This is a killer insight from Jeff Miller, who blogs at A Dash Of…well…Insight:
Jan Hatzius is a top-flight economist, leader of the Goldman Sachs team, and highlighted by many sources as the very best during the last financial crisis. He is neither a perma-bull nor a perma-bear. He deserves our respect. I do not always agree, but I do always listen. He appeared on CNBC (video seems not to be available) explaining that GDP data under-estimated the actual results. Those of us who are interested in data listened carefully as he explained how improvements in software and technology were under-estimated in GDP figures… It was a careful, persuasive, and measured statement, and part of a generally bullish economic outlook.
The CNBC interviewer asked in amazement whether he really believed the official GDP figures underestimated growth. Hatzius said “yes.”
And the NYSE traders booed. Loudly.
That reaction is the point of this post. Keep it in mind as you interpret the market reaction to economic data. Those who are trading every day have a strong negative predisposition.
Josh here – I have noticed this phenomenon myself. I don’t have a cause and effect in mind for why this could be, but here are some ideas:
- Buy and hold has worked better than almost any widely known trading strategy or system since the QE Era began. It’s rendered lots of trading people idle, redundant or unemployed. This obviously breeds resentment for the virtually unidirectional market trend.
- Misery loves company and jobs on trading floors are not exactly the most pleasant thing these days. A friend of mine from Chicago explained it like this to me a few years back: “Imagine that every week you come to work and someone you’ve seen each day for years just doesn’t show up ever again. And then the next week it’s someone else gone. In the meantime, everything you hear in the media about your own career tells you that you no longer have a future.” Now picture the people who feel this way cheering about a market rally and an economic recovery that doesn’t include them.
- There are lots of Ayn Randians, Tea Partiers, Austrians and other assorted anti-Keynesians working on trading floors. The stock market served as a magnet for young people with this kind of mindset in the 80’s and 90’s and that’s who populates the floor these days. Okay, this one is a little bit of a stretch, but there might be something to it. Anytime Fed policies appear to be working, it’s a rebuke to the idea that government can only fail the people and markets should be self-policing.
These are just three theories to explain the phenomenon Jeff describes. I’m not sure I believe in any one of them whole-heartedly but it’s an interesting question to ponder.
I have some friends and contacts who work on the floor who are ardently optimistic believers in American capitalism. I doubt very highly they would boo the news that GDP growth is being understated and that things are better than they appear. Maybe it’s just the vocal minority we heard from after all.