When ‘As Good As It Gets’ Ain’t All That Good
Generally speaking, a market that's forward-looking is conceptualized as a good thing.
Forward-looking in this context is synonymous with what I'll call "prescient efficiency." It's not just that equities (for example) price in currently available information, they also pull forward forthcoming information or, more formally, "expected future outcomes."
Of course, markets are just collectives of people and headline-parsing algorithms, both of whom/which are fallible. People can miscalculate, mi
I really would like our dear host to discuss the CBO output gap projections more. Also – I hadn’t looked at an output gap graph in a while and was a bit surprised to find out FRED graph had a positive output gap in 2018/2019.
Sure, the economy wasn’t doing badly and unemployment was relatively low… but, iirc, wage growth was still fairly meek and the labor participation rate still well below historical averages… in those conditions, it feels strange to say the economy had no more spare capacity… unless the industrial/service sector output capacity has been destroyed in recent years/the last decade?
There are times when simplification becomes an asset in devising a workable forward strategy or revealing an exit door that is not obvious. I appreciated the complexity and mystery of all this but did find myself seemingly trapped between a Yogi Berra quote or two and my legendary chainsaw that could run backwards. One thing for sure is the near future will bring even more than just one or two surprises that none of us anticipate. Glad the weekend is over !!
Two thoughts: 1) a guy named Werner Heisenberg (name sound familiar) was the first to propose that there is a limit to how well one can specify the position and momentum of a particle (e.g. an electron). One implication is that attempting to measure the position and momentum of the particle interferes with the properties of the particle. Applying this to markets, you can imagine that the act of forecasting the future behavior of markets interferes with that behavior. (Yeah, comparing electrons to markets is worse than comparing apples to oranges). 2) Isn’t it widely stated that the Fed and Treasury will tolerate or promote inflation in order to inflate away the national debt? And widely believed that this is the only way to manage the debt? (neglecting the MMT arguments for the moment)
Nice.
I agree, I thought inflation was the plan all along. It’s just finally showing up. I guess we need to decide if it is only supply constraints, or real wage pressures. We have to remember this disruption was epic in its intensity and duration. Wierd things will happen as the dust settles.