Mixed Signals for Investors: Kass

When economic indicators are mixed, traders and investors are faced with deciding which numbers are important, which indicators are leading and which to ignore. That's the situation they're trying to navigate right now.


Doug Kass, a noted short-seller and founder of Seabreeze Partners, posted this on Twitter feed Thursday: "Covering all trading shorts. There was more to meet the eye in Philly index release—components strong $$.”

His most recent blog, posted on seabreezepartners.net, addresses the conflict between the Philly Fed and other key economic indicators.

The Conference Board reported the index of leading economic indicators (LEI) was up .4 percent in May, following flat, or no, growth in April and the New York Fed's Empire State PMI was robust, as were industrial gains reported this week.

Kass wrote, "Moreover, several important components of the Philly release were strong—new orders increased, delivery times lifted and the six-month outlook improved. Yes, the labor component was weak—but this is well-known!”

Two economists, Sam Bullard, senior economist at Wells Fargo , and Julia Coronado, senior economist at BNP Paribas, weighed in on the conflicting information.

“When you take a look at the components of the report, you do see that the data was mixed with shipments and new orders (a forward looking indicator) still up solidly on the month. What does give us concern is the contraction we saw in the average workweek and the number of employees index,” said Bullard.

He added, “Depending on where you stand on the recovery, this is the kind of report where you can highlight data to support your case. On the negative side [is the] contracting labor market indicators (average work week, number of employees). On the positive side: expanding business activity (new orders suggesting continued gains ahead, and solid shipment activity).”

Coronado said, “The details (in the Philly Fed Index) were not as discouraging as the headline, as new orders actually rose and the expectations index also improved. However, the decline in employment and prices received highlight that firms are still operating in a very competitive environment and are still going to be cautious and cost-conscious.”

Time will tell if Kass picked the right side of the data.