Payden & Rygel 2023 Macro Outlook: Macro Memes & Mind Viruses

We call them narratives, memes, or mind viruses. They are the stories that infect investors’ minds, encouraged by market action. Sometimes the narratives are correct, other times wrong, and often sudden narrative shifts move markets the most. So what are the main macro narratives impacting markets as we head into 2023?

In his new book, Nineteen Ways Of Looking At Consciousness, Patrick House explores the various theories that attempt to explain the mystery of human consciousness.1 He tells the story of Anna, a patient with epileptic seizures who undergoes brain surgery to alleviate suffering. Doctors numb her scalp and, because the brain does not have pain receptors, keep her awake to talk to her while “using electricity and micro-thin blades” to explore her brain.

At one point, the doctors find a spot in her brain that, once stimulated, causes Anna to laugh out loud. When doctors ask her why she’s laughing, instead of saying, “I don’t know,” Anna’s story changes each time she’s asked the question. “You guys are just so funny...standing around,” was one response, “the horse is funny,” another.

House’s takeaway: “because the brain abhors a story vacuum and because the mammalian brain is a pattern-recognizing monster,” Anna made up a story to make sense of her laughter. She confabulated. “Even a wrong pattern, a guess, is at least a pattern to learn against,” House says.

A brain is a narrative-generating machine. Humans latch onto stories to explain the data and events we encounter. We struggle to admit “I don’t know” or “It’s more complicated.” Instead, the emotions generated by the ups and downs of financial markets further fuel our desire to make sense of things. We find or create a story that fits. But in telling stories, we often fool ourselves into believing we know what’s happening and, worse, what the future holds.

As a result, some famous investors have thrown out macroeconomic forecasting. Why pretend to know the future? Our macro stories about the present may be wrong, and nobody knows the future. None other than Howard Marks once quipped, “agnosticism is probably wiser than self-delusion.”2