Let’s take a look at the UK.
An understanding of crowd behavior is a handy tool in delivering a leg up; this applies equally well in handling the analytical horde as the investment crowd. The following illustrates our point, and illustrates just why our clients had an advantage in understanding real-sector change in the UK, 2013 and Q1 2014. We recommend the application of this technique.
From our Sep/2/2013 sketch: “In the Spring we isolated a flaw common to most UK economic models…”; well, common to most observers actually, “…almost all of whom were driving at 90, gazing in the rear view mirror; a perfect case of group-think in economics..” – holding hands, shouting out together in the dark. “Once we had that in hand we in effect had the financial headlines in hand. And that is exactly how things worked out.”
Naturally it was not a gangbusters UK economy; that was beside the point.
We predicted more of the same into 2014. With a few exceptions, this too worked. Thus the “triple dip” recession that so many economists had predicted Q1 ‘13 as a near certainty just ahead, was a no-show (if these guys were plumbers, they’d be out of a job). The Bank of England, the OECD and the IMF – all were cutting their forecasts as we grew more optimistic.
It was not all economics. It was also our admiration for Osborne and his policies – why the economy would improve without an ease in the fiscal squeeze. We received hate mail when we called the administration’s economic policies “enlightened.” But we were right – thank you George.
Yet this satisfactory exercise did not come without disappointment. And that was the matter of translation. One would think that if one has the direction of miss, most key releases, one could do well in the matter of translation, intra or inter market. However, because FI price change in the UK and the US is now rigged, that part did not go as well. In that sense we were ambushed by planners.
Now, after months of the economy “outperforming,” most analysts have caught on, or think they have.
What’s next?
Bank of England policy, H1, will be either a wash or a retardant; in other words, policy will get in the way. Next, recent experience with “forward guidance” shows us exactly why King always thought the idea to be a foolish one. Carney will continue to switch targets and tools.
Administration policy (in direct contrast to its US counterpart) will continue to favor growth. This is not appreciated by some, especially the media and faculty-lounge types, and for that matter, perhaps over half of street economists who are still dusting off from their last encounter with reality.
Real sector activity will continue to outperform given consensus, but of course in semi-erratic fashion - not in a straight line. The major surprises are over for now; yet those along the way will be to the side of more, not less, or at least most of them will. Certainly services and manufacturing prints Q2 will tend to broach consensus.
Finally and key remains the UK consumer. It is well known that now we have a record number of people in work, and of course we have the spark to consumption provided by the housing bonanza, and we have a shopper who will resort to increased leverage to linger in the mall. These things are known and priced in. It is ongoing attitude which is missing, most models.
Robert Craven
An understanding of crowd behavior is a handy tool in delivering a leg up; this applies equally well in handling the analytical horde as the investment crowd. The following illustrates our point, and illustrates just why our clients had an advantage in understanding real-sector change in the UK, 2013 and Q1 2014. We recommend the application of this technique.
From our Sep/2/2013 sketch: “In the Spring we isolated a flaw common to most UK economic models…”; well, common to most observers actually, “…almost all of whom were driving at 90, gazing in the rear view mirror; a perfect case of group-think in economics..” – holding hands, shouting out together in the dark. “Once we had that in hand we in effect had the financial headlines in hand. And that is exactly how things worked out.”
Naturally it was not a gangbusters UK economy; that was beside the point.
We predicted more of the same into 2014. With a few exceptions, this too worked. Thus the “triple dip” recession that so many economists had predicted Q1 ‘13 as a near certainty just ahead, was a no-show (if these guys were plumbers, they’d be out of a job). The Bank of England, the OECD and the IMF – all were cutting their forecasts as we grew more optimistic.
It was not all economics. It was also our admiration for Osborne and his policies – why the economy would improve without an ease in the fiscal squeeze. We received hate mail when we called the administration’s economic policies “enlightened.” But we were right – thank you George.
Yet this satisfactory exercise did not come without disappointment. And that was the matter of translation. One would think that if one has the direction of miss, most key releases, one could do well in the matter of translation, intra or inter market. However, because FI price change in the UK and the US is now rigged, that part did not go as well. In that sense we were ambushed by planners.
Now, after months of the economy “outperforming,” most analysts have caught on, or think they have.
What’s next?
Bank of England policy, H1, will be either a wash or a retardant; in other words, policy will get in the way. Next, recent experience with “forward guidance” shows us exactly why King always thought the idea to be a foolish one. Carney will continue to switch targets and tools.
Administration policy (in direct contrast to its US counterpart) will continue to favor growth. This is not appreciated by some, especially the media and faculty-lounge types, and for that matter, perhaps over half of street economists who are still dusting off from their last encounter with reality.
Real sector activity will continue to outperform given consensus, but of course in semi-erratic fashion - not in a straight line. The major surprises are over for now; yet those along the way will be to the side of more, not less, or at least most of them will. Certainly services and manufacturing prints Q2 will tend to broach consensus.
Finally and key remains the UK consumer. It is well known that now we have a record number of people in work, and of course we have the spark to consumption provided by the housing bonanza, and we have a shopper who will resort to increased leverage to linger in the mall. These things are known and priced in. It is ongoing attitude which is missing, most models.
Robert Craven
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