Epsilon Theory Professional
A narrative backlash is developing against RIAs and other asset managers that took PPP money.
Fair or not, this narrative is pure red meat for anti-Wall Street sentiment, particularly in an election season and particularly as the stock market goes up even as the real economy suffers.
Can a free world survive an endemic COVID-19, where there’s no vaccine but a chronic global affliction?
I used to think yes. Now I think no.
I know it’s forbidden to say this, but I like Woody Allen movies. If you’ve never seen “Everything You Always Wanted to Know About Sex* … But Were Afraid to Ask”, it’s worth your time just for the Gene Wilder scenes. And yes, credit default swaps are the sheep in this story.
The dominant COVID-19 narrative today is a “short and deep” economic impact, with a corollary narrative of “pent-up demand”. These are market-positive narratives.
Here’s how we think those narratives could reverse, and here’s what investors should watch for to see if that reversal happens.
In 2008, the market came roaring back after Bear Stearns was sold for parts to Jamie Dimon. Why? Because narrative. Because with Bear’s elimination, “systemic risk was off the table.”
That’s the question you need to ask yourself today. Is systemic risk off the table?
We provide an update on our thinking about narrative structure as of April 7, 2020. In short, there is an emerging “we flattened the curve” narrative. We think it has some meaningful implications.
I honestly have no idea what the world is going to look like in six months! I’m sure I’m not alone. And if you honestly have no idea what the world is going to look like in six months, are you going to live up to your commercial obligations (like a lease) over the next six months as if the world is still spinning as always on its axis?
We update our thinking based on the framework we published on 3/17, especially in two areas with active changes in narrative structure: fiscal and monetary policy responses.
After a few weeks of historic market volatility, we reexamine the framework we would use to think about the implications of Covid-19 and the mitigation response for multi-asset portfolios.
There’s a lot of first-level thinking going on, and navigating the transition from uncertain markets back to risky markets means avoiding their pitfalls in our portfolio and risk management processes.
Narrative Monitors
As Ben noted in his weekly ET Professional note, we are reworking these monitors to be more useful, intuitive and actionable. We look forward to rolling out these more useful monitors, which we expect to cover Metanarrative (i.e. How important is narrative right now against, say, fundamentals or technicals?) and Macronarrative concepts around interest rates, inflation, economic growth and the like as per usual.
Inflation Monitor – 1.31.2020
Attention on inflation rose rapidly and surprisingly in January, we think in response to two developments:The very modest emergence of inflation in even heavily cartoonified …
Central Bank Omnipotence Monitor – 1.31.2020
Attention on and cohesion of Central Bank macro narratives rose sharply in January. We believe that this is largely the result of a (hopefully!) short-term …
Trade and Tariffs Monitor – 1.31.2020
Attention on Trade and Tariffs topics rose somewhat, but the inclusion of coronavirus language proved a distraction to the stories being told about them rather …
US Fiscal Policy Monitor – 1.31.2020
Like other topics, Recession narratives rose somewhat in attention and cohesion, but less dramatically than other categories. We believe that this is because coronavirus outbreak …
Credit and Debt Monitor – 1.31.2020
The decline in the strength of the Q4 narrative of a risk of “collapse” in credit markets continued in January. Uniquely among our macronarratives, cohesion …
US Recession Monitor – 1.31.2020
Like other topics, Recession narratives rose somewhat in attention and cohesion, but less dramatically than other categories. We believe that this is because coronavirus outbreak …