The past few days got me thinking.  I've been reading some articles and even some analysis from respected sources that I feel have missed the mark on what matters to markets right now.  After my call for NFP to be glossed over last week as another economic report that didn't matter and for FOMC Minutes this week to be a chance for the Fed to explain how dovish they actually were, I've gotten a few pats on the back from members of the MBS Live community.  That's fine and appreciated, as long as the back-patting is akin to saying "good guess Matt!"  Because that's all that's going on here or anywhere else in financial markets.

Unfortunately, there's this mystique surrounding market analysis where those of us who don't work in the institutional investment space tend to believe there's some "inside edge" and that we might be able to find it--or even some of it--if we can only talk to the right person, read the right analysis, subscribe to right website, or get forwarded the right secret email.

The problem is "that secret email" is no secret. Everyone's read it, or read color commentary informed by it directly or otherwise. Moreover, the author(s) might be completely wrong, even if they sound convinced! Depending on the source, it could even be an attempt to 'shoot the moon' by making bold predictions that can later be used for marketing purposes.  It could even be an attempt to grind an ax to advance a trading position!  That happens A LOT!

Meanwhile, the other 50 percent (or more?!) of the predictions will be glossed over and never mentioned again. That's how mediocre long-term predictive accuracy takes on a mystique far above its pay grade! In truth, this is a successful tactic, and in terms of journalistic appeal, it is unfortunately MORE INTERESTING than simply being objective all the time (i.e. "it's better to speak loudly and potentially inaccurately than to speak so softly no one can hear you").

The problem--apart from questionable business ethics--is that it's dangerous when the audience isn't all on the same page with the risks. 

Trust me on this.  I've watched people have this reaction to my analysis over the years and my stomach turns every time. I don't want them thinking I have a crystal ball, because that's when things gets dangerous. NO ONE is right all the time, and VERY FEW are right more than half the time when they're predicting where rates will go (if they were, they wouldn't be telling you on the internet, let alone even need to be working any more). 

Even if you had 51% accuracy you'd still be doing your clients a disservice about half the time.  This is why we gutflop instead of trying to predict the future.  Carefully considering multiple possibilities and setting up a series of personal if/then rules based on potential outcomes is MUCH more difficult and much more beneficial to stakeholders than merely "making a call" and reminding people when they pan out.

But what if you were as well-informed and as in-the-loop as the traders who are actually moving markets?  Fact is, traders are people, and they tend to be EXTREMELY focused on their section of the marketplace despite the massive interconnectedness with other markets.   Unless you have the right macro perspective or micro insights for the unique situations that are moving markets, it doesn't matter if you're the king of all traders.  Your average mortgage broker knew more about the gathering storm in 2007 than your average mortgage trader who in turn knew SIGNIFICANTLY more than the average Treasury trader who in turn made the average stock market trader look wholly uninformed.

That's why the world's smartest MBS trader might be the worst person to ask about where rates are going to go. While they may have tons of insight as to how mortgages will perform against the rest of the market, they might have no clue where the rest of the market is going. Truth be told, the world's best MBS trader can be amazing at their job without having to know any of that other stuff! But that does the average loan officer no good if forces beyond the mortgage market are having a significant effect on rates in general on any given day, and they usually are.

In fact, markets are so big, and there are so many potential sources of market movement that even if the biggest players in the bond market colluded to move rates in a certain direction, there's no guarantee they could do it in this day and age. No one has complete control and no one has perfect insight that would allow them to put you on better than 50/50 footing when it comes to a single variable consideration like mortgage rate movement.

If you wanted to hedge your lock decisions with other financial securities that were likely to perform well when mortgages performed poorly, but not fare equally as poorly when mortgages fared well, you could probably come out ahead, and open a successful hedge fund. Until that hedge fund opens for business and allows small enough investments to hedge individual mortgage costs, this is the most sage-like advice I have: there are no sages.