The Lazy Sunbathers

During his original tenure as proprietor of this space, Macro Man was often asked why he spent the time and effort to scribble his thoughts down with such regularity.   Although it was tempting to reply in jest ("how else can I convince Mrs. Macro to let me dress up in my knock-off Superman suit?"), the real answer is that he got a lot more out of it than he put in.   In other words, writing generated a startlingly high return on investment.

One of the ways in which it did so was the enforced rigor of constantly marking his views to market, lest they become outdated and subject him to public scorn.   Naturally every macro punter, whether they write or not, should perform this exercise with regularity, and Macro Man endeavoured to do so over the past several years while he was under the radar.   Nevertheless, there is nothing quite like the prospect of being pilloried and pelted with virtual tomatoes (or at least the odd scathing comment) to ensure that one's views are kept minty-fresh at all times.

Of course, Macro Man touched on this idea in the past, via the concept of the pink flamingo.   However, while some flamingos were passed because their drivers had reached their sell-by date, others came under the cosh simply because of portfolio-level de-risking decisions, while maintaining their underlying validity.  No, what Macro Man is getting at is the notion of a commonly-held idea (rather than position) that is perhaps not subjected to sufficient scrutiny by many of its adherents.  A lazy consensus, if you will.

A lazy consensus can of course beget lazy positioning that remains entrenched even as the underlying drivers have changed.   Perhaps you could consider them as the lazy sunbathers watching the pink flamingos walk by?       In any event, it useful to consider which beaches the lazy sunbathers tend to frequent, for they are likely to leave plenty of diamonds (or at least fancy shells) on the sand when the tide goes out. 

Given yesterday's discussion on NAIRU, it is perhaps worth investigating whether there are any lazy sunbathers forecasting US growth.   It seems almost axiomatic that growth will accelerate after the snow-swept Q1, and to be honest Macro Man hasn't got a major beef with that claim.  However, there seems to be a widely held belief that growth will accelerate to an above trend 3% and then stay there for the foreseeable future.

Now maybe this will happen....but then again, maybe it won't.   In any case, just because the PhD community forecasts it is no guarantee that it will come to pass.   Indeed, the empirical evidence would appear to suggest rather the contrary.  Macro Man perused the last few years' consensus GDP forecasts, presented here as a time series.   Readers are invited to determine whether they can spot a trend.



Now, as any investment disclaimer will tell you, past performance is no guarantee of future results.  Just because the strasse has overestimated growth in the past does not mean they are doing it now.  The fiscal restraint over the past few years was meaningful, as indeed was the caution engendered by the Flea Circus in Washington.  The impact of both should be lower moving forward than they've been in the past.  (Lest we rubbish the private sector unfairly, it should be observed that the Fed's track record has been, if anything, even worse:)




At the same time, 2013 saw a decent inventory build, so there could easily be some pushback on that front.  That having been said, the latest revisions to the Q4 national accounts data have made the problem look less severe than first imagined.   Nevertheless, a little composite leading indicator that Macro Man likes to use is more suggestive of trend (~2.25%) growth than the 3% forecast by the economics crowd.



Given the weight of history and poor seasonals, Macro Man would probably take the "under" on the consensus growth  figures for the next few quarters and beyond.  While it is probably too early to say with confidence that the bullish consensus is full of lazy sunbathers, the next time someone tells you how strong growth is going to be,  you might want to break out the factor 50 just in case.

(Readers are naturally invited to nominate their own group of lazy sunbathers in the comments section.)