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McElligott On Where We Are As Q2 Gets Underway
It can be a challenge to crystallize, and otherwise make sense of, cross-asset price action when macro and policy crosscurrents are strong and myriad.
If it's a secret decoder ring you're after, you could do worse than the dollar and real yields.
In March, reals fell sharply as markets repriced the Fed trajectory in light of bank stress. As night follows day, the decline in reals was accompanied by a pullback for the dollar.
It was, effectively, the mirror image of February.
So, when you t
Contrasting McElligot’s diagnosis with Dimon’s outlook nicely crystallizes the current market dichotomy, IMHO.
Do you position for how the market is acting now, or for how you expect it to act? Dilemma.
To formulate an effective strategy one needs to react to the current environment first and be ready for the future as well. However, for a firm to really position itself correctly, it needs to react not only to the environment itself (higher rates, say) but to the reactions of those to whom it is linked and how they react (how it’s suppliers react to higher rates, for ex.). The fact that prices rose so fast on basic needs, for instance, may well indicate that firms looked at their input prices and said, “We should raise our prices to recoup higher costs.” And so they did. However, they also seemed to notice that early on it was pretty easy and they got away with it because consumers seemed to need many things for which price was no object so our retailers and manufacturers kept right on pushing prices up until customers began to push back. Meanwhile, that gave companies cover and a chance to reset for the longer term. They have notably reduced variety, culled unprofitable and marginal items, modified package sizes, and other sensible responses that consumers accept more easily now than they might have a couple years ago.
In general terms, however, basing a large part of corporate strategy on expectations of how the future might look is critical. As a college business prof it was logical to mix in as much real world experience as I could. For about six years I was lucky enough to get to work for a very large, world leading manufacturer. One of the projects I led lasted about a year and produced the best research I ever did. Sadly, it will never see the light of day because the company owned it from the start. The project involved the company’s effort to audit the key skills and potential competitive advantages inherent in its human resources. But the emphasis was not on who knew what at that time. Rather they wanted to assess what their workers would have to know 5-10 years down the road to enable the firm to continue to be a leader in its industry in the future. What training would existing workers need to move the firm ahead as well as what kinds of workers should they be hiring who could add expertise to the human resource pool? I got to build a number of ground-breaking tools to aid in this process and run several vary interesting experiments using these tools. Resource audits, especially aimed at not only current skills and competencies but also what will be needed are a key part of what keep the best firms on top and point to the critical importance of looking to the future.
That project sounds fascinating. I’ve always felt the interview process itself isn’t great at finding the best human resources for any given firm.