Listen To The Fed, Not Professional Forecasters

Published on: 03/28/2023

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo discuss how difficult it is to use interest rates to predict the future of stock markets.





Welcome to another edition of Chart Talk.  I’m Tony Ogorek.  I’m here with Portfolio Manager, Jeff Viksjo.  And you know Jeff, as professional investors, many of the big outfits they have forecasters. People that look at those brand names of Morgan Stanley, they look at UBS, they look at Merrill, they look at Goldman-Sachs and they say, ‘I’ve got to listen to these people because, surely, they know more than I do, or they know more than the people I speak with’. But you know Jeff, sometimes, it ain’t necessarily so.

Let’s take a look at a couple charts.  Here’s our first one.  Looking at this, interest rates going back to 1926, you would think it’s fairly easy to make an interest rate call, right?



Yea, in hindsight, you know, we’re looking at interest rates since 1926, it looks like you only had to get, really, one thing right. Which is when it was going to turn south again. So, rates peaked in 1980, you got that call right, it looks like it was pretty easy.



Yea, in hindsight it always does looks easy. Now, let’s take a look at what actually happened.  And here’s our second chart.  And that greyed out area is a recession.  Now, the dark line, Jeff, is the path of interest rates.  And these little squiggly lines, is what most of the professional forecasters were forecasting for the direction of interest rates.  And here, really an interesting story, isn’t it?



Yea, so if the dotted line is lying on top of the green line, it basically means they got it right.  And Tony, I’m looking at this since 2003, and I don’t see that, ever.  I see, almost consistently, forecasters thought rates would be higher than they were.  And I think it’s really interesting to look at 2018 there, right before the COVID drop in rates. You can see they were very late to understand how much rates would fall.  They were consistently above.  And then at the bottom there, in 2020, that’s where they were below.  They didn’t see the rise in rates.  Because it’s very, very difficult, Tony, to predict where interest rates are going.



Yea, so Jeff, this doesn’t get a lot of currency with investors.  You know, they think, they all see the stock market and they think, ‘well we’re looking for stock market prognostications’.  And I’ll tell ya, betting on interest rates; the direction of interest rates, you can lose a lot of money if you get those calls wrong.  And what we’ll see is that professional investors don’t have anymore insight into what the future’s going to be like than you or I, or any of our clients.  So, really interesting when you look at the history of what these calls are, and it surely doesn’t reflect an accurate view of what the future was going to be like.

So, thanks Jeff.  And thank you for watching this latest edition of Chart Talk.




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