Is it possible to over-analyse a market? What is the benefit of dissecting every nuance of every flutter? I ask because the number of man-hours consumed in watching, interpreting and (let’s be honest) guessing what the shape of the forward yield curves in the major economies of this world are going to be is staggeringly, STAGGERINGLY large. And to what use?
The Fed signalled over a year ago that the taps were going to be slowly turned off when it came to QE and since that point the extrapolationistas have been waving their rulers or, in the case of yield curve analysts, their bendy rulers and prognosticating in ways that at first appear to be ones of remarkable accuracy, but soon resemble spurious accuracy and finally become absurd inaccuracy.
The same process is reflected in the trades that are discussed, spurred on by the apparent unwritten rule in finance that the more complex your trade structure the cleverer you must be. A whiff of a word from an official source and rather than buying or selling a basic it’s a complex leg structure of buying barbells, butterflies, condors, seagulls and any other flying creature that you can use to show your prowess at trade structuring in order to climb up the Candy Crush like levels of peer recognition to reach the accolade of 7th dan, black belt yield curve guru.
The level of gravitas with which complex curve structures are discussed, all argued and tweaked to the nth level of basis point precision, is in most cases farcical as the next word from an official normally creates a blast of noise so great, the gossamer tuned trade is atomised. At which point the original complexity and analysis can be seen to have been as worthwhile as old men in a bar discussing their betting 4way-forecasters on the times the first goals are going to be scored in the 2022 World Cup quarterfinals.
A nice platform on which to display fancy analytical plumage but less useful than a dead duck (you can eat a dead duck).
Post script -
I have just read Mark Dow's post 'Of Trends, Yields and Metals' which is a great read and sort of argues the same, but by stressing the importance of the large trend rather than my argument against the value of spurious accuracy in the micro.
8th Oct - update
The actions of the markets today in response to the Fed minutes is surely the strongest evidence to support the above postulation.
15th Oct - update
I call on today as the key witness in the case against the man-hours wasted in over analysing the Fed. Today's carnage in rates markets have been the biggest and most painful in years. And the Fed didn't say a word. Today wasn't just noise, it was exploding ear drums.