Epsilon Theory Professional
Is the narrative machine of Wall Street powerful enough to create a perceived reality of “transitory” inflation even if that transitory-ness is always 12 months away from resolving itself? Even if the real-world endures high levels of realized inflation year after year after year?
If I had to describe our narrative models of market behavior as simply as possible, it would go something like this: markets climb a narrative wall of worry and fall down a narrative slope of hope.
Except for central bank narratives.
Robinhood has been managed to generate a payday for insiders.
Then again, that’s how our entire world is being managed today. For a payday to insiders.
This note isn’t about our common knowledge of central banks. It’s about the common knowledge within the crowd of people who are engaged in the profession of central banking. It’s about the common knowledge OF central banks. It’s about the one thing that everyone in central banking knows that everyone in central banking knows: you can’t taper and tighten at the same time.
Our directional equity narrative signals have switched from bullish to bearish, and our equity trend narrative signals now point to a 0% allocation to directional trend-following strategies, their lowest possible state.
The rest, as they say, is commentary.
Labor inefficiencies are so bad for FedEx that their return on invested capital (and FedEx has a LOT of capex) is, like, maayyybe greater than their weighted average cost of capital during the most insanely cheap financing period in the history of man. I mean, FedEx margins are SO BAD that this was actually a detailed point of conversation.
This is insane.
Is Evergrande a systemic risk? Is this China’s Lehman moment?
I don’t know. Could be. But unless and until the market loses confidence in China’s response to Evergrande, it’s not a Lehman moment. It can’t be.
Banks have a problem. Deposit growth is too high and loan growth is too low.
It’s all just another signal that real economic growth is struggling, even as inflation becomes more embedded.
For the past several months our Narrative Monitors have been quite bullish on risk assets, despite all of the Fed-related and Delta-related and China-related and inflation-related concerns that have been on my personal radar screen. Rusty’s, too. The fact is, though, the Monitors have been spot-on and I’ve been dead wrong, which is … well, it’s exactly why we’re so excited about this research program!