ECB surprises analysts and CUTS interest rate to 0.25%

MFW_ASAP

grizzly1911 wrote: »

Had you have answered "yes I have a VI" I doubt I would have followed it up either.:cool:

One wonders why you commented at all if it was going nowhere. As I said, this often happens on here where people have digs instead of discussions. No harm done.

purch

Generali wrote: »

Brian Clough knew nothing about football because be never won the pools.

In the spirit of this forum the only thing to say is......

How do you know he didn't :eek:

Generali

wotsthat wrote: »

Journalists and news outlets think they're fortune tellers.

I don't know what an analyst really does. I'd assume they're better qualified than a 'commentator' but apart from that don't see why they're the arbiters used to determine if news is good or bad.

Let's take an equity analyst working for a broker.

Using financial statements from annual reports, industry knowledge and visits to see the company (s)he will put together some sort of financial model of the company. That model might include things like sensitivity to interest rate changes (e.g. Is their debt at fixed or floating interest rates), what happens as consumers but more or less in India or Germany, what happens if steel prices rise.

They will then use in-house economic forecasters to predict what might happen to those inputs and use that to predict an outcome for the company.

Their research is circulated to clients but also given to companies like Bloomberg. Bloomie will then publish a weighted average of these forecasts with more accurate analysts given more weight in the average than less accurate ones. That is then published as the concensus figure.

When a company releases its results they are compared to this consensus number and declared to be Good or Bad.

As you can imagine this is not an exact science as there are so many moving parts of which an analyst has opaque knowledge of at best. Who can say what the next Apple phone will be like? It might give users electric shocks or perhaps Samsung will invent a new phone so amazing as to render all others obsolete.

For a macro analyst it's even worse as they're trying to predict the combined actions of billions of people, distilled down into a single and imperfect metric like GDP or CPI.

I find it interesting that so many on here snort, 'these highly paid analysts couldn't even do what I could'. Actually nobody on here predicted an ECB rate cut this month, pretty much, either from their armchair or their desk.

Thrugelmir

Generali wrote: »

Actually nobody on here predicted an ECB rate cut this month, pretty much, either from their armchair or their desk.

Interestingly enough prior to the announcement some were. The Eurozone's low inflation rate and high unemployment rate are causing concerns. The point at issue was would the ECB opt for this course of action. Or opt for giving banks negative rates of interest for depositing money overnight with the ECB. The real issue may be the weakness of many European banks, which are well behind the curve of their US and UK counterparts.

wotsthat

Generali wrote: »

I find it interesting that so many on here snort, 'these highly paid analysts couldn't even do what I could'. Actually nobody on here predicted an ECB rate cut this month, pretty much, either from their armchair or their desk.

Yes but there are some on here that point out that despite QE deflation risks haven't gone away here or in the Eurozone.

Bloomberg spent a great deal of airtime on the chances of a rate cut due to deflation risks in the Eurozone. This must be what makes them commentators - they chose to focus on the 3/70 analysts forecasting a rate cut. 'nothing's going to change' doesn't make for good TV.

Loughton_Monkey

Generali wrote: »

Let's take an equity analyst working for a broker.

Using financial statements from annual reports, industry knowledge and visits to see the company (s)he will put together some sort of financial model of the company. That model might include things like sensitivity to interest rate changes (e.g. Is their debt at fixed or floating interest rates), what happens as consumers but more or less in India or Germany, what happens if steel prices rise.

They will then use in-house economic forecasters to predict what might happen to those inputs and use that to predict an outcome for the company..

In contrast, I would say:

"Let's take a weather forecaster working for the Met Office.

Using 30 years of historic Data, the latest satellites, and huge mainframe computers, Michael Fish will put together some sort of dynamic model of the cloud system. That model might include things like wind directions, satellite photos (i.e. is the cloud floating at 30,000 ft or only 15,000), and what happens if the temperature over Cornwall rises, and what happens if a "woman" phones and states that she heard a hurricane was coming.

They will then use in-house forecasters to predict what might happen to those inputs and use that to predict an outcome for the UK weather that doesn't include a huge storm...."

Come back Michael Fish. All is forgiven. I have a job for you with Bloomberg.

Generali

Loughton_Monkey wrote: »

In contrast, I would say:

"Let's take a weather forecaster working for the Met Office.

Using 30 years of historic Data, the latest satellites, and huge mainframe computers, Michael Fish will put together some sort of dynamic model of the cloud system. That model might include things like wind directions, satellite photos (i.e. is the cloud floating at 30,000 ft or only 15,000), and what happens if the temperature over Cornwall rises, and what happens if a "woman" phones and states that she heard a hurricane was coming.

They will then use in-house forecasters to predict what might happen to those inputs and use that to predict an outcome for the UK weather that doesn't include a huge storm...."

Come back Michael Fish. All is forgiven. I have a job for you with Bloomberg.

I would imagine that the process is very similar only in the markets people then invest money based on possible outcomes.

dryhat

Liam Halligan, in The Telegraph, thinks that this ECB rate drop was the trigger for the recent surge in the price of Bitcoin...

http://www.telegraph.co.uk/finance/comment/liamhalligan/10438565/Dont-laugh-Bitcoin-is-making-a-serious-point.html

(and no, I am not "ramping" just pointing out that Bitcoin is increasingly coming to the attention of the mainstream media as more and more people are beginning to recognise its importance as a new technology and considering its potential role in a new world economy).

Loughton_Monkey

Generali wrote: »

I would imagine that the process is very similar only in the markets people then invest money based on possible outcomes.

They do indeed invest money. But having worked with (and observed closely) large institutional investors for years, I think they use other indicators for their choices, and use the published, glossy, analyst's reports to fill their bins to make them look "busy".

Investment Managers have busy times. They have to spend at least 5 minutes deciding where today's "new" money needs to go (or come from if -ve). Then there may be half an hour of 'serious research' just to make sure they are not missing any obvious trick.

After this, it is a "meeting" with a visiting analyst, stockbroker, or 'friend' followed by an extremely long and liquid lunch.

Then they will return to the desk by 3:30 earliest (well the DOW does heed an hour to settle down doesn't it?) and they can spend the rest of the day (i.e. 30 minutes) either looking at the tickers, or, more likely, the "funnies" on Reuters. Then they go home and watch the kids polish the spanking new bright company BMW with 2,000 miles on the clock which they couldn't possibly drive to work because they'd never pass the breathalyser.

Young Sally in the office will do the daily valuation....

Of course when it comes to OEIC Managed Fund managers, I envisage them to be exactly the same, and hence fully deserving of the 1.75% charge on their £2 billion fund (about £35 million) to recompense themselves. But then, of course, they do have to pay young Sally £25K a year.....

grizzly1911

Loughton_Monkey wrote: »

They do indeed invest money. But having worked with (and observed closely) large institutional investors for years, I think they use other indicators for their choices, and use the published, glossy, analyst's reports to fill their bins to make them look "busy".

Investment Managers have busy times. They have to spend at least 5 minutes deciding where today's "new" money needs to go (or come from if -ve). Then there may be half an hour of 'serious research' just to make sure they are not missing any obvious trick.

After this, it is a "meeting" with a visiting analyst, stockbroker, or 'friend' followed by an extremely long and liquid lunch.

Then they will return to the desk by 3:30 earliest (well the DOW does heed an hour to settle down doesn't it?) and they can spend the rest of the day (i.e. 30 minutes) either looking at the tickers, or, more likely, the "funnies" on Reuters. Then they go home and watch the kids polish the spanking new bright company BMW with 2,000 miles on the clock which they couldn't possibly drive to work because they'd never pass the breathalyser.

Young Sally in the office will do the daily valuation....

Of course when it comes to OEIC Managed Fund managers, I envisage them to be exactly the same, and hence fully deserving of the 1.75% charge on their £2 billion fund (about £35 million) to recompense themselves. But then, of course, they do have to pay young Sally £25K a year.....

I thought I was cynical.;)