Every day of the year another economist yaps about uncertainty.
There’s uncertainty over the US election, over Brexit, over interest rates, over the strength of the US economy, and over global trade.
Will the Bank of China devalue the yuan? Will the Bank of Japan aggressively target deflation? What will ECB president Mario Draghi do when he fails to hit his 2% inflation target?
Will Austria vote for an anti-immigration president? Will Italy’s prime minister Matteo Renzi get the constitutional reforms for Italy that he seeks? If not, will he resign as promised? What about the rise of euroskeptics in France and Italy?
“There is more uncertainty around US economic policy now than there has been for quite a while,” said Lewis Alexander, economist with Nomura. “You look at what Donald Trump proposes in particular and it raises all sorts of questions, the threats around trade, the threat of the costs to move jobs overseas. It raises the degree of uncertainty . . . around investment.”
Market Hates Uncertainty
I did a quick search for the phrase “the market hates uncertainty”. The results are amusing.
- On February 16, CNBC said The Market is Overreacting to Uncertainty. Pardon me for asking, but are things more certain now?
- On July 11, and in reference to Brexit, Cumberland Private Wealth Management Inc. offered this headline: “Uncertainty” – The Market Hates This Word.
- On June 27, OptionHouse stated Markets Don’t Like Surprises or Uncertainty. Supposedly, “Markets hate uncertainty even more than it hates surprises. The effects of BREXIT remain a big uncertain flag for the global economy. Global regulation in the transition is another uncertainty looming over this sector.” Darn, I missed global regulation in my opening list of things to be uncertain about.
- On June 11, 2015 Motley Fool writer TMF Deej wrote Mr. Market Hates Uncertainty, But Investors Can Profit From It.
- On September 14, 2015 CNBC interviewed Steve Massocca, at Wedbush Equity Management who offered this “sage” advice in a video appropriately titled Market Hates Uncertainty.
S&P 500 vs. Rising Uncertainty
Uncertainty Ass Backwards?
Looking at the above chart, one might wonder if the phrase “the market hates uncertainty” is ass backwards.
It’s not quite that simple either.
- Perhaps the market is reacting to the near certainty that central banks want to keep the party going.
- Perhaps people were so certain that Brexit would kill the market that it rallied after the initial shock subsided.
- Perhaps there are still more greater fools willing to be sucked into the notion that central banks have everything under control.
- Perhaps Trump will not be as bad for the economy as everyone expects.
There are a huge number of possibilities in play. All of them are uncertain.
I Am Certain of Three Things
- Uncertainty will continue.
- The more certain economists and market participants are about things, the more likely they are to be wrong.
- I don’t know, and no one else does either.
Mike “Mish” Shedlock