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Observations Lab

Non-Linear Views on Financial Markets and the Economy, based on Friedrich Hayek's paper on decentralized knowledge, "The Use of Knowledge in Society".

Editorial Staff
Fisher Investments MarketMinder, March 31 2020
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Stephen Springham
Knight Frank, The Doomsday of All Scenarios? COVID-19 Market Update, 30/03/2020
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Dr. Brian Taylor, Chief Economist
Global Financial Data, February 27 2020
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Tony Coniaris, Portfolio Manager
Harris Associates, September 5, 2019
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By Daisuke Ikeda, Toan Phan, and Tim Sablik
Federal Reserve Bank of Richmond, Economic Brief, No. 20-01, January 2020
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Latest Observations
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S&P vs USTs (Risk Adjusted)

Imbalances: US equities have lost c. 75% of their value vs bonds from 1971 until 2016

Hugh Hendry
Eclectica Asset Management, 2016

Season's Greetings

Merry Christmas & Happy New Year - Let it Snow Let it Snow - “Nothing is so permanent as a temporary government program” (Milton Friedman, 1980), and other memories from a not so distant past.

Investment Office, December 2021

''Non, vous n’êtes pas les hommes de la pratique, vous êtes des hommes d’abstraction… et d’extorsion.''

Quote addressed to "Messieurs les Monopoleurs".

Frédéric Bastiat
Sophismes économiques, XIII. Théorie, Pratique, 1848

US Fed: Behind The Curve and Behind The Crowd

The Coming Bear Market In US Money

Michael J. Howell
Crossborder Capital, December 08, 2021

Robustness in organisms and markets

How does something like the stock market maintain its growth while being buffeted by mutations of economic and political systems and problems such as wars and inflations. How does it cope?

Victor Niederhoffer
Daily Speculations, November 21, 2021

''Did he read letters? No, he read no letters. Did he write letters? No, he wrote no letters.''

Mrs. Steffeck, Dr. Hjalmar Schacht's secretary, describing Schacht's work as Germany's newly appointed Currency Commissioner, in November of 1923, at the depth of hyperinflation.

Adam Fergusson
When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. PublicAffairs, 2010

Global Modern Monetary Theory and what it means for Currency Market Volatility

In the simplest terms, Modern Monetary Theory (MMT) posits that a sovereign country with the ability to print its own currency should do so. This theory laughs at the notion that the growth in debt of a sovereign nation results in risk of default and thus too much debt is bad. […]

Vineer Bhansali
LongTail Alpha, September 2, 2021

A nihilist set on a destructive path?

There was a time when i thought that to speculate you had to be a nihilist set on destruction - tu consens ou plutôt aspires à ta ruine?? That you had to yearn for your own demise..? Hold on..? Perhaps I succeeded?

Hugh Hendry, March 2021

The Big Problem of Small Change

The Big Problem of Small Change offers the first credible and analytically sound explanation of how a problem that dogged monetary authorities for hundreds of years was finally solved.

Thomas J. Sargent, François R. Velde
Princeton University Press, November 2003

"In a million years I am trying to picture an inverted yield curve and a rate hike."

Quote

Danielle DiMartino Booth
Danielle DiMartino Booth of Quill Intelligence at the 2021 New Orleans Investment Conference, 11 November 2021

Turning the Word Upside Down: How Cantillon Redefined the Entrepreneur

Mark Thornton*
The Quarterly Journal of Austrian Economics, Volume 23, No. 3-4, 265-280, Fall/Winter 2020

Stagflation: More Than A Short-Term Risk

For once, let us propose a medium-term economic perspective, an attitude quite contrary to the genes of Gavekal-IS which focus on measuring situations rather than forecasting, but paradoxes have never killed anyone.

Didier Darcet
Gavekal-IS, Publication Nr 126, Risk Measurement, October 15, 2021

Exposure of European company revenues

"This structural trend in Asia, particularly China and India, is one which European companies have increasingly grown exposure to over the past three decades."

Niall Gallagher, Investment Director, European Equities
GAM Investments, GAM Active Equity Series: Innovative Alpha Generation, 21 September 2021

Part 2: What to do in the case of sustained inflation

We have a relatively sanguine view on the likelihood of inflation becoming ingrained in the much as it pains us to agree with the Fed). However, the dark arts of macroeconomics are notoriously tricky, and we have often talked of the need to build robust (as opposed to optimal) portfolios – effectively, portfolios that can withstand multiple outcomes.

James Montier and Philip Pilkington
GMO, White Papers, 21 September 2021

This lady is for turning - why the Bank of England should lead the tightening cycle.

As bond investors we constantly focus on economic growth, inflation, and interest rates. In order to understand the potential moves in the above we focus at the crux of the problem which is the labour market. One way we have looked at this over the years is looking at the supply and demand for labour.

Richard Woolnough, Manager of M&G (Lux) Optimal Income Fund.
M&G Investments, Bond Vigilantes, 14 September 2021

Is Tapering Tightening? Or Is Tapering Less Easing?

As central banks pare back their asset purchases, the process will have the effect of slowing the decline in the stock of bonds that the private sector needs to hold relative to when the central bank was buying bonds more aggressively.

BCA Research, Chart Of The Week, September 17, 2021

Tuning in to reasonable expectations

Why should long-term investors care about market forecasts? Vanguard, after all, has long counseled investors to set a strategy based on their investment goals and to stick to it, tuning out the noise along the way.

Joseph H. Davis, Ph.D., Vanguard global chief economist
Vanguard, Insights, September 16, 2021

Sidelined Corporate Cash Enters the Game

Corporations are flush with cash. Among companies in the S&P 500 alone, cash balances are above $1.9 trillion in total. After record bond issuance in 2020 and profits hitting new highs, many companies are debating “What should we do with all this money?”

Kevin O’Neil, Research Analyst
BrandyWine Global, Around the Curve, September 13, 2021
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