Everyone knows about lies, damned lies, and statistics. The quote has been attached to Mark Twain who apparently attributed to British Prime Minister Benjamin Disraeli. It remains among popular clichs because there is universal truth to it, a sort of caveat emptor lying in the background whenever one consumes an argument. Nowhere is that more the truth than economics and finance, disciplines almost (nowadays) entirely populated with statistics and very little else.
Given the rather extreme nature of the times, extreme statistics are more prevalent perhaps than at any other point. They run the spectrum, as do human intentions, from the purely mistake to the malicious. The better stats, as the best lies, are often difficult to discern because they contain a great deal of truth; requiring a great deal of further analysis and scrutiny to unpack the error or mistake. Sometimes, however, it takes very little effort (reflecting both on the numbers and the person wielding them).
Prominently displayed on the front page of Yahoo!Finance today was an article whose purpose was just so barely disguised. You can and should read the whole piece, but the gist is essentially that we shouldn’t worry about very high valuations to the current stock market because valuations aren’t so simple. The expert quoted in the article declares that PE’s at this point, well above 20x, ‘do not contradict the bullish case for stocks.’ The reason is low inflation and related low interest rates; an argument proposed and reiterated many, many times before.
This post was published at David Stockmans Contra Corner on July 19, 2016.
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