Epsilon Theory Professional
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.
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.
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.
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.
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.
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.
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.
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.
We’re relaunching a Debt and Credit narrative Monitor on ET Pro, as we’ve made some advances in formulating search queries to capture a meaningful signal from all the noise. If you’re involved in FI or credit markets, you’ll want to check this out.
Also, the 2019 Cohesion Crash in macro narratives continues to accelerate, with (I think) important implications for asymmetric trade opportunities.
The heart of narrative-world is quivering without a stable rhythm of beat of any sort. It’s an expansion of the Silly Season I wrote about in November, with zero investable narratives to be found.
Last month I asked a question: At what point, if ever, do political narratives about Inflation and Fiscal Policy become market narratives about Inflation and Fiscal Policy?
I’ve got an answer now, but you’re not going to like it.
A sneak preview of the FT Markets piece to be published later this week, with my original language and the math on Microsoft’s 10-K.
We’re never going to eliminate the agency problem, and the dealer deserves a proper rake. But we better start making this casino fairer to shareholders and less of a wealth transfer engine to the managerial 1%. Or someone is going to burn the casino down.
There’s something weird happening in narrative-world, and I’ve been trying to figure out what it means since we published our monthly Narrative Monitors update last week (attached to this email). I still can’t figure it out, but instead of continuing to wrestle in silence, I’m going to tell you what I find odd and ask what you think it means … if anything.
Legacy Monitor Archive (Pre-January 2020)