This Occupancy Has Better Accuracy Than Central Bankers

Imagine taking home a wage double that of your peers. And all you’ve got to do is look at chicken bums.

Welcome to the world of chicken sexing.

If you were wondering, day old chicks have no identifiable penis. And this is something farmers want to know.

You don’t want to throw away a possible hen that’s worth a few bob. And you don’t want to spend money on feed for a worthless rooster.

For a long time farmers just lived with the uncertainty. They kept all chicks, until enough time when they could sort the roosters from the hens.

The cost involved was huge.

There are literally hundreds of billions of eggs laid every year. So even if feed costs were small per chick, the sheer volume saw those costs quickly add up.

The ‘egg complex’, economists called it.

There was no way around it. It was a cost farmers had to live with.

That was until the art of Japanese chicken sexing came along…

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What if central bankers were right 95% of the time?

At the world’s only international chicken sexing school in Japan, students spend years looking at chicken rears.

And once out in the field, they’ll look at about 1,200 chicks an hour, with sorting accuracy of 95%.

What they’re actually looking for is a small vent. And with a slight squeeze, the chicken sexers can tell whether the chick is a boy or girl.

It’s often an indescribable sign.

Many chicken sexing masters just know by looking at that vent. In a paper on the subject, Richard Horsey compared it to a chess grand master.

They just look at the rear end of a chick, and ‘see’ that it is either male or female. This is somewhat reminiscent of those expert chess players, often cited in the psychological literature, who can just ‘see’ what the next move should be.

I just wish central bankers had the same intuitive powers.

Much like chicken sexing, monetary policy is part art, part science.

Central bankers don’t know what higher or lower interest rates will do.

They have some idea. The US Federal Reserve, for example, is often confident when they hike or lower interest rates.

Right now they’re doing the former. Higher rates won’t derail the US economy, according to the Fed. Higher interest could also put a cap on inflation.

But they really don’t know for sure.

I guess it’s because there are so many variables. There are so many factors that affect an economy and that are effected by interest rate changes.

Then again, I’ll bet no two chick bums look exactly the same, either.

Yet unlike the Japanese chicken sexer, central banking intuitions leave a lot to be desired.

Central bankers history of blunders

In the early 1900s for example, the Fed created so much money it led to double-digit growth in asset prices in 1920.

To curb inflation, they then had to lift interest from 4.75% to 7%. It pushed America into a sharp recession.

Then post war, the Fed stumbled across the idea of on-market purchases. This is when central banks actually enter the market and either purchase or sell securities.

Usually, these securities are government bonds.

The newfound tool of money creation led to a speculative asset bubble in the 1920s. And when prices came crashing down in the 1930s, the Fed sat on its hands.

One more is the Great Inflation of the 1960s.

The Fed was targeting full employment (an unattainable goal). And to get there they created money to the nth degree. All this new money pushed inflation up from 1.6% to 13.5% by 1980.

By that time, the Fed finally flipped and pushed interest rates to 19%. The US fell into another recession.

In their book Finance, Banking, and Money, Robert Wright and Vincenzo Quadrini correctly point out ‘when the economy was naturally expanding, the Fed stoked its fires and when it was contracting, the Fed put its foot on its head’.

And this isn’t unique to the US.

Central bankers all over the world join in on making the busts deeper and longer, while making the booms bigger and riskier.

It wasn’t until the late 1980s that the Fed, in particular, started doing the opposite. Meaning interest rates went up in times of boom and down in times of bust.

Yet how do they explain the lead up to the meltdown of 2008?

Interest rates came all the way down in the early 2000s. And then quickly went back up leading up to 2007. The Fed was akin to a deer in the headlights.

They were too afraid to continue hiking rates and equally scared of reversing course. And with time, they allowed the US economy to fall into another recession.

So what’s going to happen next? The pundits believe the Fed could take a breather in 2019. With global growth slowing down, they might hold off on more rate hikes.

Maybe another recession is off the cards. But I’ll bet there’ll be more volatility to come.

And for you, 2019 could be a big opportunity to pick up those stocks you’ve always wanted to buy. All you have to do is start looking now.

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Happy hunting,

Harje Ronngard,
Editor, Money Morning


Harje Ronngard is the lead Editor at Money Morning. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. There are two questions Harje likes to ask of any investment. What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Money Morning readers 5 days a week.. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home among Matt’s incredibly exciting income plays.


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