Vogonomics

“But this long-run is a misleading guide to current affairs. In the long-run, we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again” . John Maynard Keynes. And as we know, the long-run is made up of a series of short-runs, and there is always a danger that economists and macro strategists conflate the two. Two behavioural sins follow, which unsurprisingly are not mutually exclusive. The most common, particularly for hedge funds and traders, is the immediacy bias, where the focus is entirely on the short-term, and more significant trends go unnoticed. This behavioural sin is matched by the equally insidious “tunnel vision”,  exclusive focus on the long term, or more generously, three or four moves into the future. Admittedly a sin that can ultimately be successful, providing the analysis is correct, but it can lead to wild swings in unrealised P&L and man...

The Federal Reserve has revised up its economic forecast for 2021 as far as it dares. But for all of this optimism, and at 6.5% real GDP growth, it is predicting the most vigorous growth since 1992, when the economy was throwing off the shackles of the Savings and Loans bust, its forecasts for this year are still materially below consensus forecasts. In the wake of the two fiscal packages, totalling nearly 14% of GDP and evidence that consumers have built up savings of more than $1.6tr during the pandemic, investment banks are competing to forecast the strongest growth rates for 2021. I still think that these market forecasts, which are rising north of 8%, are still too low. Economists are intimidated by large numbers, but the massive stimulus and pent-up demand suggest that annualised growth will be stronger still. The risk for the Fed is that this strength is immediate. Citibank's US economic surprise index has dropped to its lowest level since last June as recent data has disa...