Whatever story you want to tell, you can make a chart that tells it. We see this all the time in politics, but anyone can use a chart to make a point.  Earlier this week Bruce Krasting of Business Insider used the following chart as a part of a long-winded way of saying stocks are either going to fall or interest rates will rise:

Basically, this chart is saying that China has had to sell some of their holdings of US debt to pay for their oil imports.  And if the Chinese aren’t buying our government debt and no one else will then interest rates are going to have to go up.  Bruce outlines his reasoning for why others aren’t going to buy the debt.  Fair enough.

But look at the chart closely, do you see anything weird?  Maybe two things weird?

The chart seems to be going backwards through time.  It starts with a peak in July and then goes back to January.  This implies that Chinese borrowing has never been higher.  And unless my arithmetic is off I think that’s closer to a change of $160 billion, not 260.  Bruce left off some of the chart.

This shows the falloff Bruce probably meant to illustrate.  But all I’m seeing is a huge increase in debt buying last June and then a reversion to the mean.  January’s numbers indicate a pickup in Chinese lending has resumed, despite the rise in oil prices.

But, for the sake of argument let’s assume Bruce is right and China has been selling off their US debt holdings to pay for gas.  Bruce’s other assumption was that no one else has the money to lend and so Federal interest rates have to go up.  Well, let’s see if everyone has taken a step back in their purchases of US debt like the Chinese have.

Hmmm.  I thought no one had the money to keep buying US debt?  But China is so big their small percentage decrease offsets everything else right?

Hmmm.  It looks like Japan has upped their game recently.  It couldn’t have been that when one buyer exits a market a small price change could tempt another buyer into the market right?  No. That doesn’t happen.

But let’s ignore even that.  Let’s assume everything Bruce has said is right.  Let’s look at his headline: Either Stocks Will Fall Or The Ten-Year Is Headed To 3%

The ten year is currently at around 2.3% has been around 2% for some time.  My audience won’t necessarily see anything Bruce’s prediction.  But please know this is a statement as obvious as a presidential candidate’s pandering.

If stocks go up, it’s usually a sign of an improving economy.  If the economy improves then the Fed will allow interest rates to rise.  If the economy doesn’t rise, then stocks will fall and the Fed will keep interest rates low.  This headline might have well just said “I’m either going to eat supper or dinner tonight”.

Know that my charts may be no more right or wrong than Bruce’s.  All charts tell the story the creator wants to tell.  Just be wary, and make sure you understand all the circumstances that influence the chart before drawing any conclusions.

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categories: economics, government, investing, media