RateWatch Midday Update

This isn’t a big deal, because markets aren’t moving much, but it
illustrates one of the problems with market forecasting. The Philly
Fed number came in below estimates, but apparently the market estimates
weren’t real, because, and I quote from CNBC, “I think we all knew the
estimates were going to be wrong.”

What the heck is that about? If your estimates really aren’t your estimates, then what are they?

Related to this is the upcoming trial of two Bear Stearns hedge fund
managers, arrested today, that are accused of bilking their clients out
of millions by telling them that the subprime market wasn’t going to
collapse when they really thought it was. The prosecution’s evidence
for this is a couple of emails back and forth where these guys say
stuff like “man, this looks bad”. Well, it DID look bad. Turns out it
WAS bad. But I myself was saying as recently as February that there
were signs of recovery in credit markets. Last year I was saying that
any broker that made it to the first of 2008 was going to be fine, as
things began to turn around. Nobody knew the markets were going to be
this bad this long.

I want to underscore the difficulties here. Nobody actually knows what
the market is going to do. Nobody. Not Warren Buffet, not George
Soros, nobody. People guess wrong and lose money. It happens all the
time. Advisors screw up and cost their clients. I suppose that some
of them do it on purpose, but why, exactly, would you? Where is the
incentive to destroy your portfolio and lose your clients millions?
This seriously smacks of scapegoating, looking for someone on whom to
take out general frustrations. Maybe there’s real malfeasance here,
but boy, I’m having trouble seeing it.

My father has a saying that I really like: if incompetence is the
possible explanation for some action, it’s a waste of time looking for
another one.

Bonds are down.

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