The Media & Lying with Statistics

I'm continually amazed at how the media manipulates economic data to present whatever picture it feels will best attract viewers, listeners or readers. Today's housings statistics are a perfect example of just such manipulation.

All morning, the news has been a buzz with the jump in housing starts - everyone clamoring to talk about how this may represent the rebound for which we've all been waiting. With no more than a glance at one article on Bloomberg, however, it's easy to learn of the whole picture. This is an example of the statement to which everyone has been referring:

Total housing starts jumped 8.2 percent to a 1.032 million rate as construction of multifamily units rose 36 percent following a 35 percent drop in March.

Here's the paragraph that immediately precedes it:

... a Commerce Department report showed construction of single-family houses in April dropped to the lowest level in 17 years, even as building of condominiums and townhouses rebounded. Builders broke ground on 692,000 single units at an annual rate, the fewest since January 1991.

I know; I shouldn't be surprised. In some ways it is a positive thing that those with a voice work to rally the rest of us into a [hopefully self-fulfilling] belief that the economy is indeed OK. However, when we folks like Mr. Alan Greenspan, the former Fed Chairman, and Mr. Myron Scholes, the winner of the Nobel prize in economics for his work on option valuation, both referring to the current state of the economy as the worst since the great depression, it's time to face reality.

When news reports focus only one the one part of the housing segment that is doing well and neglect to mention that the industry as a whole is declining to almost two-decade lows, then something is amiss. With the average American saving less than ever before and average American debt at record highs, the rising unemployment figures spell doom for those who fall only hear the headlines and continue to spend themselves into future financial ruin. It's time for those with a true understanding of what is going on in the economy to help those who do not.

LIBOR - The London Interbank Offered Rate

The London Interbank Offered Rate, also known as the LIBOR for short, is a daily reference rate at which banks offer to lend unsecured funds to other banks - specifically on London's money market. The LIBOR, however, is used all over the world as the basis for many securities that return a variable rate of return. Why is all this important or interesting? Well, the way it is calculated has come under attack in recent years and that model may very well be changing as a result.

The non-governmental British Bankers Association (BBA) that sets the LIBOR does so by first collecting reports from its member banks. These banks report what their costs of borrowing are to the association which are then figured into an average for use by all banks as their reference rate - the basis on which they offer funds to business and individuals for anything from mortgages to company lines of credit. In recent years, however, there has been mounting speculation that the member banks reporting their borrowing costs have been fibbing - under-reporting so as to keep their own borrowing costs lower.

With the slowing world economy and continued concerns over credit availability for many financial institutions - not exclusively those in the United States - interest rates are expected to begin to rise. Just as this means our own cost of borrowing on car and school loans will begin to tick upward, the big banks are concerned that their own costs will rise. Having issued much of their recent loans at the presiding low rates and many still saddled with quickly depreciating assets, this does not paint a rosy picture for banks as an industry. Of course, it's hard to see how this is any justification for manipulating the system for their own benefit.

As with CDOs, default swaps and mortgage-back securities, it's important for any investor to understand exactly what it is that they're buying when they invest their savings. The LIBOR is one of those elements that many of us likely take for granted, but this too should be a factor in our investment decisions. Understanding that the LIBOR is a manufactured entity should spur our own questioning of its validity and interest in alternatives - and there are many. The Fed Funds Rate, the Treasury Bills rate (for the relevant maturity, of course) or even your own banks prime rate. Consider the alternatives; talk with your bank managers and choose a reference rate with which you feel comfortable will provide you with an accurate representation of the cost paid by banks - the cost that they will the pass along to you.

Hillary Clinton $11 million in the Red - Personally!

From my years of watching The West Wing I knew about the campaign finance provision that allows candidates to loan personal funds to their campaigns. What I didn't know, however, was that there was a time limit for by when the candidate can recoup those loans by raising money as a candidate. That time limit is their party's nomination. With the August democratic convention nearing, Clinton has only a few months reaming to come-up with a whopping $11 million that she has loaned to her campaign!

Why is this interesting? Well, on the surface it's interesting to hear the kinds of sums of money that are involved - even as a personal loan from a candidate. The real news, however, is what this may mean for the democratic race for the nomination. Depending on how significant $11 million is to the Clintons, Mrs. Clinton may be tempted to back-out of the race and back Mr. Obama in exchange for some financial support. This, of course, would end the inter-party bickering and allow Mr. Obama to finally set his sights on the White House. Of course, having earned over $100 million since the start of this decade, the Clinton's aren't exactly struggling - even if they do need to walk away from their loan.

The law states that Mr. Obama would not be able to help Mrs. Clinton directly, but there is nothing that prevents him from looking to his record-breaking fundraising base to do so. Of course, with his own need to raise further funds in preparation for the national campaign following the convention, he may hold his own interests in priority to those of his rival.

Money makes the world go around. The same is true for politics. The fact that Mrs. Clinton is having difficulty raising funds and has had to resort to personal loans means that she has lost support among her backers. This, of course, is an indicator of where that support may have gone. With Mr. Obama now leading in both the super delegate race as well as the popular vote, it's not difficult to put one-and-one together.