Forecasting Mishaps

If you need another recent example why one should NOT use forecasting to influence an investment decision, look no further than yesterday's front page of the Wall Street Journal.

"Fed-funds futures, which investors use to bet on the direction of Fed policy, on Wednesday (1/2) showed a 91% probability that the central bank's policy makers will finish the year with interest rates at or below their current level.  That is a reversal from early November, when futures prices indicated a 90% probability that rates would end 2019 higher than they are now.  Futures even show a small chance that rates will fall this year - raising the possibility of a market shock or economic downturn by year's end."

Imagine dumping all high-quality government bonds a few months ago in anticipating of rising interest rates (thus, lower bond prices) only to then have those bonds turn out to be the single best thing to have in your portfolio in recent weeks? Turns out, they're still a pretty good hedge when things get hard.

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Source: WSJ "Investors Are Betting That the Fed Hits Pause on Rate Hikes"