Behold the Awesome Power of Financial Twitter

As Chairman of the Twitter Federal Reserve, I sometimes find myself shaking my head at some of the daily banality I see tweeted and shared amidst my domain. More Twitter users has not been an unqualified positive for the financial web, despite the idea of the “network effect” we’re constantly seeing celebrated elsewhere. Sometimes less participation from a concentrated few produces a better result than more participation from, well, anyone who shows up with an opinion and an agenda.

It’s gotten louder and looser in the last few years, almost entirely to our detriment. A long-time market tweeter joked the other day that the Yahoo Finance message board cretins had finally discovered Twitter and now “there goes the neighborhood.”

But every once in awhile, Financial Twitter manages to surprise me to the upside. Every now and again, I am reminded about why I should be proud to be a part of the conversation.

Because the conversation can still totally rock.

A recent case in point – just one small example of many – would be the dueling GDP charts that ricocheted around all weekend.

On Saturday, at around 5:30 in the morning, the Twitter account of J. Lyons Fund Management put out a tweet with an amazing table of data they’d created. J. Lyons had taken the 25 worst GDP prints in history – in light of this week’s downside shock for Q1’s final revision – and then looked for an example in which these terrible twenty-five hadn’t led to a recession afterward. It turns out there wasn’t a single example in which the US economy had a nasty quarterly GDP print and then escaped the dreaded “R” word during the entire history of the Post-WWII period. Provocatively, we’re told to spot the outlier in the data – which ostensibly would be “this time” if in fact we manage to avoid a contraction in 2014.

The tweet and table embedded below:

25 Worst Quarterly U.S. GDP Prints In History (see if you can spot the outlier) pic.twitter.com/T9WQsOLA3Q

— J. Lyons Fund Mgmt. (@JLyonsFundMgmt) June 28, 2014

A few hours later, I came along and re-shared the tweet, along with some a comment of my own. This got the table in front of thousands of more users, everyone from the Wall Street Journal’s Paul Vigna and Bloomberg’s Trish Regan then weighed in – which pushed it out to even more people.

Look what happens next! RT @JLyonsFundMgmt: 25 Worst Quarterly U.S. GDP Prints In History (spot the outlier) pic.twitter.com/xj0iTSWmpn — Downtown Josh Brown (@ReformedBroker) June 28, 2014

Now of course, if you’re reading this blog regularly then you already know my attitude toward single variable analysis. You are also aware of how I feel about the idea that anything can be predicted based on the limited sample size of fifty years. But still, the table was compelling and led to some great responses and discussion.

Fast forward to around 5pm on Sunday and we get the below response to the J Lyons GDP table from a tweeter I had never before heard of (I’ve since followed the account):

@ReformedBroker @JLyonsFundMgmt what happens next is that the S&P500 is up 79% of the time in the year after pic.twitter.com/fVQ36vmDoI

— marginal idea (@marginalidea) June 29, 2014

 

So it turns out that there has been a recession immediately following each of the 25 worst quarterly GDP prints since the 1940’s – a range in which our Q1 final GDP print of negative 2.9% most assuredly fits.

But within a day and a half, a response is created and shared showing that, despite this seemingly dire data set, an even more important statistic is worth considering – the fact that the S&P 500 trades higher 79% of the time one year after these horrendously recessionary GDP prints. Even juicier is the fact that the average stock market gain in these years turns out to have been roughly 16% – far above the average return of all years, even those in which economic data is robust.

This is a revelation that the casual investor would never spend the time to put together on his own. Even most professionals – myself included – were probably not aware of this particular point.

So much can be learned about the difference between markets and economics from this back-and-forth. It’s an exchange that  demonstrates the usefulness of a crowded and vibrant financial Twittersphere. It is just this sort of sussing out of truth and significance that makes it all worthwhile. I don’t know of any other medium in which we can see something like this take place and participate in it along the way.

Thanks to J. Lyons and Marginal Idea for keeping the light on this weekend. You guys are part of what’s keeping the whole mess from collapsing in on itself. Keep it up.