Three weeks after comparing fund managers who lose money for their clients by desperately clinging to hypotheses about how the world should work (as opposed to how it actually does work) to the Cassini spacecraft (which careened into Saturn’s atmosphere at about 78,000 mph last month), Bloomberg’s Cameron Crise is back with some more “deep” macro thoughts for you.
See if you’re like Cameron (a “swashbuckler” who is never wrong and who Jeff Gundlach is still mad at even though he deleted the tweet), you look at economic data points with the same discerning eye that an art critic looks at “pictures hanging on the wall.”
Because an NFP print or say, an ISM beat, is not like “the pop art of Andy Warhol or Roy Liechtenstein” which, according to Crise the world-renowned art critic, is of the “what you see is what you get” variety. No, a payrolls print “is more like a Monet or a Renoir”, in that it takes “a healthy dose of perspective to fully appreciate the full picture” (there are two “full“s in there).
Needless to say, we’re being sarcastic. What you’ll read below is a hilariously euphemistic way of saying this: economics is not a hard science. Contrary to what they’ll tell you in grad school, economics is more akin to political science and sociology than it is to physics. And we speak from all kinds of personal experience in that regard because we’ve spent years in post-graduate programs both in economics and in political science.
So Crise is ultimately correct, but (and this is a defining feature of his analysis), what you’ll read below is “more Gauguin” than it is Cézanne – that is: just as overrated upon close inspection as it looks on paper.
Economics like to think of itself as a science, and it’s not hard to see why. Peruse through any academic treatise on the subject and you’re likely to be treated to a pretty heavy dose of advanced mathematics — there is clearly some heavy brainpower there. Yet in some ways the profession fails to meet a basic scientific standard: while it makes plenty of predictions, they usually cannot be verified in controlled experiments — or at all. Anyone whose P/L depends on an economic framework knows that there is an art to anticipating fundamental developments, and the market reaction to them. Like pictures hanging on the wall, most economic data points are open to a fair amount of interpretation. Sometimes what you see is what you get, like the pop art of Andy Warhol or Roy Liechtenstein. In environments like the current one, however, economic analysis is more like Monet or Renoir: a healthy dose of perspective is required to fully appreciate the full picture.
- In some ways economics is the antithesis of quantum mechanics, though both use complex models to explain the world. Physicists can make incredibly accurate predictions even though the elemental dynamics are something of a mystery; economists, meanwhile, think they understand the underlying function but make lousy forecasts
- While economists can wait years for the Phillips curve to re-assert itself, anyone with a mark-to-market pressure doesn’t enjoy a similar luxury. For better or for worse, “hot takes” on a macroeconomic time scale are an inevitable part of portfolio management
- Sometimes, this is a fairly straightforward exercise. In the fourth quarter of 2008, there was about as much nuance in the global economic trend as in one of Andy Warhol’s soup cans. This year’s European recovery story has seemed to be similarly obvious, though the Catalonian debacle has recently made things a little more interesting
- In the U.S., however, the disruptions caused by hurricanes and policy uncertainty have made tracking the cycle a little less clear. Friday’s employment number was awful if you looked at headline payrolls but fantastic if you peeked beneath the hood at the household and wage data
- Even those figures, however, are just one small tile in an overall mosaic — a picture that will show some very strong data (figures that reflect the rebuilding effort) and some that’s weak (numbers affected by the hurricane’s damage.) It’s important to view each marginal data-point in its proper perspective — much like an Impressionist painting
- Sometimes, of course, analysis is like one of Jackson Pollock’s works — an array of points scattered over the canvas at random. In such cases, trying to make sense of the picture may leave P/Ls looking as ugly as one of the bargain-bin efforts at your local art store