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Minyan Mailbag



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Dear Toddo,

I just had a nice hour-long conversation with Barry Bonds (name has been changed to protect the source) of the BLS. I wish I had recorded the conversation because it is impossible for me to convey just how lost the BLS is in computing the PPI.

I did not want to get into arguing price hedonics with them, I tried to stay focused on defining the mathematical computation and how it is possible that they are having such a hard time calculating the PPI. Here are the highlights from my notes:

Bonds - "In reviewing the data, there were inconsistencies and we were not comfortable releasing the data."

Me - "Well what do you mean inconsistencies? It is a mathematical formula isn't it? Aside from garbage in, garbage out, if you enter the data and the computers do the math, how are there inconsistencies?"

Bonds - "In looking at the data, there were inconsistencies in the relative changes in cells."

Me- "You mean the rate of change?"

Bonds - "No relative change."

This continues to the point that I have no idea what he is talking about.

So I ask, "Well tell me exactly what someone saw that raised enough of an eyebrow to say 'We aren't comfortable releasing the numbers".

Bonds - "Well I am not allowed to talk about specifics, but I can tell you it involved the conversion from SIC to NAICS."

Me (being a smartass) - "What do you mean you can't talk about it? Is it a secret from the American people? It certainly is starting to sound like someone didn't like the numbers."

We went on to discuss this in depth and it can be summed up as follows:

The BLS switched data (SIC to NAICS, another topic) starting in January. In order to keep reporting in a uniform series, they tried to convert the old data into the new data using very complex formulas. As Bonds honestly acknowledged, "we failed". I do not feel this was due to incompetence, I believe they made the process so complicated it was impossible. This failure was represented by the failure to report the January figures in February. This delay lasted for 2 months until they worked over the numbers to the point that they looked consistent and were happy with the integration process of the old data into the new.

So I asked him "Why not just keep releasing the data the old way until it was straightened out?" He replied, "That would be fine if you were running parallel series, but we were not doing that." In other words, once they changed the questionnaire to the NACIS standard there was no more old data.

PPI data is not finalized for 4 months. In other words, the May questionnaire gives respondents the chance to revise prices back to February. So the important fact about the May numbers, is they are the first numbers that are not using this complex conversion method. As Bonds stated "You are discontinuing the continuation conversion, if you will." As I see it, they fiddled around with the formula's until the continuation looked plausible and they felt they had it right, but then when they end the continuation, the numbers go all screwy again so they have to delay reporting. I asked Bonds, "After all the conversion calculations to integrate the numbers, when you move to entirely new data, the results are erratic enough that the BLS is not comfortable releasing the data. So it is possible that the last four months numbers are erroneous." He replied, "Well, yes that could be true."

In my opinion, it is improbable that the PPI and CPI accurately reflect prices or price changes. Certainly recent PPI data should be viewed as useless. These pricing formulas have simply become too complex to be accurate. Many know this, but it is not going to stop everyone from putting so much faith in them as they do today. But assume for a minute that Greenspan really has the American people's best interest in mind and is desperately trying to balance monetary policy to fend off and find a balance between deflation and inflation. Where is he getting his price data from? Let's hope it is not the BLS.

I would absolutely love to go to DC for 3 months and write a big article on this. I am confident I could get it published in the Atlantic Monthly or The New Yorker, and be received with national fanfare as the man who discredited the BLS. Nice speaking engagements at banking conferences, some radio spots, etc. But alas, I am too busy trying to run a small company while being distracted by the direction of S&P, Bond, and commodity futures. :-)

Minyan James Karn

Minyan James,

I'm not sure that there is too much that I can add to that. Thank you kindly for sharing.



No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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