In an economy that can’t be trusted

When an economy is understood, up or down, it’s possible to plan, to concentrate resources, and to invest with reasonable confidence, even if results don’t follow as expected. Below is a market thesis for the year ahead, which may be different from those behind, in an economy that isn’t understood, and can’t be trusted.

  • The life-long economic plans and actions of an individual or enterprise — an education, a career, a residence, a strategic direction — are concentrated investments that can’t be easily diversified or hedged, offloaded, changed, or liquefied. The economy maps these things out, which is to say, it guides and lets us track the big decisions.
WSJ
  • With markets rising fast while the economy lingers uncertain, it isn’t as has been by some suggested that the two have been “decoupled.” Nor is it that the market is six months ahead, or only that, as others keep insisting. The connection is just different now… The driver of the market is still economic, as it’s always been, but the lead is much less opportunity supply (business performance) than opportunity demand (investor flows).
Barron’s
  • In short, the market has become inordinately pushed by sentiment, and a particular type at that, which is not necessarily irrational (for reasons stated). This atmosphere may take some time before it fades, as markets in the long run tend towards the business fundamentals all the same. But in the meanwhile, cold and detached, the analysis may be less quantified and formulaic than it has been in markets past…
FT
  • … because a current price is based on an expected future price, which, more so than before is based on future sentiment

This is a thesis, not a forecast, but the potential consequences are worth noting.

Related reading:

The tipping point and fundamentals

Linear perception, exponential change, and the new value

Markets and the years ahead: Post-digital edition

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