As I've told you many times, the news is either misleading or just irrelevant. What's relevant is Rule No. 1, "don't fight the Fed," and Rule No. 2, "the trend is your friend," aka "don't fight the tape." So I concentrate my work in attempting to get a handle on the market strictly on liquidity analysis and technical analysis. (See my LAMPP update at the bottom of this article).
But it's still really important to understand as much as possible exactly what the U.S. economy is doing. We need to know that because we need to be able to cut through all the Wall Street noise and sales hype to get to the truth about the direction of the economic data. That data does not directly drive the market trend, but it does correlate. It's helpful to know when that correlation is based on a false narrative. That can help us with our timing on betting with the trend or seeing patterns of market behavior develop that indicate the trend change is underway.
The problem is that the economic data, and the reporting of it by outlets like The Wall Street Journal and CNBC, is often confusing. It is often based on the extrapolation of tiny survey samples. The data is heavily statistically massaged, particularly with the use of seasonal adjustment, which is an indefensible obfuscation of what actually transpired in a given month. Sometimes it approximates the real trend, and sometimes it doesn't. Furthermore, the data is always reported with a lag, sometimes a few weeks and sometimes a couple of months. Things can change during those weeks and months.
The incomplete and misleading nature of the data and the way it's reported often leads you and other investors, both individual and institutional, to bad investment decisions.
But amazingly, there's a source of economic information that is accurate, complete, not statistically massaged, and real time. That is federal tax data. It's reported daily one day after the collections, and it covers a wide spectrum of data that accurately reflects the state of the most important sectors of the U.S. economy.
That data enables us to always know exactly what direction the U.S. economy is headed and how fast it is moving. It enables us to spot exactly when Wall Street is feeding us a false narrative. It tells us, weeks in advance, what to expect from the economic data releases. And it tells us whether the Fed will stay on track or will be motivated to shift policy well before the economic data will provide any clue, accurate or otherwise.
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For example, back on Aug. 1, I foresaw that the July tax data would reinforce the Fed in its intention to reduce the size of its balance sheet. I predicted that that would be the first real tightening of monetary policy. Shrinking the balance sheet removes funds from the system. I said that that would be the Fed's first real bearish move. The Fed announced its "normalization" (which really means tightening) program in September, just as I had predicted, simply by recognizing what the tax data was telling us at the time. In spite of any nervousness about the economy reported in the media, in fact the tax data told us that the top-line numbers for the U.S. economy would continue to trend positive enough to move the Fed to tighten.
Earlier this month, I brought you up to date on federal tax collections for October and the first week of November. This data came from the Daily Treasury Statement (DTS). The Treasury also publishes a Monthly Treasury Statement (MTS) between the 10th and 13th of the following month.
And in this statement, we find a very, very important little nugget of information about the coming bear market.
To be precise, it's the "sin tax."
About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.