Municipal Bond Forum
Forecasting in a fog
Q
I thought you might be interested in a Bloomberg article, “U.S. Bond Forecasters, Wrong on Yields in 2004, Blow It Again.” The best thing about this article is that these guys take no responsibility for their bad calls. They say that they will be proven right. Most of them have called for higher rates since Oct. 31, 2001, by telling people to stay short. They have cost investors billions of dollars. They just don’t get it.
A
James A. Klotz responds:
I did see the article and your point is well taken: Individual investors who followed these prognostications and stayed on the sidelines suffered. And yes, the soothsayers spout their predictions with impunity. It is sad and costly.
But not everyone stayed on the sidelines for the past four years. At FMSbonds, we have assisted thousands of new investors, enabling them to take advantage of longer-term bonds and maximize their income and reinvestable cash flow.
As we have pointed out many times over the past four years, there is indeed a cost of waiting. It is simply impossible to time the market and extremely unwise to try. And if there is any question as to the reliability of these forecasts, the comment by one oracle – that he’s comfortable using a dartboard to come up with his forecasts – should put those doubts to rest.
I continue to urge parents to encourage their children to become economists, which is the only profession in which they can be paid handsomely without having to be right.
(As a side note: I no longer receive nasty e-mails questioning my intelligence for not recommending laddering or remaining in cash until interest rates rise. But alas, that reprieve may be temporary.)
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