“We Are A Fact Gathering Organization Only. We Don’t Clear Anybody. We Don’t Condemn Anybody” – J. Edgar Hoover, First FBI Director

 

Stock Markets Dip After Weak U.S. Economic Data

Major North American stock indices declined Friday after disappointing U.S. economic data and weak corporate earnings.  The Toronto Stock Exchange’s S&P/TSX composite index fell 12.67 points to 15,537.88. In New York, the Dow Jones industrial average lost 22.81 points to 20,896.61, while the S&P 500 index shed 3.54 points to 2,390.90. The Nasdaq composite index gained 5.27 points to 6,121.23. Those drops came as the U.S. Department of Commerce said retails sales in April rose 0.4% from March, falling below already-low analyst expectations, said Patrick Blais, a senior portfolio manager at Manulife Asset Management.

Shares of major department stores also fell Friday. Nordstrom’s stock, for example, slipped US$5.01, or 10.84%, to US$41.20 after the company released its first-quarter results Thursday. The Seattle-based chain’s same-store sales, which dropped by 0.8%, fell below analyst expectations.   “It kind of re-emphasized the risk that consumer spending will stay weak,” said Blais.  Consumer spending is a large part of the American economy, accounting for some 60% of GDP, he said. If U.S. consumers aren’t spending the fear is GDP growth will slow.

Meanwhile, the Canadian dollar fell 0.04 of a U.S. cent to an average value of US72.92¢. In commodities, the June crude contract gained a penny to US$47.84 per barrel and June gold rose US$3.50 to US$1,227.70 an ounce.

 

It’s Harder Than You Think To Detect Fraud And Lies 

Detecting lies and misleading statements isn’t easy; just ask the participants of a recent Journal of Behavioural Finance study, which tested the ability of 154 randomly selected, U.S.-based financial professionals.

The study was conducted by three City University of New York professors and Jason Voss, a content director at CFA Institute. They asked the participants, who were affiliated with the CFA Institute, to watch videos as well as listen to quarterly conference calls from public companies, and the goal was to assess how well they could identify liars and pinpoint misleading statements, reports The Wall Street Journal.  In particular, the calls they listened to were ones that “included statements that the SEC had identified as misleading or false,” says WSJ.  The average accuracy rate of the participants was 49.4% when it came to successfully identifying truth versus lies, says WSJ. According to the Journal of Behavioural Finance, their “lie detection accuracy was poor; participants performed no better than would be expected by chance. Accuracy in identifying lies about financial fraud was especially poor.”

Why did the finance professionals fail the test?  One reason they performed poorly, says WSJ, was due to truth bias (as Psychology Today explains, this bias is based on “a normal reaction because, in general, people tend to believe others,” and it’s hard not to believe what you hear, see and read). WSJ adds the participants “also did worse when they were highly confident of their performance.”

 

 

 

Sources: Bloomberg; Investment Executive; advisor.ca;