The 2020 ABC

28 Dec 2020 - Oliver Brennan

There are two types of economist: those who don’t know and those who don’t know they don’t know. That’s why our final blog of the year usually gives “anti-forecasts” – outlandish things that definitely won’t happen. But then, 2020 happened, dealing a mortal blow to satire and proving that even “non-forecasts” are a waste of time: anything can happen. So, this time we take a different approach. In keeping with the popular macro trend, where economists try to distill their entire world view into a single letter of the alphabet (V, K, U etc.) and central banks fight a crisis by launching an endless stream of acronyms (PEPP, TALF, AIT etc.), here is our alphabetical guide to 2020.

A is for Amazon: Nobody had a better recession, except local farm shops and luxury butchers.
B is for Brexit, Barnier and Boris: Or “Brinksmanship”, “Boring” and “But please can we talk about something else”. Just when you thought the pandemic might deliver a new era of international cooperation, the UK threatens gunboat diplomacy to protect its 114-vessel fishing fleet.
C is for CBDC: Or the emergence of the Central Banking Super State. Imagine the Empire in Star Wars, but with endless bureaucracy, tedious speeches and a Yoda-style penchant for passive sentences.
D is for the inevitable dollar collapse: Ok, it didn’t happen in 2020. But ask anyone – it’s coming!
E is for economists: Unlike in 2008, nobody blamed the profession for not foreseeing this crisis. In fact, economists expanded their “expertise” into new fields: epidemiology, sociology, politics, race-relations, 14th century European history and cryptocurrencies. Investors have asked about the societal consequences of the Black Death, how quickly “lockdowns” would affect the “R” rate and how racial inequality and riots might influence the US election. Economists had all the answers.
F is for Four Seasons Total Landscaping: Surely the finest press conference mix-up in history. Sometimes even the best political mockumentaries (“Veep”, “The Thick of It” etc.) can’t beat real life.
G is for Global Reset: A once-in-a-century pandemic? Wake up sheeple! It’s a government conspiracy so that the authorities can “control” you (and pay your wages). Get a vaccine? No way – Bill Gates wants to track you, starting with 91-year-old British grandmothers (obviously). You think it’s a coincidence that this all started shortly after 5G? And don’t fall into the trap of thinking our politicians are buffoons who couldn’t organize a… That’s just what “the authorities” want you to believe!
H is for house prices: which always crash in a recession. Oh but wait…
I is for “I’m not an epidemiologist but…”: which was the opening line of every overly-confident sell-side opinion.
J is for Jay Powell: who donned his $uperman cape and flooded the world with more liquidity than anyone has seen since Noah built his ark. Saving the world, one acronym at a time.
K is for the K-shaped recession: As long as you focus on the winners and forget about the majority, everything has been fine. Remember: the stock market is not the economy (see S, below).
L is for lockdowns: The first one of the series showed great creativity and included commanding performances, but by Lockdown III (“The Mutant Strain”), it was clear the franchise was running out of ideas and urgently needed a new scriptwriter. Let’s hope for something better in 2021.
M is for monetarists: Like Liverpool football fans, they were suddenly everywhere in 2020. But where had they been for the past 30 years? Nobody knows…
N is for never accept defeat: Suppose your team “lost” a distant Champions League final after leading 3-0, your colleague left you a 45-minute voicemail chanting “you’re not singing anymore” and perhaps you couldn’t sleep for two weeks afterwards because you felt humiliated and irrationally depressed. Well, events in 2020 would allow you to reframe this memory and create an alternative reality. Just “stop the count” at 3-0 and assume the subsequent events were fake news.
O is for off the charts: Won’t somebody think of the market strategists? All our two-axis-chart models have been ruined by off-the-chart numbers this year. The upside? A couple of extreme points here and there do wonders for regressions. And if not, try some dummy variables…
P is for printing money: that brrrrrrr sound you’ve been hearing for much of 2020 wasn’t just your home bread-maker (see also Y, below).
Q is for QE: There is always a “Yes Minister” quote for everything and Sir Humphrey neatly sums up QE with the central bankers’ syllogism or logical fallacy: “We must do something. This is something. Therefore, we must do this. ” Does anyone still believe QE “works”?
R is for the Recovery Fund: the EU has finally worked out how to socialize EMU national debt issuance. So, now there is no need for the ECB to do fiscal policy on the sly or for those 50,000-word German tomes on the hidden costs associated with Target 2 imbalances. Yeah, right…
S is for stonks: 2020 proved – if you “look through” bad stuff – that there is no scenario where equities can ever go down. Global health emergency? The Fed will cut interest rates... Biggest collapse in GDP since the 1400s? They can buy corporate credit. Depression levels of unemployment with riots on the streets? More QE. Massive meteorite heading towards the Earth, which mistakenly triggers a Chinese nuclear attack resulting in full-scale nuclear WW3? Don’t worry, nothing 10bps of NIRP can’t fix; and, if things get really bad, then maybe even yield caps.
T is for you know who: A political mastermind and natural genius who was always playing 4D chess while everyone thought he was playing tic-tac-toe? Or were his suggestions about drinking disinfectant and using sunlight “inside the body” genuinely good health advice? History will decide…
U is for unprecedented: the most popular excuse in sell-side research in 2020.
V is for V-shaped recovery: Because, on a long enough horizon, everything is always a V…
W is for the “World will never be the same again”: Cities? New York, London, Paris – all museums to a redundant lifestyle, the Venices of the 2020s. Foreign travel? Nobody will ever want to sit in an aluminium aircraft with 300 strangers again. Going to the shops? Forget it – here comes Mallmageddon, with retail outlets replaced by out-of-town data centres and Bitcoin mining facilities. Fancy restaurants? Stay home and enjoy beans on toast. Working from the office? Never going to happen again – spend 24/7 with your spouse and argue about who is doing the most childcare.
X is for Xboxes: Along with pedigree puppies, household furniture and hot tubs, these experienced hyperinflation, providing the casual price empiricism on which Goldbugs and Bitcoin enthusiasts thrive.
Y is for yeast shortages: The initial human response to stay-home orders was to regress to an earlier agrarian state or Wartime mentality, where people strove to become self-sufficient. Suddenly everyone was baking their own bread. But this was perhaps a healthier response than what was happening by Lockdown III – where people were living off McDonald’s home deliveries.
Z is for Zoom: which ensured that you always kept one small part of your home perfectly respectable, especially the area in front of the bookshelves. Eventually, we would learn not to talk while on mute and even resist that urge to give an uncomfortable “Goodbye” wave while attempting to log off.

#Brexit #2020 outlook #Covid19 #Recovery Fund #K Recovery #Quantitative Easing #Modern Monetary Theory


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