David Lykken: Volatility and the importance of accurate information

by MPA09 Jun 2014
By David Lykken
Special to MPA


Last week on my Lykken on Lending radio show, we talked about a great deal of volatility that just rocked the market. Oftentimes, when there's a lot of volatility, we don't really know what to attribute it to. We make reasonable guesses such as changes in the weather, but we aren't really sure. Last week, however, was different. We knew exactly what to attribute the volatility to.

When the Institute for Supply Chain Management released its numbers on growth in the manufacturing industry, MBS prices rose in response to a lower-than-expected growth rate of 53.2%. However, shortly after releasing the numbers, the ISM revealed that it had made errors in the calculations. Immediately following the official statement from the ISM, MBS prices began to fall. It turns out that the ISM had inadvertently used April's seasonal adjustment for May's data.

Many people in the industry make trades based on reports such as those released by the ISM. While it is prudent for us to base our market activity on such information, we need to be careful about placing our full trust in one set of numbers. These are human beings who are releasing such information, and they will make mistakes. It always helps to have someone on your team who can understand and analyze the data--to test it against the organizations releasing the reports. Not all information is good information. This is just a reminder to exercise caution with the information you receive.

David Lykken is 40-year industry veteran who has been an owner operator of three mortgage banking companies and a software company. As co-founder and Managing Partner of Mortgage Banking Solutions, David consults on virtually all aspects of mortgage banking with special emphasis executive leadership development, corporate strategic direction and implementation as well as mergers & acquisitions. A regular contributor on CNBC and Fox Business News, David also hosts a successful weekly radio program called “Lykken On Lending” (www.LykkenOnLending.com) that is heard each Monday at noon (Central Standard Time) by thousands of mortgage professionals. Recently he started producing a 1-minute video called “Today’s Mortgage Minute” that appears on hundreds of television, radio and newspaper websites daily across America.

 

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