I am still collecting my thoughts, and catching up with work, after holiday, so a few Random Shots are in order. For general reading inspiration I’d recommend Aeon, Arts and Letters Daily, The Hedgehog Review and The Point. I try to consume as much from all of these as I can, in between the mandatory market/investment-related research.
Read MoreEquities seem to be in the throes of the death of a thousand cuts at the moment. The rebound towards the end of January, from the initial swoon, was reversed last week, and at this point a new low is all but certain. There are a number of things troubling equities. Geopolitics are a fickle catalyst for anything, but it has certainly added to the misery in the past few weeks. A Russian incursion in Ukraine remains a distinct risk, an event which would force markets to discount the risk of a more sustained military conflict on the European continent, not to mention a further leap in energy prices. The latter would intensify inflation fears, which are already weighing on markets in the context of the surge in bond yields, and the significant repricing in expectations for monetary policy, for both rates and QE. Investors could do with relief from these headwinds, but I doubt they’ll get it, at least not in Q1.
Read MoreThe more I think about the current debate about inflation, the more I am inclined towards the following remarkable conclusion. We currently do not have a good framework to explain inflation, neither cyclically nor structurally. Perhaps more appropriately, the old consensus among economists and policymakers on what inflation is, how it arises, and what to do about it has been severely challenged, if not shattered entirely. In a post-pandemic world of a clear, and almost textbook, inflationary mismatch between demand and supply, this has created the odd situation in which everyone is talking about inflation, and more recently inflation expectations, concluding that it either doesn’t matter or that we don’t understand how inflation works in the first place. Nowhere is this clearer than in the debate about whether presently high inflation is transitory or not. The thrust of this discussion has as much to do with the main interlocutors convincing each other that high inflation doesn’t matter, as it is about agreeing on what, in fact, transitory means.
Read MoreThis week, I’ll stitch together some thoughts on our ticket off the Covid-19 train, also known as the “vaccine”. I am prompted by Georges Pearkes’ challenge to come up with why it might be a bad idea to given people $1500, or another monetary amount, as an incentive to take the vaccine. First things first, it’s very possible that our main problem next year is that we won’t have enough of this thing. Paradoxically, the prospect of a vaccine dealing a killer blow to the virus in the middle of next year has created an incentive for authorities to maintain tighter restrictions in the short run—well into Q1, at least—while we wait for the shot. After all, if the virus is gone tomorrow, the cost of an infection today increases, a lot. A reasonable counterpoint is that governments aren’t masochists, and some form of reopening will happen in Q1, but the point I am getting is simple in the end. Assuming the vaccine is rolled out by early Spring, on the back of a miserably semi-locked down winter, it’s more likely than not that people will be scrambling for a jab, especially in an environment where the vaccine becomes a ticket to otherwise restricted activities via a form of passport. In such a situation, we won’t have to pay people to take the shot. We’ll have to make sure it isn’t hoarded. As for the counterpoint, I am not convinced that the rise of anti-vaxxers—known in the literature as "vaccine hesitancy”—can be applied to predict a threat to the effectiveness of Covid-19 vaccine efforts. That said, early survey evidence suggest that hesitancy might be an issue, especially at the margin where the line between failure and success is drawn.
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