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  • Writer's pictureTim

The Machine Moves Slowly


My ultimate hope for this market is that we migrate more to one driven by company fundamentals rather than Macro considerations. It gets a bit tiring listening to every Federal reserve board member discuss their ultimate opinion on the direction of interest rates.

 

I am not one to rant but I will pick on one phrase that I think can be tossed forever: “Data dependent.”

 

The U.S. central bank as well as the European central bank continues to tell us they are “data dependent.” To be honest this is a phrase without meaning. Data dependent? What data are you talking about? How was the data collected? Why are you looking at THAT data?

 

Just to pick on one sector, let’s think of the housing/shelter data in the CPI. Sure, it’s data but is it the right data? The CPI data looks backward and averages rents in the rear-view mirror and has a bias for this data rather than new rents recently written. The CPI program also collects rent data only every 6 months so changes in shelter cost will lag badly.

 

Is this data? Sure. Is it the “right” data? Who knows?

 

But to take this further, once this data collection process is in place it now gets built into quantitative models to reflect outputs from those data sources. And these models don’t often get updated.

 

According to the Bureau of Labor Statistics, the 2022 release of spending weight data used to calculate CPI was just updated from the previous weights established 2017 (5 years prior). And these updates were done to reflect the changes in Covid spending patterns from 2 years prior.

 

In essence, the machine does move slowly.

 

I don’t expect the Federal reserve to have perfect clarity on what’s going to happen in the economy. I am not a complete idiot about this.

 

I do, however, expect the Federal reserve (or any central bank) to be explicit about what data they are viewing, why they are viewing it, and the possible downfalls from that data set/model (in essence, what could they be missing).

 

Until they do this, I am going to assume that every time I hear the phrase “data dependent” I can replace it with “I don’t know.”


The opinions expressed in this commentary are those of the author and may not necessarily reflect those held Twin Gryphon Advisors, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward-looking and should not be viewed as an indication of future results. 

Investment advisory services offered through Twin Gryphon Advisors, LLC, a registered investment advisor. 

The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. It does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented, nor any opinion expressed, constitutes a solicitation for the purchase or sale of any security. 

Past performance does not guarantee future results. 


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