Danger of Narrative Economics

The global stock market gets its cue from over-optimistic narrative news that resulted in a pandemic obsession to push stock market asset price higher at any cost.

We live in the era of pandemic good news narrative, that resulted in ignoring, and dismissing any bad economic news as yesterday’s news.

  1. Monetary easing and negative interest rate is widely encouraged and demanded to cure slowing global economy and to push equity asset prices higher.
  2. Brexit worries have disappeared because no-deal Brexit deal has been delayed.
  3. Concerns about the ailing European economy have subsided, ignoring German’s second-quarter contraction and an expected shrink in the third quarter.
  4. ECB unlimited Quantitative Easing stimulus bomb and reduction of negative interest rate from -0.4 to -0.5 has been hailed as good monetary policy.
  5. Hopes of pause in Trade war escalation between the US and China has sent the US stocks higher only 1% below the all-time high.
  6. The monetary ramification of broken trade trust and the massive cost of moving the US tech companies supply chain from China to other Asian countries has not been factored in the future earnings.
  7. Worries about the geopolitical risk in the middle east and recent severe disruption of vulnerable oil supply in Saudi Armco facilities had a mute global reaction.
  8. The lack of appetite for new investments underscored by the global flight of cash into long term frozen negative yields is viewed as a good investment.
  9. Rally in defensive assets and bonds prices at the same time as the rally in equity is viewed as an opportunity.
  10. Superannuation fund managers are ignoring the thin line separating expensive defensive asset class and growth assets.
  11. Risk of significant reduction on pension funds investment return due to extreme volatility and news sensitive market has gone unnoticed.