Who watches the watchers? This is the problem with "trusted" data.

From the desk of Miles Everson:

Hi, everyone!

I hope you’re all having a great day.

In these  “The Independent Investor”  articles, I write investing-related tips with hopes to help you manage your finances well.

For today, let me share with you another important coaching comment by my friend and colleague, Professor Joel Litman. Are you ready?

Continue reading below.

There is a moment every seasoned investor dreads—not the moment markets fall, or volatility spikes, or headlines turn grim—but the quieter, more dangerous moment when the signals stop making sense.

Prices move, yields shift, policies change… yet the underlying logic feels unmoored.

Correlations weaken. Conviction fades… and what once felt like a disciplined, rules-based system begins to resemble guesswork.

According to Professor Joel Litman, Chairman and CEO of  Valens Research  and Chief Investment Officer of  Altimetry Financial Research , this is not hypothetical. It is a structural risk that has been building for years, and it begins with a simple, unsettling reality:

Professor Litman points to a cautionary episode that, at the time, seemed like an emerging-market problem.

In 2007, Argentina’s government faced an election year under mounting economic pressure. Inflation was rising rapidly, and officials understood the political consequences of acknowledging it.

The solution was not policy reform but  arithmetic.

Official data reported inflation at just 8.5%. Independent economists, however, estimated the true figure was closer to 25%.

For a time, the strategy worked. Lower reported inflation tempered public frustration and bought political breathing room.

… but the cost of distorting reality eventually became  unavoidable.

By 2014, Argentina was sliding into sovereign default. The  International Monetary Fund  stepped in, censuring the country until it restored credibility to its statistical agencies.

To many investors, the lesson seemed comfortably distant:  This only happened in countries with fragile governance and weak institutional checks .

However, what Professor Litman now emphasizes is far more unsettling:  The same dynamics are emerging in developed markets long considered immune .

The Credibility Gap in Developed Economies

Professor Litman describes such an environment as a credibility crisis—one quietly eroding trust in official economic data across advanced economies.

For instance: In the U.K., the  Office for National Statistics (ONS)  has struggled with internal challenges for several years.

An internal audit in 2023 flagged repeated failures in leadership and communication but the findings did not reach senior oversight until 2024, when a casual hallway conversation finally brought the issue to light.

The fallout had been significant: leadership changes, restructuring, and a renewed focus on restoring confidence.

Across the Atlantic, the U.S. faced its own credibility shocks. In early 2025,  Bureau of Labor Statistics  Commissioner Erika McEntarfer was dismissed following a relatively modest downward revision in reported job growth.

Many economists interpreted the move as political retaliation, sparking protests from the economics community and renewed questions about the independence of one of the world’s most influential statistical agencies.

According to Professor Litman, debates over intent—whether manipulation occurred—are largely beside the point.

In markets, perception alone can be destabilizing. Once investors begin to suspect that economic data is shaped by political pressure rather than objective measurement, trust deteriorates rapidly.

… and trust, for Professor Litman, is the invisible infrastructure of capital markets.

What Happens When Trust Breaks

What happened in Argentina offered a preview of what could follow when official data loses credibility.

After the country’s statistics scandal, investors stopped relying on government numbers and turned instead to private and alternative data sources. These datasets were often inconsistent, incomplete, or methodologically incompatible, creating widespread confusion.

The result was chaos: Bond yields spiked as investors demanded higher risk premiums, central banks struggled to calibrate monetary policy, and international creditors launched waves of litigation disputing contracts linked to now-suspect metrics.

In the U.S., investors increasingly lean on “alternative” data sources: payroll aggregators, job-posting scrapers, credit-card transaction feeds, and proprietary analytics designed to fill the trust gap left by official statistics.

These tools were  never  intended to anchor monetary policy or serve as legal reference points for trillions of dollars in financial contracts. They  lack  standardization, transparency, and regulatory standing.

Yet, they were being asked to shoulder responsibilities once reserved for government data—an imbalance Professor Litman believes could introduce systemic risk.

Government statistics are not merely inputs for policymakers; they are the foundation upon which global capital allocation is built.

When those numbers are trusted, markets can absorb almost anything—higher inflation, recessionary cycles, even geopolitical shocks.

Investors may disagree on outcomes, but they operate within a shared framework of reality.

However, when the numbers themselves become suspect, that framework collapses.

Without a trusted reference point, markets lose their anchor. Volatility becomes reflexive rather than rational. Risk premiums rise not because fundamentals worsen, but because confidence evaporates.

The Question That Now Hangs Over Markets

According to Professor Litman, the  true  risk is not that economic data will occasionally be revised or corrected—that has always been part of the process.

The risk is that investors stop believing the data reflects reality at all.

Once that threshold is crossed, rebuilding credibility becomes exponentially harder.

Every release is second-guessed.

Every revision fuels suspicion.

Every policy decision is interpreted through a lens of doubt.

… and history suggests that when trust breaks, the consequences extend far beyond markets—reshaping institutions, governance, and the global financial order itself.

As Professor Litman frames it, the issue facing investors today is no longer just what the numbers say; it’s whether anyone  believes  them.

In an environment where belief is no longer guaranteed, navigating markets may require a fundamentally new way of assessing risk.

Hope you’ve found this week’s insights interesting and helpful.

Stay tuned for next Wednesday’s The Independent Investor!

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Learn more about  why corporate America is borrowing again  in next week’s article!