100% of Economists Think Yields Will Rise Within Six Months
Jim Bianco, of Bianco Research, points out in a market comment Tuesday that a survey of 67 economists this month shows every single one of them expects the 10-year Treasury yield to rise in the next six months.
Six months later...
October 22, 2014
Yes, 100% of economists were dead wrong about yields
But the unanimity of the rising rate forecasts in the spring was a stark reminder of how one-sided market views can become. It also teaches us that economists can be universally wrong.
Looking forward, can you guess in which direction the most recent Bloomberg survey of economists shows yields are headed?
Up? I don't think I'm guessing though. I'm basing it on years of accumulated "rising interest rate" theories.
These kinds of universal blunders happen in every academic profession though. Take physics for example.
A ball is hit up into the air. Ask 67 physicists which direction the ball will go. 67 of them will say up. See? Physicists are no different from economists.
Okay, there is one difference. Physicists have been known to change their minds. Once the ball starts to reach the peak, 67 of them will change their answers to more closely match the path of a parabola. You cannot trust physicists. First you get an easy answer and then they start spouting parabolic math! Keep it simple. That's what I say!
Okay, there is another difference. It is based on the exact wording of the question. Ask 67 physicists which direction the ball will eventually go. 67 of them will say down. 67 of them would also add that the ball will eventually come to a complete stop. If pressed further, 67 of them will say that the ball is only at rest relative to the ground. The earth spins on its axis. It moves around the sun. The sun moves around the Milky Way. If pressed even further, 67 of them will say that something will eventually move the ball yet again. Some force will eventually act on it. It could be a child's hand. It could be the weather. It could be an earthquake. It could be... Sometimes it is tough to get physicists to stop. On and on they go with their crazy classical laws of motion!
Okay, there is yet another difference. 67 physicists could make 67 charts showing their predictions of where the ball will be at any given time. 67 of these charts would look nearly identical, and of the 67 physicists, on average roughly 0 of them would be dead wrong (in hindsight).
Other than that, I absolutely trust the predictions and opinions of economists though. They are dead right when they need to be (when looking at historical data and using it to predict historical trends). That is definitely enough to earn them a nice paycheck. So what if they are not always dead right when we need them to be (when looking at historical data and using it to predict future trends)?
No big deal! It's not like there are any economists on the Federal Reserve Board! It's not like they are using sagely wisdom to set interest rates over the long-term! They are using cold hard science!
October 30, 2014
Fed Bets on Job Gains, Unshaken by Global Market Turmoil
Federal Reserve officials dismissed recent turmoil in global financial markets, and focused instead on “solid” employment gains that will keep them on a path toward an interest-rate increase next year.
Fed gambles on job gains? Recent turmoil dismissed as chance? Welcome to the "Mystic Places" economy!