Macro Madness

Forever ago, I had a boss whose demonstrable success had the effect of gradually eroding his capacity to accurately conceptualize of his influence over the macroeconomic script.

Success does that to you, regardless of occupation. If you were the top Porsche salesperson in the state of Georgia, you’d doubtlessly end up telling yourself (and, eventually, others) a wildly overblown story about your place in the global market for Porsches.

When it comes to macro opinion and analysis, this dynamic manifests in a tendency to hear yourself in everything anyone else writes or says. You tell your colleagues (subordinates, usually, because they’re a captive audience in the literal sense of the word “captive”) that fund managers and media outlets have “finally caught up” to something you alluded to previously during a brainstorming session or in some internal memo. “Now they get it,” you’ll say.

In the final stages of madness, you’ll start openly accusing entire media outlets of ripping off your ideas and suggesting that famous people (who, if they ever did come across your musings, surely don’t remember what you said), of wittingly parroting your talking points without giving you credit.

I consciously avoid this descent into intellectual self-absorption. I’m self-absorbed enough without succumbing to that kind of insanity.

It’s true that I use phrases like “As noted here last week,” but that’s (almost) never to suggest that someone or some journalist is belatedly “saying what I said.” Rather, when I use phrases like “As noted here last week,” I’m just trying to find a way to insert a link (i.e., on the word “here”).

I mention this Monday as a kind of follow-up to Sunday’s “Diminishing Returns,” in which I suggested that, for the time being, “everything worth saying about markets and the outlook for the economy has already been said.”

This happens occasionally, often when everyone is waiting on some important event or data. Sometimes it happens simply because there’s not much going on.

It’s during times like these when everyone succumbs to a mild version of the madness described above. Everyone hears themselves in what other people are saying. Of course, it’s not that everyone is engaged in an effort to intellectually plagiarize everyone else. Rather, it’s that because everything worth saying has already been said, people start to “reach,” as it were, on the way to invariably conjuring some version of metaphors and analogies employed by someone else.

For example, a few weeks back, I penned a kind of rambling (albeit fun) piece called “Tapping The Brakes.” Subsequently, Ray Dalio used almost identical language to describe Fed policy, and certainly not because he read that linked article. On Monday, Bloomberg ran a good piece that read like a compilation of recent articles posted here and, again, almost surely not because Liz McCormick is a fan.

McCormick’s article contained another version of the brake-tapping metaphor, underscoring the notion that everyone is fresh out of ideas. She quoted Mark Zandi, who said “It’s like you’re in a car and fiscal and monetary policy are flat on the accelerator.” That’s where we are now. Zandi continued. “You take your foot off the accelerator — even if you don’t put it on the brake — it feels different,” he said. “All of sudden you start to slow quite significantly.”

Earth-shattering stuff. I’m just kidding. Or if I’m not kidding, and I’m being derisive, then I’m sneering at myself too, because I used the exact same metaphor.

In a further testament to the notion that everyone is driving around the same cul-de-sac (and now I’m stacking driving metaphors on top of driving metaphors), Zandi was essentially referencing the same dynamic discussed last week by SocGen’s Albert Edwards, who was himself building on analysis from the OECD.

Zandi (and McCormick) referenced overall output. “Forecasting a US slowdown next year is something of a no-brainer,” McCormick wrote, noting that between fiscal stimulus and the re-opening of the economy, growth will be somewhere in the neighborhood of 6.5% in 2021, making this the second-best year in more than five decades. “So, some downshifting is to be expected, but that doesn’t mean it won’t be noticeable,” she remarked.

From the (narrower, but related) perspective of fiscal policy, it’s the change in the deficit and not the absolute size of it that matters when it comes to driving growth. From that angle, the US is staring down a fiscal headwind which, for Edwards, “suggests the reflation trade has a long way to unwind yet.” Absent another fiscal package, Zandi suggested US economic growth may slow to a 1.5% annual rate.

BofA’s Michael Hartnett consistently argues that “peak” profits and “peak” growth are key concepts headed into the back-half of 2021. That’s yet another way of saying that if the rate of change in, for example, earnings growth, has peaked, things will feel less euphoric even if the numbers continue to be a semblance of robust going forward. (Corporate profit growth stateside will certainly peak this quarter.)

The linked Bloomberg piece contained a quote from TD’s Priya Misra, who told Bloomberg Television that the Fed needs to “push back” against the “policy mistake” narrative being priced into bonds (e.g., the bull flattener). She reiterated that point in a note out late last week, which I quoted in “Jam-Packed.”

Commenting on Monday, BMO’s Ian Lyngen and Ben Jeffery managed to capture almost all of the above in their characteristically incisive morning take. “The yearly pace of consumer price inflation is expected to peak in the coming months, a dynamic which will either serve to reinforce or challenge the Fed’s transitory characterization of the reflationary surge,” they wrote, adding that “the FOMC’s recent policy pivot (to slightly less-dovish) offered a nod to the risk inflation might be on a higher plateau than previously assumed, while simultaneously revealing the market’s reaction to a more hawkish Fed.” That reaction: A flatter curve and lower outright long-end yields.

“Sure, it’s a textbook policy error response,” Lyngen said. But, like TD’s Misra, he and Jeffery are “convinced it’s far too soon for such a critique of monetary policymakers.”

We’re all trying to find a better way to recite the same narrative, God bless us.

Who knows, maybe my old boss is too. If he is, he’s probably telling some unfortunate employee about how all of the people above (along with anyone else saying something similar this week) are really just paraphrasing him. He’s insane, that one. And like all genuinely insane people, he never realized it and surely still doesn’t. Ultimately, I wish him all the best.