Hello Darkness My Old Friend


There are a couple of tectonic plates moving in narrative-world of late, just like there have been a couple of tectonic plates moving in market-world. The market-world tectonic plates are factors like momentum and value, and lots of people are talking about them. The narrative-world tectonic plates are inflation and central banks, and that’s what I’m going to talk about.

Our most impactful structural attribute of narrative is Attention – the level of “drum-beating” for a certain narrative relative to all of the OTHER narratives taking place. It’s not just an increase or decrease in the number of articles that drives an increase or decrease in narrative Attention … it’s much more an increase or decrease in the centrality and the connectivity of the articles.

These measures of centrality and connectivity within a giant multi-dimensional data matrix don’t lend themselves to two-dimensional visualizations very well, at least not nearly as well as other attributes like Cohesion and Sentiment, so I won’t be showing those visualizations here (although you can see them in the attached data packet). But just to reiterate … I believe Attention is the most important measurement we take in the Narrative Machine.

So I think it matters that the Inflation narrative is close to all-time lows in its Attention score coming into September, while both the Central Bank narrative AND the Trade & Tariff narrative are at all-time highs in their Attention scores coming into September.

Our rule of thumb regarding Attention (and this is true whether you’re talking about single stocks or sectors or macro issues) is pretty simple: fade high Attention and accumulate low Attention.

More specifically, I’ve got the following takes from these narrative Attention scores:

  • There is enormous market complacency around inflation. Just enormous.
  • Markets are far more likely to be disappointed by Central Banks today than encouraged.
  • The all-China-all-the-time news cycle is at a peak.

How does this play out? I dunno. If there were any signs of the US Recession narrative actually taking root in domestic US issues, then I’d say that it’s time to study up on the stagflation playbook. But as I described in last week’s letter, there’s nothing about the US in the US Recession narrative … it’s all non-US issues. Still, even if it’s not an all-out stagflationary world, we’re going to have some whiffs of that stagflationary odor. Gold? I don’t think you get hurt with all this complacency on inflation, but it’s hard for gold to work so long as Central Banks are front and center. Keep in mind that I think markets are likely to be disappointed in Central Bank action, not that they’ve lost faith in the ability of Central Banks to control market outcomes.

My best take at putting all this together? The back-up we’ve seen in rates over the past two weeks has the narrative legs to back up more. Maybe a lot more. And that’s not going to make anyone happy. Especially the guy in the White House.


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