Tuesday, March 27, 2007

The Yield Curve, Bears, and Objectivity

Mark Hulbert of Marketwatch argues that bears are more vocal than bulls:
The not-inverted yield curve

ANNANDALE, Va. (MarketWatch) -- I would be a rich man if I had a dollar for every adviser who, over the past 15 months or so, argued that a recession was imminent because the yield curve had become inverted.

I'd be a very poor man if my wealth were dependent on getting a dollar for every one of those advisers who, since late last week, has even acknowledged that the yield curve has become positive again - much less conceded that, by the logic of their previous argument, a recession has become less likely.

It just goes to show how difficult it is to be truly objective in this business.
This column puzzles me. First of all, I have to disagree with the premise of this piece; when the yield differential is measured as the difference between the 10-year yield and the 3- or 6-month yield, which is much more common than the 2-year yield comparison that Hulbert uses, the yield curve is still firmly inverted. The following picture illustrates.

But on a more fundamental level, I'm puzzled by the implicit accusation of some sort of bias (or at least difficulty being "objective") by economic observers and commentators.

Let me be clear: I'm not puzzled by the possibility that they could be biased, but rather, I'm puzzled by the notion that economic commentators would be systematically bearish in their bias. Some economists are notoriously bearish, and others bullish. Is the right term for that a "lack of objectivity"?

To me, a bias implies some sort of hidden agenda that underlies one's overt actions or statements, leading to an uneven representation of the truth. But I'm not sure what a bearish or bullish economist's hidden agenda might be. (I'm not saying that it's impossible that there might be one - just that I can't think of what it is.)

So I think a bearish "world-view" might be a better description than a "lack of objectivity". After all, is one failing to be objective when one sees the glass as half-full? Call me puzzled.

No comments:

Post a Comment