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!

This month we are adding an entirely new “cuisine” to ET Professional by applying our methods to predicting strength/weakness in the US Dollar (specifically the DXY index). We’re taking the techniques and tools and ingredients that we’ve been using to understand central bank narrative archetypes, and applying them to an analysis of dollar index price movements instead of equity index price movements.

Will the politically-motivated slamming of Chinese ADRs pass? Sure. But that’s small comfort if you’re getting crushed in the meantime. Here’s what I’m looking at to see if this gets worse (ie, systemic) before it gets better.

Today we’re releasing the first research findings from the Narrative Machine 3.0, a process for measuring the patterns of individual linguistic components of narrative archetypes that comprise narrative structure – what we call narrative DNA. Yes, we think we’ve unlocked the genetic code of market-driving narratives.

Have I changed my views about the reality of inflation? Nope.

But will that impact market world? Not until it shows up in the narrative, and I have no idea when that will be.

Coming into June, the dominant market narrative around central banks is a constructive what-me-worry attitude about inflation and the Fed’s ability to deal with it.

Personally, I think this is nonsense. But that’s the core strength of systematic narrative analysis … who cares what I think!

We have been working on developing a platform for expanding our narrative monitors for almost a year now.

We are really excited to show it to you – and to work with you to develop something that will be USEFUL and ACTIONABLE.