The Minus Signs Return

Ambiguity favors the path of least resistance. If there isn’t any direct refutation of the thing everyone believes in, everyone will continue to believe in that thing and only that thing. Human nature.

In economic terms, people respond near exclusively to negative numbers. This is less evolution and more a process of modern times. There is a very strong attachment to figures of authority, particularly those who deal in complex topics. This isn’t necessarily a harmful development, so long as those in position of authority know what they are talking about.

If the “establishment” says the economy is booming, then no level of positive numbers will dispel that notion. It won’t matter, and it hasn’t, that the level of “growth” over the past so many years always deserves the quotation marks. So long as the numbers are above zero, it is consistent with at least the idea of growth.

The minus signs, however, they begin to get people’s attention. It is far more difficult (and increasingly impossible) to argue growth during the proliferation of negative numbers. And if they do show up and multiply (math pun) the direct result can be anything from disappointment to panic in the streets.

Expectations do matter, just not as much (in the end) as particularly central bankers hold.

The global economy is now transitioning from low positive numbers (not a boom) to the spread of negatives (some undetermined form of downturn). There were a few contractions in certain places during last year, mostly in the outer reaches of some EM economies. That won’t ever be enough to change the narrative other than for those places (Argentina is just Argentina, for example).

The wrong direction has now reached the interior, the booming developed world. The latest is out of Germany, which in the context of expectations is even more damaging. You might forgive the European economy for a minus sign in Italy or Greece, but Germany? That’s only bad news.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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