As an academic who only has to deal with an institution that just wishes I kept my mouth shut more but doesn’t really press the issue (with some very real exceptions), I have the ability to speak the truth as I see it and not worry about public relations. In a way I feel bad for public relation guys that have to spin indefensible positions at the behest of their masters. Today we have two great examples.
Last week after hearing about the impressive run up of Olam prior to the Temasek buyout, I raised the possibility that the price gains prior to the buyout raised concerns. Enter the Singapore Stock Exchange, who released a statement saying that there was no concern about information leaks because analysts had raised their price target for Olam. This is a weak response at best because as the Wall Street Journal noted “Even after all those upgrades, the consensus target was only 1.68 Singapore dollars (US$1.33), according to FactSet, just a single Singapore cent higher than at the start of the year and far below the S$2 the stock hit just before the deal was announced.” Just to be clear, the Singapore Stock Exchange is claiming that an increase in the consensus estimate to $1.68 explains the one month move from $1.43 to $2. Interestingly, according to Thompson/FirstCall, only two brokers changed their hold recommendations to buy out of a total of 18 with buy/sell recommendations. Let’s look a little closer at the how fast the price moved presented below in Figure 1 with all data normalized to 100 for ease of comparison and the data spreadsheet here.
After hitting its recent low on February 4, Olam began an unprecedented and rapid price increase. During the same time that Noble Group and Wilmar were enjoying 12 and 14 percent increases, while Olam enjoyed a 40% rise. Which if you believe the Singapore Stock Exchange, was due solely to analysts raising their consensus estimate to $1.68. Not only is the rapid and large price movement suspicious, but so is the change in volume presented below in Table 1.
Wilmar and Noble both had month month changes in their average daily volume, but nothing that would raise alarms. Olam volume, however, was quite steady until the month before the buyout. During the month preceding the buyout, average daily volume more than tripled. During the same period, when Noble and Wilmar received price upgrades, their volume increased but by significantly less. It is a strains all credibility to the breaking point to claim that daily volume and price movements in Olam in the month prior to Temasek buyout are due solely to analyst upgrades which priced Olam at 25% less than the buyout price. If the Singapore Stock Exchange wants to maintain any credibility it will look into settlement data about who was buying Olam in the month prior to the buyout.
The Wall Street Journal said it well writing “Nobody said explaining markets is easy, but this begs another look.” Indeed.
Last Friday CCTV News, the propaganda arm of the Chinese Communist Party, hosted Sheng Laiyun, a spokesman for the National Bureau of Statistics and Director of the Department of Comprehensive Statistics of the National Economy (another propaganda arm of the Communist Party), for a question and answer session. One of the topics covered was the quality of data and statistics produced by the NBSC. (The Q&A is on the CCTV Facebook website here on the evening of Friday March 14…let’s try to ignore the irony of a CCTV Facebook website for the moment). The answers are classic examples of how to avoid saying anything. The first question focusing on the quality of data issue was question 8 of all questions asked is truly Kafka-esque.
Q8: Critics have accused China of #inflating #growth #statistics in recent years. Has there ever been a domestic investigation of the matter? How do you ensure the accuracy of the data being collected? Has anyone at your bureau ever been punished for falsifying numbers?
A8: Many people are involved in validating the data. We live in an information age. We deal with data every day. Everybody wants accurate data. Not just Chinese but foreigners too asked this question. Spokesperson of some foreign statistic departments also asked me about this question.
Just to be clear, he answers the question about whether Chinese data is accurate by telling us only that he gets asked this question. That is one of the best non-answers ever. Later when asked why provincial GDP does not sum to national GDP he says:
The State calculates the national GDP. The province calculates the provincial GDP. But due to technical reasons, we fail to pick out the overlap part in the provincial GDP calculation. For example, the subsidiaries of a company are in Wuhan and Shanghai while the parent company is in Beijing. So when calculating the GDP, we calculate the GDP of the parent company to Beijing’s GDP. But we may also calculate the GDP of subsidiary company in Shanghai and Wuhan to the GDP of Shanghai and Wuhan. When calculating the national GDP, we need to pick out the GDP of Shanghai and Wuhan. So the national GDP is less than the total GDP of all provinces. This result is caused by technical reasons.
This is like saying China is calculating economic growth without subtracting imports. This would be one of the most meaningless statistics ever and it seems a stretch at best to say that provinces only import 3% of their GDP from other Chinese provinces. Finally, he tried to say that no less than the US Federal Reserve had agreed with Chinese economic data saying they “reflected the economic trend”. This is a gross overstatement. The study by economist says that China has grown but that data indicates significant manipulation and greater weakness in the overall economy that officially stated. This correlates with my own work where the NBSC claims that housing price inflation has totaled 8% since 2000. I’ll let you decide if the price of housing in China has increased 8% since 2000 and let his credibility stand against his own data.