Monday, July 29, 2013

Foolish Fed Forecaster Rankings

The Wall Street Journal recently published a piece Ranking Fed Forecasters (you can read their methodology following that link). Let's see if you notice anything "convenient" about the sample period.

Does this "analysis" smell of sampling period bias to anyone else? June 2009 - Dec 2012? Who really cares about someones accuracy during exactly HALF a market cycle? If you were analyzing investment managers using this same type of sampling period bias you would be many times more likely to find managers that would under-perform going forward not outperform. I think the "analysis" here runs the same risk.

Unfortunately, this is being used by the WSJ to support the case for Janet Yellen. And gullible audiences everywhere are likely taking it hook, line and sinker.

What would it look like if they went back further? I'm not sure, but I do know that Janet Yellen was just as foolish as most everyone else currently at the Fed as demonstrated in this article from Feb 21, 2007 
"Janet Yellen, president of the Federal Reserve Bank of San Francisco, is sleeping better than she was a year ago, thanks to signs of stabilization in the housing market."
 "Last year, when it looked like the housing downturn could turn into a bust that risked tipping the broader economy into recession, Yellen said she found it more difficult to sleep."
 "But Yellen said she has noted recent signs of stabilization in the housing market and slim evidence that housing's slowdown has spilled into other parts of the economy."
Yes, in 2006 she had some worries about housing but apparently those went away after housing prices fell a whopping 1.5% before "stabilizing" in early 2007.

And how about the next year? What did she think then? This is from Reuters Feb 8, 2008

"San Francisco Federal Reserve Bank President Janet Yellen said on Thursday that the United States faces several quarters of "anemic" economic growth but will probably not fall into an outright recession."
Yes, that is in February 2008......2 months after the recession already started. And according to the WSJ that is the best forecaster of all Fed members. We have so much to look forward to........

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