Easing 'Debate'? Cut Me a Break

When the Yankees are up 3 to 1 in the World Series, someone is going to write about how the Mets might still pull it out.

When a hurricane is headed out to sea, some weather forecaster is going to talk about how it might double back and wreak havoc on the East Coast.

And when the Federal Open Market Committee looks certain to cut the target rate by a half-point, you can be sure to hear from the financial press that the cut might be just a quarter-point, or even that there will be no cut at all.

Yes, that's right. We make a big debate where there really isn't much of one, searching out the few economists who have strayed from the consensus and giving them equal billing. Of the 25 top economists employed by primary dealers of government bonds, for instance, only one currently expects the Fed to cut a quarter, rather than a half, point.

But will we let that stop us? No sir. "Fitzpatrick & Co. chief economist Pat Fitzpatrick, pointing to stability in scrap steel prices, thinks the Fed might drop rates by only 25 basis points," we might write. Who's Pat Fitzpatrick? What kind of record does he have on the Fed? Who cares! He gave us the contradictory view we needed to make the Fed meeting seem a lot more dramatic than it is.

Helping us along in all this, there seems to be a class of investors that takes the idea of going against the grain a little too seriously. It seems pretty obvious that there is a difference between the Warren Buffett credo, "We're scared when everyone is greedy, we're greedy when everyone is scared," and the idea that you can always use contrarian ideas to predict the outcome of any event, including a Fed meeting. Yet there are some who view rate cuts as if they were a tradable commodity, and that betting against the consensus is a good idea. This assumption overlooks the fact that, if anything, the Fed is in the business of not surprising markets, and tends to let investors know what it's going to do when it meets.

If you don't believe that these Fed contrarians are out there, note that this reporter won a dinner betting an otherwise intelligent technical analyst on one of last year's totally telegraphed rate hikes. And has just gotten a trader to give him even odds on the Fed cutting by 50 today.