The Worm Turns

We published our macro narrative Monitors last week (attached here), and something really jumped out at me.

Media attention to an inflation narrative turned dramatically in December, and I will tell you that I see signs of it continuing to accelerate to the upside here in January, particularly in sell-side analysis and reports (which are typically NOT picked up in our Monitor analysis, which pulls from publicly available media).

Does this mean that real-world inflation is off and running? No idea. I mean … my personal opinion is that real-world inflation is much more prevalent and entrenched than we are led to believe by the mandarins, but that’s just my personal opinion. I do not have a professional opinion on real-world inflation. I DO have a professional opinion on narrative-world inflation, however, and that is YES, 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. We are one “hot” employment report from everyone knowing that everyone knows that inflation is off and running.

And that’s going to be a very squirrely day for markets.

Why? Because it’s going to bring the politicization of the Fed into sharper focus than any amount of overnight and short-term repo financing will ever achieve.

The Fed is playing a weak hand. If we get an inflation narrative now, just as the “global recession is nigh” narrative kicks the bucket, then the chatter immediately becomes whether or not the Fed has to HIKE. Not “stand pat”. Hike.

There is zero market anticipation for this, which makes this a dinner bell for the trader types reading this note, and a warning bell for the buy-and-hold types. Political risk starts to get real after the Iowa caucuses in a few weeks. Put that together with an incipient inflation narrative and you’ve got the makings of a volatility party. Be careful out there.

Credit and Debt Monitor – 12.31.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • The Q4 narratives promoting the idea of a ‘coming collapse’ in credit markets precipitated by leveraged loan markets has faded somewhat in attention and cohesion.
  • Sentiment, likewise, has continued to improve.
  • The language of fear of a credit market collapse continues to exist – ‘vulnerable’, ‘financial stability risk’ and ‘illiquidity’ continue to define some topical clusters, but they are peripheral and have become more so over the last several weeks.
  • The more central narrative structure exists around issuance, new fund launches and asset owner transitions of asset allocation to direct lending and private credit mandates.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Narrative Cohesion


Fiat News Index


Narrative Sentiment

US Recession Monitor – 12.31.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • Any narrative about a US Recession at this point is complacent and confident about its absence as a risk to equity markets.
  • The sentiment of articles has risen sharply – as cohesion and attention have fallen – to pre-Summer levels before recession concerns had become a somewhat mainstream media topic.
  • Even more than in prior periods, focus of even US markets commentary relating to recession has instead focused on recession risks in foreign markets, where the narrative is not quite as complacent.
  • The result is a muddled narrative structure with some lingering concern about German manufacturing, scattered emerging markets worries and articles asserting that the risk of American recession has passed.
  • We have no fundamental view on recession risks but believe the complacency may create asymmetric opportunities for investors and allocators with more substantive concerns about the US economy.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment

US Fiscal Policy Monitor – 12.31.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • No change in our view for several months: there is no Fiscal Policy, Deficit or Austerity narrative: “We are all MMTers now.”
  • Our only noteworthy and novel observation is that the cluster of articles referring to socialism, billionaires and investor fears about wealth taxes has become somewhat more central to the overall network.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Cohesion


Fiat News Index


Narrative Sentiment

Trade and Tariffs Monitor – 12.31.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • Despite the recent erosion in attention and cohesion across all macro themes, we think it remains Common Knowledge that the Trade War is what matters to risky asset markets.
  • Most of the erosion in cohesion is related to changes in topical language rather than changes in tone. Trade commentary is increasingly focused on USMCA, France and Brexit as opposed to China, where there have been fewer recent developments.
  • The most central clusters have become more cohesive around a focus on autos, energy technology (esp. solar) and aerospace. Agriculture, consumer products and other equipment are less central to overall trade and tariffs narratives.
  • We still see very little of the existential / military language we see as a canary for a transition of this Game of Chicken to a more predictable political game. Accordingly we do not favor significant active risk positions on Trade and Tariffs views.

Narrative Map


Narrative Sentiment Map


Narrative Attention Map


Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment


Central Bank Omnipotence Monitor – 12.31.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • As with the other macro narratives we track central bank narratives have become highly diluted relative to prior periods, we think in large part as a result of the emergence of a wide variety of additional macro questions attracting moderate levels of competing attention.
  • Part of the muddling in cohesion relates to a real divergence in central banking discussions, a surprising quantity of which has begun wandering into topics like climate change and central banks’ role (?) in addressing it.
  • As with our November update, we continue to see a moderate linkage between the Trade War and “necessary” policy response.
  • We still think there is a long-cycle narrative of Central Bank Omnipotence – that the Fed will step in if needed on rates, and that doing so will be effective w/r/t asset prices – but there is no question that it is muddled in the short run.
  • Given this narrative structure, we would generally expect greater than expected response to either positive or negative surprise on interest rate policy or associated language.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map


Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment

Inflation Monitor – 12.31.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • All of our macro themes remain at depressed levels of cohesion and attention – in short, we think that risky asset markets are operating without a dominant narrative.
  • However, there was a notable pickup – early drumbeats – in common knowledge about inflation in December.
  • We think the fairly sharp moves (relative to recent history) in precious metals and some commodities, for example, are indicative of the influence of a complacent narrative structure in the presence of even limited new information.
  • We have no fundamental thesis regarding inflation whatsoever. We have no idea if it is coming.
  • Nevertheless, we would expect similarly disproportionate impact from new information (in both directions, but especially favoring inflation) given the continued complacency.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment


The Long Now


PDF Download (Paid Subscription Required): 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.

The kicker here is that I think both parties have embraced a profoundly destructive meaning to the fiscal powers of the State – to tax and to spend. When the tether between taxes and spending is severed – and make no mistake, both the Republicans and the Democrats have been working to this end for 20+ years – then taxes become a pure mechanism for the exercise of government power. They don’t exist to pay for government programs. They exist to satisfy the ruling regime’s conception of justice, equity and retribution for prior wrongs done by the other side. Again, this isn’t a partisan thing. This is a power thing. This is a Management thing.

Regardless of who wins the 2020 election, I believe we are going to be buffeted by punitive fiscal policies in the years to come … punitive on the tax side in the usual sense, where the rich and the old will be pitted against the non-rich and the non-old, back and forth … punitive on the spend side in the inflationary sense, where we will all feel the bite of a monster we haven’t seen in 40+ years.

You know, there was an article in the Wall Street Journal today, titled “China is Taking No Chances with Stagflation”. As if this were something that could be banished by fiat … as if soaring pork prices and declining growth would cease to exist if Chinese citizens were just TOLD that they didn’t exist.

As with every “outlook” or “analysis” article in the WSJ that talk about China, I took this as a crystal ball for what’s coming down the pike in the US in 6-12 months. Seriously. It’s uncanny how that works. (and the subject for another note another time)

So yes, that’s what I think is going to be the Big Story for the next several years … disappointing growth + alarming inflation + a government that tries harder and harder to TELL us that everything is wonderful. A United States that becomes more like China *politically* as well as economically. Smiley-face totalitarian flirtations on the political front, and old-fashioned stagflation on the economic front, all bearded by a stock market that has been transformed into a propped-up-at-all-costs political utility.

The thing is that – depending on where you stand in the pecking order – it won’t feel that BAD as the world is undone by inflation and the politics that comes with it. As the country song goes, “Funny how fallin’ feels like flyin’ … for a little while”. But this IS what undoes us.

We need to get together and talk about all this. Maybe I’m wrong about The Long Now. Maybe I’m exaggerating the issues here. Wouldn’t be the first time. But right or wrong I think we’d all be well served to connect in person and share our ideas and observations. Stay tuned for details on timing and location … probably early fall before the election. Let me know if you’d like to help.

New on ET Pro: the Debt and Credit Monitor

One of our original macro narrative Monitors attempted to analyze the US credit cycle, but we rarely got enough media articles in a given month to generate robust results, so we placed it on hiatus. Recently, however, we (and once again this is the royal we … it’s actually all Rusty) hit upon a clever way to recast our search queries so that we think we are now able to capture a decent narrative signal on debt and credit markets. Here’s the narrative map for Debt and Credit in November, first colored by cluster topics and then colored by sentiment (you can see the high resolution graphics in the Monitors document):

We’ve got three takeaways from these maps and the prior 12 months of narrative analysis with the new query formulation:

  1. After a mid-year bout of complacency in credit markets, the past few months have seen a rapid acceleration in cohesion (focused and connected narrative topics) mostly around a negative sentiment narrative of concern regarding leveraged loans, CLOs, and the liquidity of CCC loans.
  2. This is taking place as the proportion of articles we measure as Fiat News (highly opinionated/editorial articles) has risen consistently. Missionaries are increasingly promoting the idea of a ‘coming collapse’.
  3. At the same time, however, there is also an almost equally positive sentiment narrative building around technology-based lending solutions in consumer credit.

We’re going to do more with credit narratives in 2020, as we know that a lot of our Professional subscribers work in FI and credit markets. If you have questions regarding our Debt and Credit Monitor, please give us a shout!

That brings our total of ET Pro Monitors to six, covering:

  1. Inflation
  2. Central Banks
  3. Trade and Tariffs
  4. US Recession
  5. US Fiscal Policy
  6. Debt and Credit

Of the six, Trade and Tariffs remains the most dominant in terms of narrative attention. It’s also relatively coherent, as it remains dominated by US-China vocabulary. But I want to highlight two really striking (to me, at least) narrative phenomena happening here:

  1. As described in the last several emails I’ve written you (“Silly Season” and “The Sillier Season”), coherence continues to collapse across almost all macro narrative categories. What does this mean? It means this is a market waiting for a Big Narrative from a Big Missionary. Could be a positive narrative and it could be a negative narrative. But the will-they-or-won’t-they-sign-a-deal narrative regarding the US and China, what I’ve described at length as a game of Chicken where no odds are assignable, is no longer enough to move markets up or down with any sort of narrative half-life. I think that if nothing else, we’ll get a Big Narrative of some sort coming out of the Iowa caucuses in early February. Maybe that will be a market-positive narrative. Maybe that will be a market-negative narrative. Maybe we’ll get something else before then. But right now there is nothing to serve as a narrative engine – risk-on or risk-off – for this market. God help us, but fundamentals and stock-picking might actually matter for a while. I’d be long dispersion while this continues.
  2. The other really striking finding is in regards to the inflation narrative. Attention has collapsed, as has cohesion. This is the most complacent narrative structure around inflation that I’ve ever seen. If you’re looking for an asymmetric trade, where a little narrative shock could go a loooong way, this is where you need to spend some time.

And that leads to a final thought. It’s been a fantastic year of growth here at Epsilon Theory, and we truly couldn’t have achieved that without your support. We are more committed than ever to being an independent voice for original research and original thinking, and the Professional subscriber base is our most important resource for ensuring that. THANK YOU!

Happy holidays (and yours in service to the Pack),

Ben

Credit and Debt Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • We have reworked our debt and credit queries to better represent the narrative structure of the market we intend to represent.
  • After a mid-year lull in concerns about credit markets, the last few months have produced a rapid acceleration in cohesion, mostly around a narrative of concern around the leveraged loans, the CLO market and the liquidity of CCC loans in particular.
  • This is taking place as the proportion of articles qualifying as Fiat News – one measure of the affect/opinion content of articles – has risen consistently. Missionaries are increasingly promoting Common Knowledge of a ‘coming collapse’.
  • Fascinatingly, however, the narrative for lending and credit is offset by almost equally positive and constructive Fiat News behavior celebrating the entry of technology-based lending solutions in the consumer credit area.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

Developers Tap Non-Bank Sources to Finance Spec Office Projects [NREI]

AGL Credit CEO Says Credit Is Misunderstood – 11/12/2019 [Bloomberg]

Caffeinated high yield buzzing as coffee bonds mandated [Global Capital]

Is The Fed Secretly Bailing Out A Major Bank? [Zero Hedge]

How Do You Spell R-E-P-O With C-L-O? [Alhambra Partners]

US Recession Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • There is little cohesion or attention to a US Recession narrative at this point – not because there is major disagreement per se, but because (we think) most commentators have moved on from it as a topic.
  • It is, for lack of a better description, simply not part of the Zeitgeist anymore.
  • Sentiment has begun its rise as more stories have focused on the fading of recession fears, aided in part by an increase in Fiat News from news outlets with an interest in promoting that as Common Knowledge more quickly.
  • If we had a view (and we do not) that indicators of a recession in the United States might rear their head again in the near future, we think it would represent a shock to presently complacent Common Knowledge.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

S&P 500 earnings swoon now seen extending to fourth quarter [Reuters]

Reuters poll: Trade truce unlikely in 2020 but U.S. recession fears recede [Reuters]

CLOs Cracked Like No Other Credit Market. So Now What? [Bloomberg]

If you offer good value in retail, you’re winning. Everyone else is in trouble [CNBC]

The lagging manufacturing sector may be about to rebound, according to a reliable indicator [CNBC]

US Fiscal Policy Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • No change since September: there is no Fiscal Policy, Deficit or Austerity narrative, at least as it concerns markets.
  • We are still observing a rebound in sentiment to normal levels, but we think this is related to generally more positive financial markets commentary during recent (better) equity market performance.
  • As with inflation, we believe that is because of narratives in political world. There, we do observe an emerging language about US debt levels, deficits and spending. It exists purely in political and wonkish debates, and has been almost completely untethered from financial markets discussion.
  • Like many other categories, we think there is a powerful complacency about this issue. Recalling some of Ben’s notes this year with tongue planted firmly in cheek, “We are all MMTers now.”

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

‘I am a scavenger’: The desperate things teachers do to get the classroom supplies they need [Washington Post]

U-Va. doctors voice opposition to own hospital’s aggressive billing tactics [Washington Post]

Never Say Never to Forever Bonds [Financial Advisor]

Chicago Teachers End Strike, Their Longest in Decades [NY Times]

Two Risks to Stability Are Building Amid Short-Term Calm [Bloomberg]

Trade and Tariffs Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • Nearly all our major macro narratives have sharply lower attention and cohesion in the month of November – Trade and Tariffs are no exception.
    • We do not wish to overstate this. Even after this erosion, it remains Common Knowledge that the Trade War is what matters to risky asset markets.
  • The erosion in cohesion is, perhaps, the more interesting. We are observing increasing polarization in the narrative structure.
  • The visualization on the following page does a good job of presenting this. The east quadrant is defined by the language linking positive, optimistic and hopeful takes on the Trade War. The central, west and south regions are generally less constructive.
  • It is instructive to us that the constructive clusters are less connected to the overall story being told. Regardless of sentiment scoring, we think that the current game of chicken Common Knowledge is that the Trade War isn’t and shouldn’t be a source of hope.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

U.S. CEOs who win trade barriers for their firms see big compensation boost [Reuters]

Super Rich Rethink Buying Yachts In Uncertain Economy [Bloomberg]

Here are the economic issues that will define the year until Election Day 2020 [CNBC]

Trade War’s Forgotten Farmers Get Crushed in U.S. Cotton Country [Bloomberg]

Goldman says political gridlock to propel stocks in 2020: ‘United we fall, divided we rise’ [CNBC]

Central Bank Omnipotence Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • Central bank policy narratives have become highly diluted relative to prior periods, we think in large part as a result of the emergence of a wide variety of additional macro questions attracting moderate levels of competing attention.
  • When missionaries write about central banks, they are writing stories which do not have much connection to discussions of risky asset markets in general, and writing stories about a huge range of topics, from divergence in stock/bond market returns, to emerging markets turmoil, to tariff-induced inflation, etc.
  • We do continue to see a strong linkage between the Trade War and “necessary” policy response (see SW quadrant).
  • We still think there is a long-cycle narrative of Central Bank Omnipotence – that the Fed will step in if needed on rates, and that doing so will be effective w/r/t asset prices – but there is no question that it is muddled in the short run.
  • Given this narrative structure, we would generally expect greater than expected response to either positive or negative surprise on interest rate policy or associated language.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

Germany Should Prod Its Savers to Take a Few Risks [Bloomberg]

Fears of radical policies hurt Spanish stocks, analysts sanguine [Reuters]

Companies Cut Back, but Consumers Party On, Driving the Economy [NY Times]

Schwab CEO blames the Fed’s rate cuts for layoffs [CNBC]

Powell: Economy Seen in Sustained Expansion [NY Times]

Inflation Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • There is no inflation narrative in the US. Attention and cohesion have completely collapsed, along with the narrative structure on most other dimensions.
  • As with the last several months continue to see election season-related rhetoric surrounding health care, housing and education inflation which continues to have only tangential relationship to market discussions.
  • We have also seen some increase in discussions of inflation related to ongoing tariffs, especially in agricultural commodities.
  • We also note the increased presence of Fiat News, which (in our opinion) reflects more common arguments that the Fed has room to and must act on any economic weakness.
  • We have no fundamental thesis regarding inflation whatsoever. We have no idea if it is coming. But we now consider the Common Knowledge of no inflation in the US to be a complacent narrative structure, and accordingly an asymmetric proposition.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

Two Risks to Stability Are Building Amid Short-Term Calm [Bloomberg]

Fed chief Jerome Powell doesn’t plan to cut interest rates soon [LA Times]

Mobius Says Central Banks Are Taking Wrong Approach to Policy [Bloomberg]

Trump has ‘cordial’ meeting with Fed chair he’d called a ‘bonehead’ [Washington Times]

Louis Bacon Steps Back to End Decades Running Client Money [Bloomberg]

The Sillier Season

Every day we run the Narrative Machine on the past 24 hours of financial media to generate a list of the most linguistically-connected and narrative-central individual stories. We call this the “Zeitgeist” and we use it for inspiration or insight into short-form notes that we publish a couple of times a week to the website. It’s usually pretty obvious why the articles rise to the top of our natural language processing (NLP) metrics, as they tend to be about specific companies or specific market events … topics where you see the headline and think “oh yeah, I understand why this article is appearing in financial media.”

Until recently, that is.

For example, Rusty wrote a brief note today (“Our Dumb World”) about one of the highest scoring financial media articles, “Amazon Removes Auschwitz Christmas Ornaments, Bottle Openers After Outrage”. This is as horrible as it gets, but we’ve been having lots of weird or off-narrative articles scoring high for narrative relevance recently. The same weird article never stays in the Top Ten from day to day, but it’s another weird flash-in-the-pan article day after day.

I think it’s related to the observation I sent you a few weeks ago (“Silly Season”) where I mentioned the low attention and coherence scores we were seeing across all of our macro narrative Monitors. It led me to ask a Big Question, one that I didn’t have an answer for:

At what point, if ever, do political narratives about Inflation and Fiscal Policy become market narratives about Inflation and Fiscal Policy?

We won’t have this month’s macro Monitor analysis completed for another few days, but I’ll tell you what it feels like to me. It feels like the lack of coherence around our “standard” macro narratives like Inflation or Central Banks or Recession has expanded into a lack of coherence around ANY market narrative, standard or not, macro or not. It’s like anything goes in financial media over the past few months, where not only is the ground unsteady beneath our feet in the real-world of market or company fundamentals, but it’s ALSO unsteady in narrative-world.

It feels like literally anything could happen in narrative-world. I honestly can’t imagine anything that would surprise me, or anything that would make for an investable move in markets, up OR down. It’s like the narrative-world heart is just quivering without a stable rhythm or beat of any sort.

We need a defibrillator.

Can you believe that the Iowa caucus isn’t until February? I think that’s going to be the defibrillator, the first real-world electoral result that begins to focus the political competition that’s going to dominate 2020 markets. That’s when I think political narratives start to become coherent market narratives.

Until then … the silly season is going to get even sillier.

Silly Season

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. It’s entirely possible that I’m just too much in my head on this.

First I’ll report on what we saw in the Monitors from October’s financial media.

Inflation – “Inflation narratives faded in both cohesion and attention in October. Any inflation narrative exists almost wholly within political worldas opposed to market world.”

Central Bank Omnipotence – “the level of attention on central bank narratives has faded rapidly: common knowledge has emerged that other investors are more focused on trade, IPO market/growth issues and election politics.”

Trade and Tariffs – “the attention on Trade War narratives has ticked down from our maximum level for the first time in months.”

US Recession – “US recession commentary drifted downward in both cohesion and attention in October.”

US Fiscal Policy – “there is no Fiscal Policy, Deficit or Austerity narrative, at least as it concerns markets.”

Individually, none of these Monitor reports is that odd. Taken together, though … well, that’s the weird part. Our measures of attention (drumbeating on an issue in financial media relative to all other issues) fell in October for ALL of these market-impacting macro narratives. Yes, Trade & Tariffs is still garnering a lot of attention, clearly the most of any of these standing issues. But even there we saw a noticeable decline in both the number of articles published in financial media on the topic and – much more importantly for our research – the centrality or “gravity” of those articles relative to other topics.

What took the place of these core macro factors? Well, we saw a ton of articles about politics … both impeachment and “how a Warren Presidency would destroy markets as we know them” articles. We also saw a lot of “OMG, WeWork” articles. I doubt that the spate of WeWork articles persists, although the Street really needs a good IPO to take the stench out … so we’ll probably get just that.

But I think we’re just getting started on the dominance of political narratives in financial media.

In fact, if you look at the Monitor narratives in terms of political-world rather than market-world, both Inflation and US Fiscal Policy are pretty darn robust in their attention scores. That is, “people are talking” about prices and taxes and spending as it impacts politics. People are not talking AT ALL about prices and taxes and spending as it impacts markets.

Or market prices.

Which leads me to the big question I have … and it’s the big question I don’t have an answer for:

At what point, if ever, do political narratives about Inflation and Fiscal Policy become market narratives about Inflation and Fiscal Policy?

Because right now they’re not, so we gravitate to new market high after new market high. And it is entirely conceivable to me that they never do – become market narratives, that is – and we continue to live in this, the best of all possible worlds. But I’m trying to figure out what might make that transition happen. Is it just time and getting closer to the election? Is it something else? That’s the weirdness that I’m wrestling with. As always, I’d love to hear your thoughts.

US Recession Monitor – 10.31.2019

Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • US recession commentary drifted downward in both cohesion and attention in October.
  • As with other narratives, we believe this took place in part because of general distraction on multiple macro risks. Still, it is our judgment that this is also in part a result of growing Common Knowledge that the recession bullet (in the US anyway) that recession risks have largely been dodged (or will be addressed in market space through aggressive CB policy).
  • Also similar to other topics, recession coverage is intensely intertwined with Trade/Tariffs (the common knowledge proximate cause) and broad common knowledge of the need for, inevitability of and market efficacy of stimulus.
  • Everyone knows that everyone knows that the Fed and tariff tweets will determine asset prices for now, not economic fundamentals.
  • Sentiment is still negative enough to highlight that the economy remains a political talking point, so we wouldn’t call this a complacent narrative structure.
  • Still, we believe rapidly falling attention is often accompanied by increased magnitude of surprise to any negative events.

Narrative Map


Narrative Attention Map


Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

Trump May Abandon Toughest China Trade Demands, Says Private Equity Chief [Bloomberg]

Fed to cut rates again, but other economic concerns are emerging ahead of election [CNBC]

Markets drop another week on signs of economic weakness [Washington Post]

Trump and China Have a “Phase One Deal” The World Economy Is Still at Risk. [NY Times]

Federal government has dramatically expanded exposure to risky mortgages [Washington Post]

US Fiscal Policy Monitor – 10.31.2019

Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • No change in October: there is no Fiscal Policy, Deficit or Austerity narrative, at least as it concerns markets.
  • Sentiment on these topics has rebounded slightly, but it still remains deeply negative.
  • As with inflation, we believe that is because of narratives in political world. There, we do observe an emerging language about US debt levels, deficits and spending. It exists purely in political and wonkish debates, and has been almost completely untethered from financial markets discussion.
  • We have said that the monetary narrative in 2019 is that it means nothing in the real world and everything in the world of asset prices. Is common knowledge about deficits the opposite? Irrelevant to markets, but meaningful to the real economy?
  • Not yet. But as we argued in our September report, it does imply a complacency about the issue in markets.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

Federal Budget Deficit Swelled to Nearly $1 Trillion in 2019 [NY Times]

The Finance 202: Trump team drops push for key economic reform from Chinese [Washington Post]

Expect Bigger Deficits and Energy Unease Under a Trudeau Minority [Bloomberg]

Japan Raises Taxes on Its Spenders Despite Growth Worries [NY Times]

Are Congressional oil sales risking an oil price spike? [Houston Chronicle]

Trade and Tariffs Monitor – 10.31.2019

Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.


  • It is Common Knowledge that the China Trade War remains the most important risk/event to other investors.
  • The emergence of and resulting distraction form two additional core market topics, however, has meant that the attention on Trade War narratives has ticked down from our maximum level for the first time in month (see additional attention graphs below)
    • 2020 Election Politics and Impeachment; and
    • The Implications of a Failing IPO Market.
  • Our core view remains the same: this is an unpredictable Game of Chicken that warrants very little use of investors’ respective risk budgets. • • The fall in attention and stabilizing sentiment also leaves us concerned that many investors may be somewhat complacent about how risky assets would react to a return to negative trade news or political escalation.

Narrative Map


Narrative Attention Map


Supplemental Attention Maps


Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment


Key Articles

No Joy at the Factory on National Manufacturing Day [Bloomberg]

Nomura Says Hedge Funds Appear Bullish on Asia Before Trade Talks [Bloomberg]

Agriculture Funds Aim to Harvest Profit, Along With Corn and Wheat [NY Times]

U.S. markets tepid as trade uncertainty dampens a banner week for stocks [Washington Post]

U.K. Election Looms as Johnson Accepts Extension: Brexit Update [Bloomberg]