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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: Forecasting the Fed's Next Move Date: 5/30/2002 1:04 PM
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My expectation is that the Fed will raise rates at some point in the not too distant future (6 months, 1 year, 2 years), but clearly not now. I just found using futures to predict a 12% chance of an increase to be silly.

Loki,

Amazing, isn't it, the diversity of people? I think using futures to predict rates is a wonderful tool. You don't and prefer your own tools and judgment.

To me, 12% is a meaningful number. It is one chance out of eight, that I interpret to mean that the likelihood is slim, but not impossible. Just because indicators often give unclear or even wrong results doesn't mean they can't/shouldn't be used, because markets are nothing if not murky. In fact, I'd go so far as to say of any single indicator that if it is highly reliable, it is also nearly worthless. Information that is certain offers little opportunity for profit. CD rates are clear. That's part of the reason why they are low compared to other interest rate vehicles, say a variable rate alternative. Instead, investing/trading, one looks to the weight of the evidence, always cognisant everything has flaws, that there is no perfect investment.

In the case of this indicator, it's when chances get to the 40-60% range that one sharpens one's pencil, pulls out the charts, goes digging through the evidence in an attempt either to profit from the move or to protect oneself from it. 12%? One just notes it, compares it to past readings in similar conditions, and makes a plan, which might be to continue as before, awaiting further evidence.

Yeah, the prediction game is shadow boxing a lot of the time, but it builds skills that serve one well when decisions have to be made quickly in times of uncertainty, to capture the money to be made from betting correctly. Short time frame or long time frame, passive or active investor, it's all gambling. The various labels just describe the kind of gambler each of us chooses to be.

Charlie
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