Garbage Stats and Real Stats: Lessons in who to believe on the economy

In January, 2015 heavy snowfall and cold weather across the country had everyone expecting a disastrous estimate of Q1 GDP. I’m sure you remember the vicious “polar vortex” that was endlessly reported at the time. And as predicted, in its April 29, 2015 first estimate of Q1 GDP, the Bureau of Economic Analysis (BEA) said the US economy grew by only 0.2%. The number was so bad the BEA decided to increase its seasonal adjustment provisions because they were obviously not adequately reflecting the impact of winter weather during the winter season.

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The Most Complacent Markets in History

The VIX, the yardstick for measuring volatility in US stocks, is once again trading below 10.  Here are some statistics from Kyle Beard of Bloomsbury Advisory: “The VIX has only traded below 10 41 times since 1993 (intra-day). 21 of those occurrences have taken place since May 1, 2017. When you consider there have been 6,179 trading days since 1993, you realize how incredible this is.”

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Remember the Last One?

Do you remember what caused the financial meltdown of 2008? Boston Fed President Eric Rosengren said it last week with elegant simplicity: the “significant decline in collateral values” of both commercial and residential real estate was “the root cause of the financial crisis,” he said. When real estate values fell below the value of the debt pledged against them, the shortfall blew a huge hole in bank balance sheets. As the banks struggled to cope, they stopped lending to their customers and themselves and the system crashed due to a liquidity crisis.

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