At this center we do things a tad differently. We are only concerned with FI price change ahead. Thus, we don’t really care if we are right, just less wrong then everyone else.
Our method is to look at consensus, that which is priced in and scan for any major flaw. We are economists but we don’t think like economists. Thus, detecting this flaw is more tagged to understanding crowd behavior than it is analytics. Economists make up a crowd; they behave as such. They are prone to sometimes exaggerate an error as can happen with other types of incestuous behavior.
Example: In the most recent case, these observers, partially swayed by headlines and victimized by flawed models, missed consumer resiliency in the US and to some extent in the UK.
There were others, but this is a primary reason that we urged clients to own both term structures, the US from Oct/11 and the UK from Nov/9.
Depending how our insight was worked (and we are reminded by a colleague in the UK that, “..once the strategy ..is set,” one needs to isolate “..the best bonds on the curve, whatever is rich-cheap and sometimes the best bonds are not always the benchmarks.”) we now have moderate profits on the US set and more-than-moderate profits on the UK set.
Leave most of all of these positions in place.
Robert Craven
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