If The World’s On Fire, That’s Really Nothing New

Afternoon gains on US equity benchmarks belied a distressing hodgepodge of headlines strewn across the financial pages on Tuesday.

“Empty grocery shelves return,” said one. “Omicron is life threatening for people with underlying conditions,” another read. “Flights at US airports halted during North Korea missile test,” still another announced.

The world, it would appear, is in dire straits. And according to Johns Hopkins data, the US logged a breathtaking 1.5 million new COVID cases in a single day Monday (figure below).

Deaths are still subdued relative to previous waves (and certainly relative to case counts), but according to the Department of Health and Human Services, hospitalizations in the US hit a record high this week.

Some 146,000 people were hospitalized with COVID as of Tuesday, around 3,000 more than the previous peak hit during last year’s winter wave. It’s likely that a sizable number of reported hospitalizations are patients hospitalized for something else who then tested positive once admitted. Nevertheless, the numbers are daunting.

Seemingly every piece of news is bad news. I’ve ventured back into the Twittersphere this year. I have my reasons. On Monday, “urine” was trending under the headline “politics.” That seemed somehow appropriate.

I do wonder, though, if shrill lamentations for our seemingly dour plight are misplaced to the extent they suggest challenging circumstances are somehow the exception rather than the rule. The 80s, 90s and, to a lesser extent, the 2000s, lured countless citizens in advanced economies into a false sense of security. Historically speaking, humanity’s default condition isn’t peace and prosperity. On the contrary, it’s been a long, arduous, violent, volatile journey for our species, with sporadic, albeit sometimes long-lasting, periods of relative tranquility. The era of hyper-globalization and Pax Americana was one of those tranquil periods. It’s now coming to an end, but as bad as things seem, they’ve been far worse, notwithstanding our existential climatic reckoning.

Indeed, it’s easy to forget that America itself is a very young nation. And it was founded first in conquest and then in violent revolution. Recent events, domestic and global, are a kind of mean reversion to a more traditional arc characterized by progress (sometimes halting and incremental, sometimes achieved in giant strides), punctuated by all manner of chaos.

The good news for humanity is that we’ve made it this far. We survived previous plagues without the benefit of modern medicine. And we’ve pulled ourselves back from the brink of annihilation on too many occasions to count. Last week’s joint statement from the five nuclear nations was a testament to the idea that even in the worst of times, we’re not inclined to actively pursue overnight extinction, even as we passively countenance a slow-motion ecological apocalypse.

Seen in context, things aren’t all that bad. Or, if they are, it’s nothing new.

At the same time, context is important when it comes to assessing the outlook for risk assets, and particularly equities. Yes, the prospect of tighter Fed policy and higher real rates would appear to represent an existential threat to stocks trading on dot-com multiples, but consider that, as JPMorgan wrote this week, the policy-macro conjuncture isn’t as challenging as it was in 2018, when the Fed last embarked on a double-barreled tightening crusade.

“2018 was a late-cycle backdrop defined by the US-China trade war which was driving a near-recession in global manufacturing and global growth while real yields were rising from 0.5% to more than 1%,” the bank wrote. By comparison, this year real yields are rising from “extremely complacent levels” and are only likely to reach -0.25%, the same note went on to say, adding that although real yields “will likely gradually revert to positive territory in the coming years,” that’s a long adjustment period. If risk assets can’t handle a slow rise in real yields from record negative levels to barely positive territory over the course of two years, then we really are far afield.

“In 2022, we expect real yields to remain far from levels that can start challenging the expansion [while] at the same time, the economy will be defined by a full global recovery and an end of the global pandemic which we believe will produce a strong cyclical recovery, a return of global mobility and a release of pent-up demand from consumers and corporates,” JPMorgan’s strategists went on to say.

Again, it’s really not that bad out there. Or, if it is, that’s nothing new.

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10 thoughts on “If The World’s On Fire, That’s Really Nothing New

    1. Further, we know it is the rate of change that brings havoc to complex systems. Climate change is accelerating and humans are the proverbial frog in a pot; slow to react to incremental changes and very responsive to sudden changes. Temperature records have been broken steadily for at least a decade. 2021 might have been the first year that a general sense of ‘oops’ is showing in a lot of minds. I think 2022 might be the year ‘oops’ sounds more like ‘oh sh!t’.

      1. Burning fossil fuels has immediate positive consequences for me. I can heat my home, drive my car, food is grown, and delivered by truck to a store near me. In contrast, not burning fossil fuels to save the planet for other people deprives me of all sorts of comforts. Furthermore, if I am afraid of wildfires and heat waves, I can personally stop burning fossil fuels–and have zero effect on my own personal exposure to these effects of climate change. Addressing a global issue as vexing as human-caused climate change would require very strong institutions that are responsive to global citizenry. We don’t have those institutions, and the ones that we do have, inadequate as they are, are under attack, and are in no position to chart a bold path of global cooperation.

  1. Here we all are analyzing, scheming and dreaming about the made up world while the real world collapses.
    Is trying to time ecological collapse more or less of a fool’s errand than trying to time the market? The former is obsessing me a bit these days.

    Has Kolanovic ever made any pronouncements related to climate catastrophe?

    1. The problem I see is that climate ‘catastrophes’ so far, are seen as local issues. Fires, tornadoes, mud slides, and even sea level rise, are seen as other people’s problems. One exception to this is the depletion of the ozone layer. The response to that was global and everyone had skin in the game. And it was remedied, one of the rare successes for global action.

      A full-throated response to climate change needs to be understood not as regional failures but as an existential challenge.

      Recently, I asked a friend what would constitute such an event. We came up with one event which is sudden and substantial enough to galvanize the world; the collapse of the Thwaites Glacier’s ice shelf (in Antactica). I’m interested to hear about other attention-getting candidates.

  2. I’ll use one of my favorite quotes here “humans tend to act a lot like electrons, they usually take the past of least resistance”. I created that while in electronic technician A school in the Navy. If any system of government, environmental group, or corporation wants people to stop burning fossil fuels it has to make it easier to do something else first. Right now it’s a hell of lot easier to pick up a used v-8 and burn oil and gas all day long than it is to pick up a plug in EV. You can show all the data you want, you can see events happening, people aren’t going to do anything until they absolutely have to or something else is easier for them to do. So my advice, we all need to start migrating north.

    1. geoengineering is coming – unless fusion or carbon sucking happens first.

      One thing we will not do is let the planet kill us without fighting back. Moving North is probably not the best bet (though it cannot hurt).

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