Yesterday I wrote about sources that simply dropped an indicator when it no longer fit the pre-conceived thesis. Sometimes it is even more blatant dramatic.
Some sources simply engage in fancy footwork, reversing their rationale, confident that their uncritical followers will not notice or care.
TODAY
I always read MarketWatch. In the midst of many current warnings about the Fed being behind the curve in the face of incipient wage inflation, I was confronted with the following headline:
The market-based PCE, says the Commerce Department's Bureau of Economic Analysis, is "based on market transactions for which there are corresponding price measures." That means, the Bureau adds, that the market-based PCE "provides a measure of the prices paid by persons for domestic purchases of goods and services."
Some of us thought that was the definition of inflation. The market-based PCE, observes Albert Edwards, chief global strategist at SG Securities, "excludes prices which the statisticians have to invent!"
Edwards, in a new research note, points out that this purely fact-based inflation indicator is undershooting the better known ones, such as the regular PCE and the CPI. And, he adds, it is undershooting by more and more.
Albert Edwards? Really?
Wasn't he the one who saw hyperinflation coming? Let's check the Wayback machine!!
April, 2013
The message was quite different last year….
ALBERT EDWARDS: Stocks Will Crash, Hyperinflation Will Come, And Gold Will Go Above $10,000
Joe Weisenthal reported the facts, but his skepticism was clear.
The Fact: "We still forecast 450 S&P, sub-1% US 10y yields, and gold above $10,000."
And also, "We have written previously, quoting Marc Faber, that "The Fed Will Destroy the World" through their money printing. Rapid inflation surely beckons."
Joe's comment: So yeah, it goes on from there. Lots of doom. This is why everyone loves Albert Edwards.
Investment Conclusion
It is so popular to criticize the Fed and to predict doom that the uncritical audience laps it up. Few readers track the prior failed predictions.
Meanwhile, formerly bearish analysts who dare to change their views come under criticism. Please contrast this example with the case of David Rosenberg, who caught flack for paying attention to changing facts. Barry Ritholtz had a great discussion here.
When I read investment commentary involving the Fed, I see a rather clear distinction among three camps:
- Some disliked Fed policy from the start. They disagreed, predicted that it would not work, and disparaged the FOMC both individual and collectively. Their forecasts were wrong. If you followed them, you lost money.
- Some liked Fed policy. They were optimistic about the consequences and (perhaps) exaggerated the impact. They praised the Fed leadership.
- The pragmatists. They accepted the reality of who was in power, not "fighting the Fed." This has been the most profitable perspective for investors – accepting the policy decisions and the likely outcomes.
The Fed has become a lightning rod for economic debate. Whether you were zapped or protected depended greatly on your skill at dodging confirmation bias -- consuming information wisely and rejecting pundits who were locked into their paying audience.