Markets don't move on what's actually true. They move on what everyone believes everyone else believes. The inflation story shifted from scattered concern to unified conviction without any fundamental economic change, only a change in narrative structure. What happens when millions of investors suddenly realize they've all started watching the same thing?
- The inflation narrative went from fragmented to architecturally unified. A year ago, inflation was mentioned in news stories but wasn't the central focus. Now it's the gravitational core of financial discourse. The doubling of relevant articles masks something more important: they're all connected, all reinforcing, all saying the same thing.
- Reality didn't change. Inflation data didn't get worse. Everything just became coherent. The underlying economic indicators are ambiguous and flawed by random statistical noise. But that noise is irrelevant now because the crowd has synchronized around a single story.
- This synchronization creates unstoppable behavioral change. When something moves from being individually believed to being commonly known (everyone knows that everyone knows), markets shift from debating whether it's true to acting as if it's inevitable. That transition happens fast.
- The wage inflation numbers that would trigger this tipping point are mathematically certain to appear at some point. Not because inflation is actually accelerating, but because the underlying data methodology contains randomness that occasionally produces shockingly high readings. One hot jobs report becomes the crystallizing moment.
- If this narrative collides with slowing growth from a trade war, the story stops being inflation and becomes stagflation. The market then faces the nightmare scenario: the one narrative about money becoming tighter while the other narrative about growth becomes weaker. That's when the common knowledge game turns destructive.
Subscribe Today to Read More
Unlock instant access to this and hundreds of other evergreen essays that explore the world of narrative through hard science and human wisdom.
- Make more informed decisions as an investor and citizen.
- See through the nudges of Big Politics and Big Media.
- Become a better consumer of news.
- Maintain your autonomy of mind in a swarm of narratives.
- Join a community of more than 100,000 truth-seekers.
Looking for Deeper Insights?
Unlock exclusive market intelligence, trade ideas, and member-only events tailored for investment professionals and active investors with Perscient Pro.
VISIT PRO
DISCLOSURES
This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.
Comments
Getting some email questions on how the Natural Language Processing (NLP) functions work. At a very high level, the AI is employing a “gravity model”, where the articles that share word choice and grammatical structures attract each other and articles with different word choice and grammatical structures repel each other. Take a look at Quid.com and at the Epsilon Theory note “The Narrative Machine” (http://www.epsilontheory.com/the-narrative-machine/) for more.
Continue the discussion at the Epsilon Theory Forum...