TW3 – Lies, Damned Lies, and Statistics

Market Wrap

Global markets rallied this week in response to indications that the Federal Reserve may cut interest rates in the near future, with the S&P 500 surging to a record high overnight. The Federal Reserve issued its FOMC statement midweek, suggesting that a rate cut may be on the horizon. The image below highlights how this month’s statement varied from the May statement. Of key interest for investors was the final sentence “the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion”, meaning that investors will be crossing their fingers for weak economic growth in the upcoming months.

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Investors were also buoyed by a Trump tweet that suggested that some progress was being made in trade negotiations. There have been no details released regarding the content of the conversation, and whether indeed it was “very good”, so we guess investors are just taking Trump’s word for it!

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Finance 101 – Lying With Statistics

There’s an old saying “There are three kinds of lies: lies, damned lies, and statistics”. Whilst its true that numbers don’t lie, they can be misrepresented in a myriad of ways to suit any agenda.

The most pervasive form of statistical deception is known colloquially as chart crime, whereby charts are adjusted to support the author’s agenda. The charts below show the exact same data, however the Y axis has been manipulated to downplay or emphasise weakness in the AUD since last year.

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Is it more dangerous to drive in NSW or the Northern Territory? The data can be moulded to argue whichever side you’d like to take!

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Was Lyndon B Johnson’s War on Poverty a success? The Democrats would argue that the poverty rate lowered 5% in the 5 years after his policies were legislated, but Republicans could argue that poverty was already trending lower in the years priors!

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Although it is impossible to avoid chart crime, the easiest way to prevent falling victim to it is to ask yourself whether the author has an agenda. Politicians want your votes, stockbrokers want you to make trades, and economists want you to think their opinions are relevant. Keep this in mind and you shan’t be fooled!

Stanford Brown Investment Seminar

How can shares be soaring when forecasts for economic growth are at their lowest levels in years? Will the trade war spark the next GFC or is Trump a storm in a teacup? Find out on July 24th as our Chief Investment Officer Ashley Owen shares his outlooks for the rest of 2019 and how he has positioned client portfolios.

You can register here, and as always, feel free to bring a friend along!

Too Strange For Fiction

Some market developments are often too strange for fiction. Four years ago government debt from Greece was trading at a 60% discount to debt from the US government, with investors fearing that the Greek government would default on its debt and throw the Eurozone into crisis. Nothing has fundamentally changed about the Greek economy since 2015, and the American economy is roaring, yet Greek debt is now trading at a significant premium to American debt. Go figure!

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The Show Goes On

One of the curiosities of investing post-GFC is that investors have tended to celebrate reports that global economic growth was weak. This is a result of global central banks flooding markets with cheap debt (by lowering interest rates) whenever there are any signs of trouble, which does nothing to improve the economy but is great for the stock market!

The recent dovishness from the Federal Reserve is music to the ears of Donald Trump, who has been complaining for months that the Fed has been a wet blanket on his economic expansion fuelled by fiscal stimulus.

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Although cheap debt is good for shares in the short run, investors should heed El Presidente’s warnings from 2013!

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Know Your Audience!

The Swiss investment bank UBS has been excluded from a $1b bond issuance in China after its chief economist Paul Donovan inadvertently caused widespread offence on a podcast. In response to a question regarding the growing epidemic of swine fever in China, he remarked that “It matters if you are a Chinese pig. It matters if you like eating pork in China. It does not really matter to the rest of the world”. A timely reminder that you should always know your audience!

Property Showing A Pulse?

Scott Morrison’s surprise election victory, combined with the RBA’s newfound dovishness, has led many to proclaim that the worst of the property downturn is behind us. It would appear that buyers are beginning to return to the market, with auction clearance rates spiking in recent weeks. Sydney’s clearance rate of 66% last week was its highest in over year, whilst the clearance rate in the combined capitals exceeded 60% for the first time since late 2017.

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Source: Domain

Best Travel Photos of 2019

Each year National Geographic runs its Travel Photo Contest to showcase the wonderful world we live in. You can browse the winning entries here. Although it didn’t receive any gongs, we quite enjoyed the photo below titled “practice makes perfect”.

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Name That Line!

There was no instalment of Name That Line last week as we were too busy showing Elias the money!

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But what was this classic line?

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Pic of the Week – Was There Room For Two?

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Video of the Week – Can your dog do this?

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