Wall Street Rates Forecasts Paint Starkly Divergent Pictures
It was Morgan Stanley's Matthew Hornbach who once said, "history has shown consensus estimates for Treasury yields are usually wrong." "Everyone," he wrote, in a 2018 note, "understands that accurate point forecasts rarely occur."
I've always liked that refreshingly candid assessment, particularly coming from someone whose job it is to forecast yields. It reminds me of Will Ferrell's Saturday Night Live audition, during which, while playing a suburban dad at a cookout, he says, "Golf's a funny
Not exactly a propos of the post, but not wholly non propos either . . .
Talking with various cronys, not wizened nanogenrians but still guys with 30, 35 years in the markets under their Sansabelts, and we mostly agree that this has been the most confusing year or so.
The Tech Bubble/Bust market was appalling, but directional and sustained. It went one way for years and steamrolled everyone who didn’t believe, then reversed for years and extincted everyone who believed.
The GFC market was predictable even if the scope and scale of the reckoning was so much worse than most predicted. You weren’t surprised that the stock went down, just that it went down to Great Depression valuations.
The Pandemic market was not too terribly hard to figure out at first. Virus hit, stocks plunged, then you saw the Fed unholstering its cannon and did some quick research on SARS antivirals, it was pretty clear what to do. Then when valuations were stratospheric and inflation heading for orbit, and you saw the Fed unholstering its other cannon, it was again pretty clear.
Now valuations, inflation, rates, growth, earnings, spreads, etc are all broadly in the realm of normal, or headed there, using a multi-decade sense of normality.
You’d think “normalizing” would mean “easier to figure out”, but I guess it’s easier to figure out things that are at one extreme or the other.
Of course some things are not altogether “normal”. Like domestic politics, geopolitical risk, and the Federal deficit. But those are the things that most investors have been trained to ignore, as their impact on markets is usually fleeting. Remember when the WTC was destroyed, when the US launched its biggest war since Vietnam, when Trump swept Hilary; sure. Remember the major lasting impacts on the markets; um, not really. Professional investors know better than to be distracted by such.
Sigh. 2023 has been a very interesting year, but when the most successful “strategist” is the one making couple-week tactical calls on reversals from extreme levels on allocation, trends, and greeks, you know it hasn’t been an easy year.
Even allowing that forecasters have to forecast, in light of the rarity of accurate point estimates combined with the severe limitations of wildly divergent bull v bear scenarios “commensurate with the wide range of possibilities,” perhaps these analysts should heed Mr. Ferrell and get off the goddamn shed.