FUTURES TRADING SUPPLEMENTAL

 HOW TO BACK YOUR WAY INTO A NUMBER

7.8%

The book that was written by some notorious accountant about how to create fake numbers was dusted off and opened several months ago. We heard for months that the top line unemployment rate did not matter. Millions of jobs had been created. The way you deceive people is pretty simple, you get them looking the wrong way so they do not see the truth. This is how magic acts work and it is also how politics work. We were not supposed to pay attention to what is referred to as the head line number. The reason they did not want us focusing on that is that we all would have been complaining about how the number only stayed where it was instead of sky rocketing because of the number of people who had just plain given up looking for a job and left the work force. If we all had been looking at that the attention would have focused to U6 which is a more accurate rate of unemployment. That number is much higher above 14% so they did not want us looking there.

Mean while back at the ranch every month the prior months numbers were revised down ward. I am not sure of the number of consecutive months this happened but it had to be a record. The prior month revisions are always what has moved the Bond market. Rarely has the headline number had much of an effect. They used to have a bit more of a gap in the reporting where the revisions came out a minute or two later instead of at the same time like they do it now. I think that is just technology there is no conspiracy there. Since most people knew that was more of an accurate reflection of the unemployment situation that is when the reactions happened. There was rarely a pattern in those revisions. Some months they showed improvement others a deterioration.

Fast forward to modern day politics. Almost every single month for the last few years the revisions have been to the down side. Since the revisions can be reported in a more low key fashion, it is easier to down play them. The basic idea is make the headline what you want it to be, and play around with the other stuff that people pay less attention to. I think most people have no idea how consistent the revisions have been downward. 

Here are My 8 Crucial steps to doctoring a government number.

STEP 1 - Make the number what you want now and revise it to the truth in the next month and less people will notice. This way you do report the truth just on a delayed basis where people do not notice it they are looking the other way.

STEP 2 - Pick a random point in time where there has been an improvement in the number. In this case the up trend in new jobs and claim you have created X number of new jobs. The book says here that the spot should be of your choosing and never be one that makes any sense to anyone else. Remember you are trying to create a false sense of improvement. It is like picking the lowest low on a chart like a certain newsletter writer is doing right now, and saying he bought there. In this case you pick the lowest trough and cite all the new jobs you have created since that low. You do not EVER point out that the point you have chosen is not a logical place to measure from.

STEP 3 - Develop a plan to have the number be what you want on the date you want it. Give the data a chance on it's own to get there. If you see it needs a little help consider changing metrics that are involved in it's calculation. Do not under any circumstances tell people these changes you have made. Put them in small print so only college kids can read it. They don't care any way and the older people who do can't read it without glasses. The CPI certainly serves as a great example here. They now exclude basically everything any one does in order to live, food, transportation, energy, maybe even oxygen at this point. If you take out everything that has gone up as the result of inflation you can report there is no inflation. Pretty simple isn't it? It you take out the people who have given up trying to find a job you can shrink the work force hence getting the unemployment rate lower.

STEP 4 - If at all possible ease your way into the target number over time. This is why it is so important to have a long term plan of where the number will be in X number of months. It gives you time to "help" it get there.

STEP 5 - Sustain the narrative. It is imperative to stick to your guns that things are slowly getting to where the numbers show they are. A few eyebrows get raised but when you gradually do this the focus can be quickly shifted to something else, masking the ongoing fraud.

STEP 6 - Have a bailout plan in case all else fails. At times no matter how well intentioned your fraud attempt is you still can't quite get to where you need to. It is at these times you need a Black Mamba to close the deal. This always has to be something that first can be completely free of any fact checking. What you are doing here is moving the number a large amount right at the buzzer. This needs to be so obtuse that people don't understand what it is. You quickly shift the narrative to the head line number, the one you told everyone not to pay attention to previously. In the mean time you move a background number a huge amount that nobody pays much attention to. Think of Chris Johnston making a hole in one on a par 5 while 4 holes over Tiger is making a birdie. The hole in one should be the big story but everyone including my wife is watching Tiger play. In this case it was claiming that 600,000 people in just one month all of the sudden found part time jobs. From what I have read this is the biggest such number in over 30 years, really?

  600,000!

STEP 7 - Stay steadfast. You need to commit the crime right in the face of when most people would never think it would be committed. Some of the greatest frauds have been so aggressive most people never thought they could be happening. "Oh he would never do that now it would be too obvious." This is the type of logic you have to work with. Deny deny deny. Your demeanor is key here. Deliver the good news with enthusiasm. Challenge people to call you out. Most people will not have the nerve they don't like confrontation.

STEP 8 - Have an exit strategy. This is where many criminals get caught they never have a plan to eventually unwind the crime they just keep pushing. When creating a phony number you do have to have a way of getting it closer to what it really is after you have gotten what you want out of the fake one. In this case since the election is coming once it is over you will likely see it move back up slowly. It may never get to it's correct place, it may never have been there to begin with.

You can be sure of one thing. If Romney happens to win we will get the FULL MONTY the first NFP report that comes out. They will want to establish a bench mark that looks bad to show how they have improved everything later on.

I hope this has been both educational and entertaining. There is some sarcasm in here but there is some truth as well. This is not a party specific gig. There have been full classes for these courses at my school of sarcasm of both democrats and republicans. Ironically it is probably the only thing both sides agree on at this point, the need to doctor the numbers! Maybe that is a winning campaign platform, "I PLEDGE TO DOCTOR NUMBERS CONSISTENTLY." All you would need to do is state that over and over like an autistic person in the debates, I don't think you could lose!

THE MARKETS

It seems to be here that I have a lot of potential short term sell signals here. I still think bigger picture we are going to hold strong through the election but that does not mean we cannot have dips here and there.

I showed this last week indicating that we should get a little bit of a bounce in the ES which we have. Now we are shifting over to the other side and getting close to a sell zone. I have marked off the last times we have drifted into the zone here and you can see that in all 5 cases we either went flat or down. This is something I will be teaching in the newsletter. I can't have everything in one issue so people have to be patient. The idea is to educate over time and allow things to digest. There are a lot of ways to use the VIX maybe some of you have have better ones than I do. In any event this is telling us that we are in an area where a correction could occur. It would be nice if we got a dip into late October because that should be a good buy zone. I would prefer buying a dip into that time zone more than a rally. With the potential November 30 date looming buying strength in late October is not likely something I will be doing but you never know.

Net net here I think we need to be looking to play some shorts here in the next week. If you ever find yourself in a bind and need to doctor a number, please follow the steps above.

Good Trading