signal vs. noise on Wall Street


In 1991(?) I encountered a political analyst just hired by Prudential Securities. At that time he was writing that neither major political party had particular relevance for most Americans any more. The Democrats, he said, had a cultural agenda but no economic one. The Republicans didn’t believe in much of anything, but were moving toward an unholy alliance with the religious right that the party would come to regret. Clients found his work interesting but irrelevant. Just noise.

In 2021, we have Heather Cox Richardson, who teaches 19th-century American history at my alma mater, Boston College, describing today’s Republicans as the 19th-century southern pro-slavery Confederacy redux, intent on stripping voting rights from minority groups. Congress seems incapable of addressing aging physical infrastructure, high-cost health care or a weakening education system. And, of course, there’s the Trump-led, Republican-abetted attempt at violent overthrow overthrow of the government elected last November. Kind of like a bad science fiction novel. Stock market implications, if any? …the main potential issue I see is capital flight. I think this is regarded as too far-fetched to be on the front-burner for Wall Street, or at the very least too controversial to be put in print.

On a more mundane level is the continuing misuse of the concept of inflation in the financial press. Inflation isn’t about a one-time increase in the price level. It’s about the situation where prices continue to rise, year after year, often at an accelerating rate. This induces changes in consumer attitudes and behavior. People, and corporations, begin to anticipate continuing future price rises and deteriorating value of the currency and other fixed-income-like assets they hold. They change purchasing behavior, hoarding and buying physical assets they think will retain value rather than holding currency.

Think Russia or Venezuela as extreme examples. The US suffered a mild version of this in the late 1970s. The reality is that we’re closer today to the opposite (and worse) situation–deflation.

Signal tomorrow

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