My time in finance has led me to believe that traders and investors are far more prone to groupthink than they’re willing to admit to. “Hedge fund manager predicted inflation after QE and was wrong” is very low on my list of things that surprise me.
Yeah, they have an incentive to appear overconfident since their job is also largely a sales role, in order to prevent redemptions and encourage new fund inflows.
They are still the number one domain experts insofar as Central Bank policy goes, as that's one of their primary preoccupations. Perhaps aside from economists that actually work at the Fed.
They’re not the number one domain experts though. As you said, those who work at the Fed are probably number one. I’d put academic economists at number two. That leaves the relevant traders/hedge fund managers in third at best.
Fundamentally, trading an instrument doesn’t necessarily make you an expert in all aspects of it, only in those aspects related to making a buck on it. Exactly how much a trader ends up knowing seems to vary. While a bond trader might understand how bonds work very well, chances are that a grain trader would make a pretty bad farmer.
It seems in passing that fixed income traders have a moderate level of expertise on how government debt works, with their long, loud, and so far wrong predictions about catastrophic inflation undermining any claim they have towards total expertise.
I put them above most academic economists. Economics is a broad discipline and even macro specialists are most often not experts on monetary policy. Their research focus is likely distinct and tangential, and their understanding of central banks is theoretical and abstract with little understanding of the actual goings-on in the real Fed right now(1). Fixed income managers are experts on it since they need to understand the yield curve, to which Central Bank policy is one of the most important variables. Most importantly they are practical experts and know the minutae of the actual decision making variables being considered right now by the current Fed.
Yes there's some fixed income trades (in the short term quant space) that don't require such expertise, that's Taleb's Green Lumber problem, but that doesn't apply to PIMCO. Especially if we're talking about the lead at PIMCO. It's harder to get that job than it is to be a staff economist even at the Fed, so I would put him as close to number one in terms of expertise in understanding and especially predicting monetary policy.
(1) I've published papers with academic economists. I have to say, they really don't know the practical details of central bank policymaking, and nor do they have to in order to publish more papers. That's not their job.
The Robinhood impact on the US market makes me incredibly nervous, as it should others. That Cathie Wood can mention CRISPR in a YouTube video and gene therapy stocks rocket that same afternoon should be a fairly sizeable red flag I would have thought.
Yeah, especially when a very common scenario is fund manager predicts the same thing every day for twenty years, is right once per market cycle, attracts attention and profits when his broken clock is correct, and is largely ignored the rest of the time.
