle.

Your editors can write what they think is important for you to hear. There are no constraints. Each has their ‘thing’. The barometer of our success is whether or not you are engaged. Speaking from experience, we write the truth as we see it. We believe in our ideas, and hope that you do too.

But truth is a very rubbery concept. Especially in financial markets. Everyone has a version of the truth. It’s the combination of these truths that make a market. Does that make it the ultimate truth…the collective truth?

Which brings me back to the point made by our reader. Is John Williams’ ‘shadow stats’ the truth? There is a convincing argument that it is. Personally I think he does great work, exposing the manipulations of government data for what they are…propaganda to make the masses think things are better than they are.

By the way, if you’re unfamiliar, John Williams publishes alternative US economic data. In many cases his statistics are based on older, more rigorous forms of data collection previously used by the US government. His service therefore gives a ‘truer’ picture of the health of the US economy.

But do I subscribe to his ‘shadow stats’, or take any interest in his ‘real’ US economic data?

From a moral and righteous point of view, I am certainly interested. But with my Daily Reckoning and Crisis & Opportunity (my subscription based newsletter) hat on, I am not in the slightest bit interested.

The reality of the financial world is that it is manipulated beyond recognition. We are in an age of extreme financial repression. The first casualty of this repression is the truth, whatever that may be.

So if you want to manage your money independently, and provide for you and your family in retirement, you need to learn how to discern your truth from the ‘market’ truth.

Without meaning to sound harsh, your truth doesn’t matter. This may sound weird coming from someone who claims to be a ‘contrarian’ — and someone who rejects conventional wisdom — but the only truth that matters is that of the market.

If the market doesn’t care about John Williams’ shadow stats, then neither do I. Because if you trade on Williams’ data (or by reading Zero Hedge for that matter), you’ll quickly go broke.

Look, the reason you read The Daily Reckoning in the first place (I’m guessing) is because you’ve rejected consensus opinion about the way the world works. Which is great. It suggests you can think for yourself.

But the risk is that you take this rejection of consensus opinion too far. You start believing wholeheartedly in the alternative view and forget to question whether this view is indeed the right one to take. You stop thinking.

Most people I know have been victims of this at one time or another. Some snap out of it, while others keep going down the rabbit hole.

But if your aim is to make money and attain independence, going further down the rabbit hole is fatal to your goals.

For example, I personally think US stocks breaking out to new highs is crazy. I think the global economy is extremely unhealthy. Barring the late 1970s, the post-Second World War economic order is probably as fragile as it’s ever been.

If I took this view to the next logical step, I’d be ‘shorting’ this market (betting on its demise), or sitting in cash waiting for stocks to fall.

But that would be stupid. It would be an extremely low probability play.

The rational, unbiased ‘me’ knows it doesn’t matter what I think. Why should I presume to think I can decipher the market’s hieroglyphics? I can’t.

So I look at the market breaking out to new all-time highs in the US and I respect that. New highs are nearly always bullish. It means inflation might be coming, or the currency wars are about to intensify, making cash even more worthless than what it already is.

Of course, it might be the blow-off top before the crash. But that is a low probability outcome. And even if it does happen, I recommend using stop-loss exits to get you out before any major damage is done.

I know many people like reading stuff that confirms their biases. And that’s fine. But doing this when trying to manage your own investments could be fatal.

If you’re interested in learning to invest without being hamstrung by your biases or emotions, check out my advisory, Crisis & Opportunity. Or keep your eye out for a coming special offer this weekend.

Cheers,

Greg Canavan,
For The Daily Reckoning

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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