On A Dash of Insight, we do our best to steer individual investors away from politically motivated agendas and misleading analysis. An important part of this is being able to recognize colleagues and friends who do outstanding work to expose myths and rumors in the financial media of all kinds. We congratulate these writers with the Silver Bullet Award - named in honor of the Lone Ranger, who lived his life knowing "…that all things change but truth, and that truth alone, lives on forever."
At the end of 2013, we published our first column reviewing the year's Silver Bullet awards. Readers old and new would enjoy reviewing it - much of the information is still relevant today. We've summarized all of this year's winners in this column. We encourage you to keep a close eye on these topics as we move forward into 2015.
January 19, 2014
The Bespoke Investment Group won this year's first Silver Bullet award by taking aim at the idea that big Wall Street movies signal market tops. Observe the following chart on the left, with the corrected BIG chart on the left. As you can see, the original plays it "fast and loose" with causality.
More detailed analysis from Bespoke here.
February 15, 2014
Near the beginning of this year, a misleading chart comparing the DOW's current period with its movement during the 1920's was receiving undue attention in the blogosphere. The implication of course, was that the market was headed for imminent disaster on par with the Great Depression. Ryan Detrick of Schaeffer's and Bespoke Investment Group stepped up to put things in perspective. The original is on the left, with the corrected version on the right.
Again, this was merely an issue of a chart being taken out of its proper context and presented in an intentionally misleading fashion. More analysis here.
March 1, 2014
Scott Grannis was quick to respond to fears in mainstream financial news regarding the collapse of the Yuan. His chart (below) places the currency in its proper context, clearly showing more recent moves in their proper context. His analysis is serves as an important reminder for individual investors - changes in valuation generally don't amount to imminent collapse.
May 11, 2014
Anyone with an introductory level knowledge of data analysis knows better than to confuse correlation with causation. Unfortunately, many bloggers are capable of cooking up a story plausible enough to create a relationship where none actually exists. Tyler Vigen at Spurious Correlations earned himself a Silver Bullet award for illustrating an important statistical principle with a good sense of humor.
June 1, 2014
The unemployment rate is a popular source of fodder for doom and gloomers. We awarded Paul Kasriel the Silver Bullet for discouraging "knee-jerk analyses" of the newest numbers. He writes:
"…(NYSE:A) decline in the labor force does not always reflect an increase in so-called discouraged workers. And, in fact - well, fact may be too strong a word, but according to data contained in the April Household Employment Survey - the number of people not in the labor force in April but who did want a job changed by a big fat ZERO."
Individual investors would be wise to keep his words in mind ahead of the newest updates.
June 29, 2014
Barry Ritholtz moved from the Lone Ranger's six shooter to a Gatling Gun to confront a general failure in causal reasoning partway through the summer.
What are a few examples of the single factors that have been making the rounds these days?
GDP: "We have never had a negative 2.96 percent GDP report and not gone into recession…"
Rising Rates: "The U.S. stock market doesn't do well when interest rates are rising."
Earnings Surprises: "Earnings are good this quarter, better than expected, and therefore, the market's going higher."
New Financial Products: "These new products are being adopted, therefore it means the bull market is coming to its peak."
Death Cross/Golden Cross: "When the 50 and 200 day moving average cross to the upside (downside), it bodes well (poorly) for any trading vehicle."
These sorts of fallacious statements should set off alarm bells in the minds of critical thinkers.
July 20, 2014
We awarded John Lounsbury of Econintersect for taking on a new rumor from one of the biggest doom and gloom sources in the blogosphere. In response to a sensationalized "Japocalypse" headline, he delved into Japanese machinery orders. His key summary:
Whether the May readings have any special significance or not will not be known at least until the June data is reported, and probably not known with any certainty until at least three more months are on the books.
In the meantime, terms like "Japocalypse" can be put back on the shelf (under a dust cover) in case they are actually needed later when the long-term wild up and down swings in new machinery orders are ended with an extended move to the downside.
We encourage you to read through his full analysis here.
November 9, 2014
Those with little understanding of bureaucratic practices are quick to suspect that government officials are cooking the books. We awarded Floyd Norris of the NYT with the Silver Bullet for attempting to disabuse the public of this notion.
This is so credible to the general public, where the perception of government is strongly linked to B-movies, that few even challenge the notion of misleading government data. If I had to pick a single mistake of the individual investor, this would be a strong contender. They are likely to believe that the President can call up the BLS and tell them what to report, or that the Fed buries certain results, silencing hundreds of employees, and misleads us all. Here is a key quote from Norris, possibly persuasive to those with an open mind:
"The idea that politicians could force government bureaucrats to fake the statistics, and do so without any leaks, is hard to believe. Such a conspiracy, if it managed to exist for long, would be a marvel of organization. But those who believe in the conspiracy theory also tend to subscribe to the theory that governments are generally incompetent and unable to do anything right. Those two beliefs do not correspond."
November 16, 2014
Merrill Lynch economist Ethan Harris earned the Silver Bullet award for taking on one of the most frequently cited misleading charts: QE and stock prices. Part of his explanation follows the chart.
"Every time the end of a QE program looms, pundits warn of a big shock to markets and the economy. In the business press, the story of exactly how this happens keeps shifting to fit the facts."
The main target of Harris' critique is the above chart, which has been a favorite among the "QE-truthers," or folks who believe the Fed's policies are directly responsible for the rise in the stock market.
But the big problem Harris has with this chart is, well, basic statistics.
"Implicitly, this chart assumes that the markets are not forward looking and it is the implementation of Q that drives the stock market: when the Fed buys, the market booms and when it stops, the market swoons," Harris wrote.
"As our readers know, we think this relationship is a classic case of spurious correlation: anything that trended higher over the last 5 years has a 90%-plus correlation with the Fed's balance sheet."
December 7, 2014
Georg Vrba responded to a challenge we issued near the end of this year regarding a misleading chart claiming the US Stock Market is over 90% above trend for the second time ever. The original chart appears below, with his detailed correction following.
As we noted at the time, Georg has been dutifully making this assertion for years. It is unfortunate that the myth has persisted for so long. More information on his methods and analysis is available here.
December 21, 2014
Our last Silver Bullet award for the year goes to Jeffrey Bartash of MarketWatch, who explained why Wall Street should pay less attention to Philly Fed & Empire State.
"Regular readers know that I downplay these results. It is nice (finally) to have some support. I mistakenly took my CNBC feed off of mute to hear their "experts" calling describing the most recent report as "crashing" from the prior high. The prior high was described as an anomaly when it occurred. There is no report that will satisfy those on a mission. No one seems to understand that a diffusion index compares one month to another. There are several other problems with this regional survey."
As always, you can feel free to contact us with recommendations for future Silver Bullet prize winners at any time. Whenever someone takes interest in defending a thankless but essential cause, we hope you'll find them here. Have a Happy New Year and a profitable 2015.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.