One of the reasons that macro investing is difficult is that it requires a lot of reading. Ho-hum, you say. Everybody does a lot of reading. Well, perhaps so, but I at least find that reading a lot of things, in detail, in a short space of time, tires out my brain. This week, I have had a good week in terms of reading all my things — but as a result, my brain feels tired, as if I had spent three solid days revising for an exam. There is just an inherent limit on the amount of information a person can take in. This is part of the reason for my economic data summaries — they reduce the mental load. I am not sure how else to keep this problem under control. The observation that some great athletes become great by having a quick recovery time — Michael Jordan being the example I have seen cited — is one that I have been thinking about recently, and I think the idea of being able to recover quickly, or, which is the same thing, accepting that you have a right to relax, is an important part of a successful lifestyle strategy.

Incidentally, while I am on a personal note, isn’t it infuriating to go to use your computer, only to find that it has automatically installed some updates and restarted itself?

ECB today; I am not sure what they are likely to do. Let’s think about the model. The ECB is an asymmetric inflation targeter with a threshold. At present, the European situation is not bad enough to be over the threshold — unemployment is rising and the economy remains weak, but peripheral spreads are low and economic sentiment has been improving. Inflation is under control, which means that an increase in rates is unlikely, but the fact that it is possible to see an improving trend means that a cut in interest rates is unlikely.

I mustn’t forget about Greece’s politics, and in particular the risk that Syriza could once again gain power. In the short term, I think the euro crisis is under control. I never thought Greece would leave the euro in the immediate future, and indeed in May I bet a friend £100 that Greece would still be “in” in a year’s time. I am feeling pretty good about that. But these views were short-term in nature, and based partly on my view that the only way a country is likely to leave the Eurozone is if there is a widespread political shift in the population against both austerity and the single currency. That could happen in Greece, and elsewhere, and I must not let my short-term scepticism about a euro exit blind me to the possibility that long-term changes are occurring.

Alphaville reports a note from Goldman Sachs that argues that the data distortions caused by seasonal adjustments have probably faded away. This is for two reasons. First, statistical offices, in the US at least, have been active in dealing with the problem, for example by removing outliers before applying seasonal-adjustment algorithms. Second, as time goes on, the years in which seasonality was apparently increased by large moves — 2008 and 2009 — are becoming less heavily weighted by the algorithms as time goes on. GS concludes that the improvement in US data in H2 2012 was not driven by seasonal adjustments.

A report from the Bipartisan Policy Centre has addressed the question of whether the US could pay its bills in the event that the debt ceiling becomes a binding constraint (which would be some time between 15 Feb and 1 Mar if no deal is agreed). The answer is that it could pay some of them, and in particular it would likely be able to pay the coupons on its debt. It would probably also be able to pay Social Security (i.e. pensions) and some other priority things, but some bills would go unpaid. So while people talk about a “default” if no deal is agreed, we are talking about a failure to pay people who are owed money, not a failure to pay bondholders. That is assuming that the Treasury’s computer systems could manage that — the question mark over this brings in an element of uncertainty.

I looked yesterday about whether US households are still deleveraging. They are not — which is interesting. However, this has made me think about what it means to say that a deleveraging cycle has come to an end. Households appear to have ceased the reduction of their liabilities, but they are a long way from increasing them at what was, pre-crisis, a normal rate.

 

Advertisements