As is usual in the days preceding a Federal Reserve rate-setting meeting, analysts are busy trying to double-guess what changes policymakers’ are likely to make to their monetary policy stance. This is no simple task as the month-to-month change in recent years has sometimes been limited to a single adjective in the post-meeting statement. This time around though, possibly because the central bank surprised at the last meeting with an announcement of open-ended monthly purchases of $40bn of mortgage-backed securities, Fed-watchers are far more ambitious.
About two weeks ago, an article in the Wall Street Journal aroused market interest by suggesting a new variant of quantitative easing – a sterilised QE3, if you will. Yesterday we learned of the error in that thinking, at least according to renowned interest rate hawk and president of the Dallas Fed, Richard Fisher. Although currently not a voting member in the FOMC rotation, Mr Fisher isn’t supporting any further easing programs. In contrast, the NY Fed’s William Dudley recently insisted that, although the U.S. economy has somewhat stabilised, a self-sustaining recovery is still far off.
Buy recommendations are easy; sell recommendations, less so. Quite how reluctant analysts are to give S&P 500 companies the thumbs-down was recently revealed in a Bloomberg study of 1,890 analysts. Only 5.1 percent of all ratings in the period January 2009 to April 2011 were ‘sells’. The explanation, according to the authors, was the stock market’s long-term tendency to rise: losers are simply much harder to identify.
Had someone informed Tokyo’s residents on the day of the earthquake and tsunami that, in less than two-weeks, their city would be engulfed in a cloud of fallout, their water-treatment plants would be compromised, and their food supplies would soon be contaminated by radioactivity, it’s possible that we would have witnessed the largest mass exodus in the history of mankind. Yet, although all of these things have subsequently taken place, there has been no evidence of any mass departure.
Past academic research has investigated the forecasting ability of financial market analysts, but few have been as comprehensive as a new study led by Dr Markus Spiwoks; it covers some ten years of interest rate forecasts in 12 developed economies, almost 160,000 forecasts in total. The results are not flattering.
To be honest, I can’t stand Dr No (name changed). If there is one economist whose work I find overreaching, underwhelming and overrated, it is his. Despite this, my fellow blogger Unwonted Candour’s recent blog about Niall Ferguson prompted me to check the popularity or otherwise of Dr No in Twitter.
The expression, ‘the wrong kind of snow’ is guaranteed to raise a chuckle in Britain. It was the explanation given by a railway official some years ago when a snow-clearing machine proved unable to clear the tracks for trains to run after a modest episode of snow. In the meantime, it has come to signify the apparent inability of almost anything in the UK to run correctly once it has been dusted with a few snowflakes.
You are asked for a stock market forecast. For the sake of argument: where will the Dow be at the year-end? You are bullish, but you know the market hasn’t gone anywhere this year, so you give a point that is higher than the current 10,400, but not so high that the prediction is perceived as unattainable within the time window: 11,500. It sounds plausible, but you realise it isn’t serious. I mean, how on earth can you know?
The results of the EU stress tests of the union’s largest banks are not even out yet and they already being criticised by investors. Many complain the test may not be sufficiently demanding and that the regulator, the CEBS, has not been sufficiently explicit about the criteria. Of particular interest for investors are the markdowns being applied to the sovereign debt of the eurozone’s most embattled states. They clearly believe that this will be the source of any future stress.
A strange feeling came across me as I pressed the ‘send’ button on yesterday’s post. Without casting any aspersions on the forecasting abilities of octopus Psychic Paul, the post discussed how we humans tend to mistake pure chance for skill after very short series of outcomes. This meant that a media circus was guaranteed for the sinuous soothsayer whether his results were due to luck or skill.
The soccer World Cup tournament has made Paul, an octopus from the Germany city of Oberhausen, an international star. Already hailed a forecasting wonder in 2008 when he predicted with 80 percent accuracy the outcome of the national team’s matches during the European Championships, the gelatinous genius has correctly called the result of all five of Germany’s World Cup contests.