Most of my work involves researching esoteric economic indicators from countries and industries in an attempt to figure out what is really happening within and between economic centers and what it implies for capital markets and public financial policies.
This kind of research is difficult to booleanize into short-form correspondence, and most of it concerns long-term issues that interest traders and speculators. In order to share some of the information gleaned from the research and analysis, I write what I refer to as reference columns here at Real Money. These columns are concerned with long-term trajectories and are intended to provide subscribers with an orientation point from which to evaluate the near future for economic activity.
A few months ago I wrote about the "global metanarrative" and the interlocking relationships between energy, technology, debt and demographics. In a two-part column in June, I discussed the concept of uneconomic growth. This past March I wrote about the importance of payroll tax receipts, how to adjust the government data to make it informational and what it implies about the immediate strength of the economy. Also in March, in a two-part column on globalization, technology and politics, I introduced the concepts of the compensation and efficiency theses.
These issues and many others are not exclusive to the research we do. Many other shops geared toward substantive institutional analysis do similar work. None of this comports with short-form discussion, however, and is almost totally absent from the publicly available, championed narrative concerning the economy that is ubiquitous in the financial media. The totality of all of it, however, indicates that there are real and growing issues concerning the near-future viability of the dominant neo-classical economic framework that public policymakers advance and that private sector financial and non-financial businesses manage their operations in.
The acknowledgment of this was made evident as well by Federal Reserve Vice Chair Stanley Fischer this past August, which I referenced in the column "The Fed: Something Is Wrong." Very quietly, the largest macroeconomic hedge funds most sensitive to the apparent problems with the macro environment and the evident disconnect between public financial policy action, economic fundamentals and capital-market performance are closing shop.
As Bloomberg pointed out about a week ago, quoting information from Hedge Fund Research, the macro hedge funds have grossly underperformed the stock market indices this year, with closings at their highest since the 2007-08 financial crisis. This should be a considered an indicator of economic problems, but judging from the comments section of the article, most investors are willfully ignoring this signal.
This breakdown in economic fundamentals has continued globally, even as public policymakers have increasingly applied textbook neo-classical counter-cyclical measures to thwart it, but there's been little discussion by the financial media and little regard by capital market participants for what it implies. In response to this activity, some members of the public financial institutions and non-governmental organizations, like the International Monetary Fund, the World Bank and the Bank for International Settlements, have become more proactive in addressing the issue. With respect to the Federal Reserve, I discussed this last August in the column, "The Rise of 'Nowcasting' Economic Activity."
What's been glaringly absent from the discussion, however, are public acknowledgements of these issues by the largest private sector financial firms, most importantly the four U.S.-based money centers and the two dominant brokerage firms: JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), Goldman Sachs (GS) and Morgan Stanley (MS). There can be little doubt that they are aware of the growing structural disconnect between public financial policies, the economic responses to them, and capital market activity, and they are managing their own risk internally.
Perhaps it is the close alliance with the Federal Reserve enjoyed by these organizations -- from which they benefit -- that precludes them from offering substantive commentary on the subject, but that is just conjecture on my part. For those interested in a longer-form discussion of these issues from a non-U.S.-based firm that is willing to acknowledge and discuss them, I strongly urge you to read a report issued two years ago (PDF) by London-based Tullett Prebon Group. It's an excellent read and should supply you with a deeper understanding of the issues I've addressed in the reference columns listed above.