A short rant about nothing terribly significant

These markets ain't getting any easier, are they? While Macro Man's alpha portfolio remains a strong performer- up 2.9% already this month- the beta performance has obviously been wretched. And even the alpha performance has been less than what one might reasonably expect; given the decline in both the S&P 500 and US yields since last Thursday, one might reasonably have forecast that USD/JPY would be lower.

Instead, it's actually a touch higher; could the "final insult" of the ongoing bout of volatility be that the yen ceases to perform as a macro hedge to risky assets? Perhaps, though it's probably premature to reach such a conclusion. For one, "risk asset" weakness has been largely contained to credit and US equities; EM, for example, is trading very well. Moreover, Japanese retail has returned to the market this week, filling its pent-up demand for the usual high-yielding currencies. Such demand has been spurred by strong data from Australia, which has propelled the AUD higher against other developed currencies.

Meanwhile, sterling has continued to underperform, with the latest bout of weakness courtesy of horrible results from Marks and Spencer. Thus far, his patience in setting GBP shorts has not been rewarded. Still, Macro Man cannot have too much cause for complaint; thus far, his 2008 theme of "differentiation" has been evident.

No, the rant alluded to in the title of today's post has nothing to do with financial market prices. After all, if you're going to play the game, you should be prepared to meet with adversity on occasion. Rather, Macro Man was struck by the absolute inutility and cack-handed presentation of one of the newest pieces of economic "data", the US pending home sales figures.

This release only intruded on the market's consciousness over the last year or two, and indeed has only been calculated since 2001. As the name implies, it does not reflect an economic activity or transaction, but rather the intent to perform one. Per the description on Bloomberg:

The pending home sales index tracks the number of home resales under contract. The majority of pending home sales become existing home sales one or two months later and therefore, this index can be used to predict actual home sales activity.

Fine. That sounds reasonable enough, doesn't it? It's a leading indicator of home sales, and given the market's fetish with all things housing these days, there's an understandable demand for good leading data. The problem is that this data is evidently subject to significant revisions. As one of Macro Man's brokers put it yesterday when the November figure was released: "Weak headline, strong revisions."

Huh? What, exactly, is the point of revising the previous history of an indicator that is only supposed to lead official activity figures by a month or so? And how/why exactly does it get revised? Last month you thought that the amount of homes about to get sold in October were up 0.6%, and now you realize that they actually rose 3.7%? Where did these extra intentions come from? What are we, the market, supposed to do with this information?

Now, Macro Man realizes that this is a minor issue surrounding what is, after all, a minor piece of data that isn't actually calculated by the government. It's produced by the NAR; you can peruse Barry Ritholtz's site for plenty of analysis on the reliability of that organziation. But the fact that people actually trade off of an indicator that is essentially useless (the underlying data is an index, and Bloomberg only reports monthly changes) just underscores the degree of noise to which modern day financial market participants are subjected, and emphasizes the importance of filtering out the vast majority of "information" that crosses one's desk and instead focusing on the things that truel matter. And Macro Man feels safe in concluding that pending home sales ain't one of 'em.

Rant over. Now about that yen.....