Our insights

The key strategy for economists to get attention and avoid sounding ‘too consensus’ is to assign high probabilities to events without taking them as base case. Saying that something has a 30-40% probability of happening sounds high enough to make it an important risk to watch but, if it doesn’t happen, chances were always less than even to begin with. A better way is to frame a debate and look at the pros and cons of both sides’ arguments.

As economies reopen, we’re likely to see two overlapping patterns – a ‘bungee jump’ driven by a focal point created by the resumption of activity as mobility picks up, and a more traditional ‘cycle’. The bungee jump is about the short-term displacement of activity as governments closed down entire economies by decree and deployed massive stimulus at the same time.

The business of forecasting is a tricky one. This is because prediction and explanation are different things. Of course, this isn’t unique to the economy and financial markets: alchemists could predict that combining two elements would result in a third one, but couldn’t explain exactly why; geologists have great explanations for earthquakes, but can’t predict when the next one will happen.

Our equity investment process is built on a robust principles-based sustainable philosophy, combining our expertise with high-quality data. Sustainable investors are acknowledging that material ESG factors influence investment returns, as we explain here.

An old saying about this or that economy trying to fix its structural problems is that it’s the opportunity of the future… and always will be. The opportunity never really materialises in full, or doesn’t last long enough. To strategists, sometimes the euro area feels like this.

Scores of economists cut their teeth on one of the many editions of Rudi Dornbusch’s textbook: Macroeconomics. While the title may seem perhaps a bit unimaginative – at least to some – the author’s quotes are the stuff of legend. One in particular resonates today: “in economics, things take longer to happen than you think they will, and then they happen faster than you thought they could”. Take gold.

A side-effect of prolonged lockdowns is that the entire Netflix catalogue gets nearly exhausted at some point. When that happens, classics come back in vogue – both films and economic topics. If The Postman Always Rings Twice, so does inflation: it makes the news both when it happens and then a year later, when it distorts comparisons that look back 12 months.

Economists’ failure to accurately predict the magnitude of big events like booms and recessions and – perhaps more often than they’d like to admit – the timing of these events with sufficient foresight, inevitably makes them the target of all sorts of jokes: for example, how can you tell that economists have a sense of humour? Because they put decimal points in their forecasts.

"Nothing is certain but death and taxes" is a rather fatalistic proverb drawing on the inevitability of the life cycle to make a parallel with the inevitability of the fiscal burden. However, just like with Fed tapering, the key thing with any tax policy change is timing and thresholds.

One of the perennial dilemmas of strategists is figuring out when good news becomes bad news in the eyes of the market, and vice versa. Say the jobs report comes in stronger than expected. This would be good news and the market would go up. More people working means more tax revenues, less spending on unemployment benefits and an increase in demand.

The long-awaited inflation spike has come. Price cuts in the early months of the pandemic are now dropping out of the annual comparison. Surging commodity prices and temporary supply bottlenecks are doing the rest. But we don’t see the pace of wage growth and degree of tightness in the labour market that could result in a more long-lasting inflation spiral.

Microeconomists are wrong about specific things – economist and comedian Yoram Bauman often says – whereas macroeconomists are wrong in general. Could it be different this time around? A critical look at both the micro and macro drivers of bond yields suggests that a large part of the move higher, at least in the short term, is likely to be behind us.