Enemies Real and Imagined

Interesting. The Fed definitely needs to jawbone markets lower to keep talk about inflation and their impotence to a minimum. Do you think the Fed is conjuring the fake wall of worry to avoid risking crying wolf about being hawkish?

Anyone who has struggled to lose weight knows that the first thing you do is set very realistic, easily achieved goals so you can build momentum at the beginning. Eventually all those little goals, each one surpassed without much suffering, lead to the enormous brick wall that is the basic laws of thermodynamics. That’s when things get hard.

This market just wants to be up. Most participants are long, and ‘stonks never go down’ is waaaay more fun than taking a beating every single quarter, or month, or week, or hour. Delta provided people with just enough of a “sell-off” to allow more people to BTFD. I predict the next “market rout” comes from renewed mask mandates, likely at the Federal level. That’ll be the excuse for a massive, brutal, gut-wrenching 1.3% drawdown that lasts nine hours.

Good article Rusty, makes the market response this week more understandable.
Outside the scope of your points in this article but curious what you and others think of the Fed ( and it’s missionaries) risking their apparently strong credibility with the “inflation is transitory” narrative ?

I.e. if Inflation continues as ugly as it has been does the size of the market fall grow along with the loss of their credibility?

Love this “what we mean by wall of worry is a risk or series of risks that are speciLcally designed by narrative missionaries to be easily climbed.”

Weird that I look at that same quote and get depressed

@chudson : I don’t think it’s really the Fed doing the conjuring, although I’m sure they get how this machinery works.

@Desperate_Yuppie : I feel seen.

@psherman : I don’t think they run much risk to their credibility TBH. I think that at some point, inflation WILL slow, and even if we packed five years of Px increases into the interim, they’ll be able to tell a “transitory” story. Hard for me to see what could really back them into a corner they couldn’t cartoon their way out of.

Rusty,

Until this note, I never thought too hard about the Wall of Worry as I thought I understood it. I get how it works, what I never thought about was that it was intentionally created.

I assumed it was a “real” thing in that the market had real worries and as those faded or were overcome, the market went up. What stupid me never thought was that the Wall itself was created to be overcome (you can never be too cynical, thank you Lily Tomlin).

My questions then are who are and how conscious are the missionaries in building the wall? So, for the Delta variant Wall of Worry, did they (news anchors, Wall St. PMs, Washington officials, others?) intentionally talk up the Delta variant as a risk to markets as they knew, eventually, it would look less bad and the market could then climb the Wall?

As manipulative as this is, you have to hand the missionaries who do this credit for A+ game playing.

Mark, not stupid at all. I think that usage may be the more common, and our interpretation of it simply the more cynical.

That said, I’m not sure that there’s always an explicit and comprehensive design behind an individual wall of worry. Usually there isn’t. I think it is more accurate to say that there is an explicit and comprehensive structuring of the sell side and financial media that benefits from constantly finding single stories for overdetermined outcomes - then talking them down. That is, the editors push a single explanation, then the talking heads spend days dismantling it and showing that it doesn’t justify that level of “sell-off”, and we end up higher than before. The nature of segments, columns and commentary as they exist necessitate the creation of these walls of worry without any specific intent required, and so they’ve become part of the bullish fuel for markets. I think the DESIGN of sell side and financial news to always find a new axe is absolutely conscious and intentional. Which topic becomes that thing is nearly always less so, at least in my opinion.

It also makes the role of the missionary even more important. When the right structure for constantly creating these narratives exists, it doesn’t take many influential voices who do have that conscious intent to create common knowledge.

I believe the only way the market gets bearish here, is if covid and the Delta variant goes away. The Fed has “cover” for staying dovish, probably even continuing QE if the virus surges. Market has proven again and again, that the human element means nothing and liquidity trumps everything. I want to be bearish, trying to find a reason for lower multiples, but we’re just not there yet.

News as a service. A loyal servant. A helpful friend.

“What a large viewer base you have Grandmedia!”

“The better to tell you with” replied the Wolf.