Epsilon Theory Professional
US Sector Strategies Presentation Deck (downloadable PDF)
For ET Professional subscribers only.
It’s easy to get waaaay too precious when it comes to professional kitchens, whether we’re talking about restaurants or a trading desk.
But credit default swaps are like chef knives. They’re not an affectation, but a necessary tool for so many tasks. Even if you don’t cook or trade a portfolio professionally, you’ll want to own a good knife and you’ll want to know the mechanics and the rationale of a CDS trade.
Each month we update our five narrative Monitors and summarize the main findings from each.
The big reveal for May? There’s a tremendous amount of narrative complacency out there, particularly on Trade and Tariffs, which means this market has a long way down if the narrative focuses on negotiation failure. It’s not focusing there yet, but that’s what you want to watch for.
Wage stagnation in 2016 was actually much worse than you were told. Did this make a difference in the Midwestern states that swung the election, in that actual labor conditions were worse than everyone thought they were? I think yes.
Wage growth in 2018 was actually much better than you were told. Did this make a difference in the current Fed/Wall Street/White House narrative that inflation is dead and the easy money punchbowl can be maintained without consequence? I think yes.
When Donald Trump tells you that there’s no inflation, that up is down and black is white, that monetary policy … It’s toasted! … you’ve gotta believe him, right? Right?
Actually, for investment purposes, you do. When everyone knows that everyone knows that inflation is dead, that IS the common knowledge. And the common knowledge must be respected.
Why does it matter whether you think profit margin expansion has been driven more by globalization (Bridgewater) or financialization (Epsilon Theory)?
Because central banks can continue to drive financialization and earnings margin expansion even as globalization collapses.
Whether you’re a trader or a portfolio manager or a financial advisor or an allocator, ET Pro can help you identify both the inflection points and the trajectory of the market Zeitgeist – particularly the question that any long-term portfolio owner MUST get roughly right in order to succeed: are we in an inflationary or deflationary world, and how quickly (if at all) and in what ways is that world changing?
You can make a lot of money collecting Golden Age comics. The Silver Age, though? Meh. The story arcs and narratives are a joke. The art is so-so at best. The publishers are just squeezing the installed base, and the creators are just mailing it in. They’re old, but so what?
Same with the Silver Age of Central Bankers. It’s hard to make money, particularly in Emerging Markets, when it’s every man for himself among DM central banks.
Where are we in March, 2019? We’re seeing a resurgence in the narrative and policies associated with a good old fashioned beggar-thy-neighbor currency competition.
Also, here’s our summary of where we think we are in each of the five evergreen macro issues of markets – inflation, central banks, trade and tariffs, US fiscal policy, and the credit cycle.
Legacy Monitor Archive (Pre-January 2020)