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Pandemic Playbook – 3/17

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.

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First-Level Foolishness

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.

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Minimax Regret

All of our thinking about CV-19 is wrong and all of our decision-making about CV-19 is wrong because we believe we’re getting “information”, when actually all we’re getting is an irrelevant error distribution.

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Covid-19 Cargo Cults

Quantitative analysis is all well and good, but when someone starts peddling you charts or measures when you KNOW that the underlying data is unknowable, you are dealing with a cargo cultist. When it comes to Covid-19, nobody has time for that.

As of February 27, even after a 10% drawdown, we believe the narrative about Covid-19 is complacent.

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Not Gonna Lie

Not gonna lie … this virus got us in the first half.

But if we prepare and strengthen our healthcare systems NOW, particularly in cities like Jakarta, we can still win the game.

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That Escalated Quickly

Two narratives jumped sharply in structural attention scores over the past few months.

One is something we’ve already written a lot about – Inflation.

The other is something we’re writing a lot about now – China is lying with its nCov2019 data.

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The Deflation to Inflation Playbook

The use of central banks to monetize vast new fiscal spending programs in every developed nation on Earth – under the guise of CB-financed Green Bonds for left-leaning governments and CB-financed Infrastructure Bonds for right-leaning governments – is the biggest economic story of, not just the next year, but the next decade.

This is how the Fourth Horseman of the Investment Apocalypse – inflation – rides into town, and it will challenge everything we think we know about investing and asset allocation.

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The Worm Turns

Media attention to an inflation narrative turned dramatically in December, and I see signs of it continuing to accelerate to the upside here in January, particularly in sell-side analysis and reports.

This a classic “Emerging Narrative” set-up. We are a couple of CNBC missionary statements away from everyone knowing that everyone knows that inflation is off and running.

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The Long Now

Every year, I try to put together a series of notes that captures where I think we are, from both a political and investment perspective. This year, that series is The Long Now. I’ve compiled the four notes in that series into a single PDF, attached here.

We need to get together and talk about all this.

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