On a seemingly day by day basis, the veterans literally throw in the towel. 1/3 of the Street has never operated under anything but ZIRP or damn close to it. Here’s Bloomberg from last summer:
“No one is suggesting that Wall Street traders are any less capable than they were in the past. But what’s remarkable is the sheer number of those who started their careers after the Fed dropped rates close to zero in 2008.”
“While the average Wall Street trader is 30 years old, about 30 percent started within the past five years, according to Emolument.com, a salary comparison website, which compiles data from its 50,000 financial services users. And two-thirds of traders have never seen a full Fed tightening cycle.”
To be sure, it’s a paradigm shift, but paradigms aren’t called paradigms for nothing. Old habits die hard. And so do “old’ markets. So how do “young” traders cope?
From Bloomberg’s Mark Cudmore:
“Monetary-policy theory is stale and must be overhauled completely. It will be a slow-moving process, so the ramifications will take time to play out. But investment opportunities will arise as the debate evolves.
Is inflation-targeting the right approach? Are central bankers looking at a correct measure of prices? For years, assets have been rallying at many multiples of headline inflation — is this disconnect sustainable?
Are inflation dynamics even properly understood? The Fed has acknowledged that the relationship between employment and wage inflation (measured by the Phillips curve) is functioning differently than anticipated. Expectations of rising prices were previously seen as a major driver of inflation but the link seems to breakdown when the latter is subdued.”
“Will the velocity of money ever pick up again? It peaked in 1997 and for the last few years it’s plumbed record low after record low. Again, is our measurement flawed? Will the rise of crypto-currencies alter the metrics around this? Is inflation even the requirement for growth we think it is? Romania has been stuck in deflation for more than a year, yet its most recent GDP print rose 6% year-on-year. Poland has been in deflation for longer than two years and has been one of the fastest growing economies in Europe during that time. Likewise, two years of deflation hasn’t stopped Israel growing more quickly than most G10 economies.”
“Of course, GDP as a metric would also seem to be flawed. Whether I iron my own shirts or I pay someone to iron them will produce two very different GDP impacts even as total economic productivity and wealth will be the same”
“So much of the modern online or service economy is inadequately captured. Everyone in Ireland knows that the economy didn’t really grow 26% in 2015. Apple’s tax issues have highlighted the flexibility in geographic accounting”
Ohhhh… so that’s how we explain the August ISM prints, right?