My Home About Me

You read the financial media, you watch financial TV, and chances are you pretty much accept what is offered as "fact" by the "experts" who appear there. You may not agree with their opinions or conclusions, but you probably at least accept as factual the statistics that they cite. Not so fast. Let's revisit the "bull/bear" debate I had with Barry Ritholtz a month or so back, on the US News Capital Commerce blog. In a back-and-forth on the importance of "mortgage equity extraction" as a driver of personal consumption expenditures, Ritholz claimed:

The impact of mortgage equity withdrawal on consumer spending was calculated via the "Greenspan-Kennedy" method, a statistical system developed by Fed economist James Kennedy and former Fed Chair Alan Greenspan. Kennedy/Greenspan determined that 51 percent of MEW flowed through to personal consumption.

I subsequently chided Ritholtz for appealing to authority in citing this and other analyses. But it turns out I was being too generous. I should have checked Ritholtz's authority. I did this morning, and I discovered that Ritholtz was completely wrong in what he says about the Kennedy/Greenspan analysis. Download this spreadsheet posted by Kennedy on the Fed's web site, and see for yourself. Line (1) of Table 2 gives the free cash-flow from MEW each year. Line (9) gives the share used for personal consumption expenditures. Divide (9) by (1) and you get the percentage of MEW used for PCE. The largest year ever (since 1991, which is as far back as the data goes) is 2005 at 15%. The average is 12%.

So where did Ritholtz get "51 percent"? Did he just make it up? Did he read it on some blog somewhere?

Lesson: you just have to question everything you hear.

bailout   Basic Materials SPDR (XLB)   bond trading   bond yields   capitulation   climactic   commodities   credit crisis   Currency ETFs   day trading   Deron Wagner   DJIA chart   economic data   Emini's Nas 100   emini's S&P 500   emini's S&P 500e   ETFs (exchange trade funds)   ETFs (exchange traded funds)   Gold Miners ETF (GDX)   Japanese Yen ETF (FXY)