The dog that didn’t bark is the punchline to a famous Sherlock Holmes story, Silver Blaze, where our man Sherl deduces that the killer was a familiar presence at the murder scene because of the absence of a clue – the watchdog who barked not at all as the murderer came and went.
It’s the same thing with US fiscal policy … it’s the absence of a clue that tells me the market is extremely complacent about what is coming down the pike here.
That clue is, of course, the market narrative, and when I say that a market narrative is absent from US Fiscal Policy, I mean that there is no connection between the occasional financial media article about budget votes or fiscal policy and ANYTHING written about markets per se. This was the point of an ET Zeitgeist note I published last Friday, titled We’re All MMT’ers Now. It’s a quick read and worth your time.
In this email, I want to show you the Narrative Monitor we maintain on US Fiscal Policy so that you can understand why we think this is a big deal.
Here’s the page on the ET Professional site where you can access this Monitor data, and here’s what Rusty had to say about our results:
- As in prior months, there is very little attention being paid to fiscal policy/budgetary topics, and practically no linguistic connection between them and financial markets narratives.
- Cohesion and Fiat News, too, remain at floor levels.
- We counsel some awareness of the scale of policy proposals, especially those being promoted by leading Democratic candidates. The market is paying zero attention with zero cohesion, which we observe as a complacent structure.
- A sufficiently credible candidate with a GND/MMT-style approach could be a significant surprise to a market that could not care less about debt ceiling negotiations, government shutdowns, debt levels or budget deficits.
And here’s the narrative map itself:
What Rusty is focused on is the peripheral position of market-related narrative clusters (what’s moving the US market, why are China stocks rallying/falling, etc.) all found at the top of the narrative map, and the distance and empty space between these clusters and the center of the narrative – the record US budget deficit – as well as the distance and empty space between these clusters and the bottom of the narrative map – the fiscal policies proposed by Democratic candidates.
Up/down/left/right means nothing in these narrative maps. You can turn them 90 degrees or upside-down and nothing changes in their meaning. What is meaningful is centrality and distance and the connective links between clusters.
When Rusty and I see a narrative map like this, we immediately look at the narrative core of anything written about US fiscal policy – the record deficit shown as a bright red cluster – and how linguistically divorced those articles are from ALL other articles that show up when you do a search on “fiscal policy”. None of these peripheral articles are really about fiscal policy. They use that phrase in the article, but the article is about something else.
We also see that the articles about markets are as far apart from articles on Democratic candidate policies, like student debt forgiveness, as it is possible to be on this map. In other words, even though all of these articles share the phrase “fiscal policy” somewhere in their text, there is ZERO linguistic connection between an article about markets and an article about what a Democratic president would do about student debt. THAT is what we mean by a complacent narrative structure.
Will the market go up or down as it becomes less complacent over fiscal policies over time? Yes. And I’m not trying to be cute with that answer.
I don’t know what the market reaction will be as (or if) fiscal policies and proposals become biting (or pleasing) realities. All I know is that the market is unprepared for this. All I know is that fiscal policy is NOT in the price of financial assets today.
Yours in service to the Pack,