Gambling on Economic Data

Now Where?

While I am on record as saying, "We cannot pool our collective ignorance and distill wisdom there-from," I do think there is value to be gained from these economic derivatives auctions. First, it will force economists to focus on improving their data gathering and estimation techniques. Second, the pattern of each auction's changes over time, as illustrated above, will yield insights into the market's thinking. Finally, the libertarian in me believes traders should be able to assume whatever risks they want and with whomever they want.

No forecasting process can ever eliminate the irreducible uncertainties in any survey process. Last Friday's employment data showed how the market could be surprised, not by the headline number but rather by the revisions to previous months' data ... for the second month in a row. Maybe next month's NFP report will surprise people with the hourly wages or the unemployment rate or some other non-headline datum.

So you see that you can guess the headline number and do nothing for your own risk management. In passing, a similar situation exists with many weather derivatives. In both cases you still need to have the correct position in the interest rate, currency and other markets to be able to do that. The auctions are useful and are harmless to non-combatants, but do not let them distract you from your own task at hand.