Micro, Not Macro, Explains 2023’s Stock Returns
Given the daily deluge of headlines documenting every twist and turn along what, rising soft landing odds aside, remains a treacherous road through a stagflationary economic environment, you might be tempted to suggest 2023 is all about the macro.
Day in and day out, we're told that assessing the implications of the incoming data for the overall economic narrative, and thereby the read-through for monetary policy, is absolutely essential -- that even second- and third-tier releases may be cruci
It has been and is still my opinion that most of the inflation we have suffered and the equity returns we have seen are primarily the result of micro drivers, whether in supply chains, labor market activities, commodity markets, or selling price increases. When I bought my first McDonalds in Evanston, IL in Jan 1962, it consisted of a hamburger, fries and a coke for which I paid $0.37 total. When I bought my final McDonalds, a McDouble, fries and a drink from the value menu it cost just under $9. I won’t do that again. Interest rates had nothing to do with it, although for some customers the posted price of $10.25 for a Big Mac combo meal might require some financing. Years ago I understood viscerally that economists receive no useful training in the concept of profits. I majored in the subject and took six PhD courses, the core for doctoral students in the discipline. The bone readers theoretically understand stuff like marginal revenue and marginal cost, but nothing about the true nature of profits. We have fiscal policy (blamed for this latest bout of inflation by the mostly dim), monetary policy supposedly understood by the Fed (but not by the Congress who are currently mentored by MTG and Kari Lake), and no industrial policy at all because there are so many sort of tough questions requiring understanding no one seems to have. See, there’s our real problem, our “every human for themselves” system.