Paul Donovan discusses how the rise of "fake news" and declining information quality, exacerbated by geopolitical events, are distorting market pricing and eroding trust in objective facts and economic data. He highlights concerns over the impartiality of US economic data, specifically an unadvertised change in the PCE deflator calculation that lowered reported inflation, emphasizing the critical need for investors to understand data details.
Summarized by Podsumo
The proliferation of "fake news" via social media and government influence, particularly in the context of the Gulf War, is creating market uncertainty and encouraging disbelief in objective facts.
Economic data reliability has progressively declined across the developed world over the last 15 years, with recent investor concerns about the impartiality of US data.
An unadvertised change in the data source for calculating legal fees lowered the US Personal Consumer Expenditure (PCE) deflator by 10 basis points, raising questions about data transparency and trustworthiness.
The incident with the PCE deflator underscores the critical importance for investors to understand the underlying details and sources of economic data, as the world increasingly prioritizes "spin over substance."
China's industrial production and retail sales showed stronger than expected figures, partly due to government incentive schemes, though these risk merely shuffling consumption rather than boosting overall spending.
"Economic theory often assumes perfect information. The right price is achieved because everybody knows what they need to know. This is not obviously true, most of the time."
"Changing data sources with the result that reported inflation is lower without advertising the data source change is not a good look in a world that cares more about spin than substance."
"Asking countries you're engaged in a trade war with to send their military into a real war that has no well-defined objectives might be a tricky piece of diplomacy to pull off."