Phone: 609 620-1770
The ‘Experts’ On Rising Interest Rates
Last June the yield on the 10-Year Treasury note was at 3.52%. Many consider this the ‘benchmark’ yield for the bond market and many mortgage rates are tied to this benchmark. The Wall Street Journal surveyed fifty economic forecasters in June of 2009 and 43 of them expected the yield to move higher over the next 12 months. The average yield of their predictions was 4.13% and seven of these ‘experts’ predicted the yield would go above 5%.
How did these forecasters do? On June 30, 2010 the yield on the 10-year Treasury note stood at 2.95%. What accounts for this incredible discrepancy? Are these experts really experts?
If markets are working properly they accurately reflect expectations for future business conditions. As new information becomes available, investors will change their expectations about the future and the market will accurately reflect those changed expectations as they occur. Predicting how investors will react to unknown future information is impossible.
So, the next time you see some ‘expert’ on the news or in an article make a prediction about future interest rates, ask yourself whether or not they provided you with a record of their past predictions. If they fail to provide that information you can safely ignore any of their ‘predictions’ and you can dismiss these so-called economic ‘experts’ as nothing more than a bunch of psychics. With all apologies to psychics of course.
Yahoo! Finance www.yahoo.com accessed July 7, 2010. Wall Street
Journal Forecasting Survey www.wsj.com accessed July 7, 2010. Prabha Natarajan and Matt Phillips. “Stocks Drop; So Do Mortgage Rates” Wall Street Journal, June 25, 2010.
Mark Gongloff. “Two Treasury Forecasts: a Grand Canyon-Sized Gap” Wall Street Journal, April 10, 2010.
Tom Petruno. “Gold Hits Record as Investors Seek Haven” Los Angeles Times, June 9, 2010.