More on Hindsight Bias

Another day, another blog post with a lot of comments left, so thank you for that. Working its way into Saturday's comments was a little bit more humor than the previous couple of days. So maybe a 6% lift in the last hour on Friday did do a lot to improve people's spirits.

A couple of weeks ago, I made a reference or two to a concept brought up by Dr. Brett called hindsight bias. An example of hindsight bias would be to look back over the last couple of years and say "well, of course there was going to be a fill in your own description of the current mess."

A hindsight bias in the making might be what is being done to try to fix the various problems that exist. There is an article in this week's Barron's that goes down this path some: Has the Fed Mortgaged Its Own Future? The article is a look at the balance sheet of the Fed now versus before this started.

The first things I think of are inflation and higher interest rates. By extension, then a weak dollar.

We are printing money, which has consequences. Our status in the world could soften the blow that another country doing the same thing might face, but softening the blow does not mean no blow whatsoever.

Lately the dollar has, of course, rallied, and treasury yields have gone lower. This has been a reaction to the crisis and the mess that is every other part of the fixed income market besides treasuries. The willingness to buy dollars during a crisis and accept all time low yields supports the idea of a softer blow.

This is far from a certainty, as the Barron's article points to one warning sign that the debt issued to pay for all the bailouts and other acronyms may have a longer maturity. Toby Smith made a comment on Bulls and Bears about our kids and grandkids being the ones to bail us out, not the US government. You've probably read things in the past about our debt being too big to ever pay off; now that's all the more so with what has been done and what is still to come.

Sort out your thoughts on these things and prepare for some portfolio changes over the next few years.