There's a Bull Market in Macro Doom

There is a genre of investment research that continuously predicts economic disaster that I call “macro doom.” It has become very popular. It seems that everyone is an expert in macroeconomics today, and they’re all predicting a bust of some kind.

There’s always something for this cohort to worry about, and these days it’s mainly about inflation and how prices of commodities will go to infinity due to shortages in just about every tradable raw material. Oil is a particular focus, with the macro doomers predicting a baseline of $200 a barrel for West Texas Intermediate crude or even much higher. Some are now starting to focus on agriculture, and there is open discussion on Twitter about an impending famine — in the U.S.!

Being somewhat of an inflationista myself, I’m sympathetic to these views. For example, I would agree that the bull case for agricultural commodities is strong based on rising fertilizer prices, which will incentivize farmers to use less fertilizer, resulting in lower crop yields. But some predictions are so extreme as to veer into utter ridiculousness. It would take a lot of things going wrong at exactly the same time to have a famine in the U.S. I would characterize this as hyperbole.

It’s not all about hyperinflation, though. There is a subgenre of macro doom that focuses on the rising dollar, which will lead to deflation and falling bond yields. This dollar-bull-deflation-doom thesis has many adherents. I don’t understand the thesis and I don’t care to. You’d think that inflation going from 2% to 8% in a year would discredit these people, but they are louder than ever.

Many people think that the economy is accident-prone, and that shocks happen every so often and risk plunging the economy into a deep recession. The Covid-19 pandemic is an example. But people learned the wrong lessons from the pandemic, which is that the economy is not accident-prone, but rather accident-resistant. For all that has happened, there have only been four major bear markets in the last 100 years. We know perfectly well why the market crashes, but we have no idea why it doesn’t.