As soon as Gabriela Michaels heard on CNBC that the Department of Labor was reporting a significant drop in productivity and sharp rise in unit labor costs, she immediately shorted several thousand shares of stocks in the banking and brokerage sectors. Her reasoning? With productivity falling and unit labor costs on the rise, this must be evidence of wage inflation. And whenever the Federal Reserve sees any evidence of wage inflation, it has a strong tendency to raise interest rates. Since both the banking and brokerage sectors are highly interest rate–sensitive, stocks in this sector must fall on the bad productivity news; so shorting such stocks should earn Gabriela a bundle.

In fact, Gabriela had used ...

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