Last year I wrote about how most of the action would reside in Washington and the world's capitals as opposed to Wall Street or the City or the other markets. Unfortunately, this has become all too true and it has entailed many unintended consequences. Even the most fundamental or focussed stock jock has had to become increasingly aware of macroeconomics; we get schooled in it every single day. In the markets you ignore new information at your peril.
But one amusing aspect of our brave new world is that many economists have attained a great deal of celebrity. This is surprising given, collectively not universally, they were so god awful poor in predicting our present demise. Some of this has more than a bit to do with econometrics but I reserve my comments on that black art, which I practiced in the past, for another occasion. Economists' fame is catalyzed by Twitter and various other media, this is our brave new world. But when I gaze at pictures of Nouriel Roubini hitting the a-list parties surrounded by fetching women on Facebook (we are FB friends after all), it gives me pause to ponder his status. Deal Breaker reports that Roubini's Tribecca loft is adorned with plaster vulvas on the wall; I don't know if that is true but it raises some interesting questions about a man much of financial world refers to as Dr. Doom. Niall Ferguson, a historian by training, has also attained minor rock star status and he can be frequently found on television or various other media. And, of course, Paul Krugman has taken his game up a notch from being a critic of the past administration, and nobel laureate to commenting now on all things pertaining to fiscal policy. Didn't the man orignally earn his chops on trade theory? In days past Keynes was known to dine with Churchill, interesting encounters I am sure, but nothing like crossing a velvet rope in Tribecca or Dumbo with a bevy of women hanging on you while you sport a moniker like Dr. Doom.
Still, investors should keep a close eye on capitals and central banks now as the world has very quickly gone from having too much money to having too little. And this exercise is somewhat related to the commentary and analysis produced by our new celebrity economists. It is a very challenging environment because not only have our markets become increasingly volatile, but so too has our economy - as measured in various data series, and - most importantly - so has our policy. The unprecedented speed with which a number of indicators melted in the fall of 2008 strains any recent memory of economic activity; of course measurement of this phenomonon is complicated by the lack of comparitive data spanning the past few decades.
Market volatility, however unpleasant it may be to various participants or desirable to others, is something that most investors can cope with, mitigate, or abstain from by going to cash. Economic volatility, additionally, is unpleasant but it does present investors with a range of inputs that can at least be quantified. It is policy volatility that is the hardest thing to overcome. Mark Twain once remarked that "no man's life, liberty or pocketbook is safe as long as legislature sits in session." It is impossible to measure today's environment against those past; structural and political changes defy quantification. But economic data do not.
The problems we face are substantial and recent declines in the Conference Board Consumer Confidence Survey and the Leading Indicators imply trouble ahead. Similarly, payroll data has not been very encouraging with the U.S. creating only 33,000 and 80,000 private sector jobs in May and June respectively.
Recent Gallup polls indicate that Federal Govt. Debt is perceived as a major threat by many voters. Concern over the deficit is a relatively new phenomenon, and one that encompasses a long term secular challenge of epic proportions when considering our entitlement spending and demographics. I wonder what would have happened if these same people had been polled about municipal or state finances, that is an uglier picture still.
When one considers the dysfunctional nature of our government, and various others around the world, a likely scenario emerges and it is not a very happy one. We will be slogging through this environment for a long time. Our recovery, once thought to be V-shaped - now feared to be W shaped - can best be hoped to be square root shaped. And of course, celebrity economists are likely here to stay until something else fills our basic need for enlightenment and entertainment.