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A Good Place

It has been a good year for the economy and the stock market—and wherever I look I struggle to find reasons not to be positive about 2018. Even Nouriel Roubini nicknamed “Dr. Doom” has to speculate about what could happen after 2020 to find potential reasons to be concerned about global trends.

Let me avoid the pitfall of heavily caveated and thus instantly self-destructing macro-economic scenarios and focus on one single picture—after accelerating in 2017, the global economy is expected to cruise at a mid-cycle growth rate for the foreseeable future, supported by a new capex cycle, including in the US. Nitro China’s rebalancing towards consumers will make the world economy less cyclical than when it relied on the industrial sector. The Eurozone economic recovery is broadening. There are no obvious signs of grave excess or imbalances in the system. Finally, a dispassionate look at politics and geopolitics suggests that the current situation is not materially different from what it was at any point in recent history.

The global economy is in a good place.

To those who insist upon picking something to worry about, I would identify the US, and in particular an unexpected resurgence of inflation as the greatest threat to stability. Since the Fed does not expect it at all (see this week’s FOMC statement), it could trigger a knee-jerk reaction from Mrs. Yellen or Mr. Powell, a melting of the bond market followed by a full repricing of equities. Bonds and equities declining together would not be an enjoyable experience. Which is why the tax reform and its implication for aggregate demand and supply is such an important variable to monitor.

Those looking instead for reasons to be cheerful may look at technology and the increase in productivity it will engender (including through an upcoming capex wave), pushing the boundaries of the output potential beyond our wildest expectations and keeping a lid on inflation for years to come. I am in that optimistic camp based on everything I have been reading or observing and everyone I have been listening to.

The global economy is in a good place indeed.

Or so it seems to be, at least. A close friend who runs Louisiana State University’s French Studies Department in Baton Rouge published a book made of carefully selected tweets by Marcel Proust a few years ago. The following citation appears under the rubric “Reality“—“The visible world is not the real world, our senses being little more endowed than our imagination with the art of portraiture—so little, indeed, that the final and approximately lifelike pictures which we manage to obtain of reality are at least as different from the visible world as that was from the imagined.“ This statement from Mr. Proust is as complex and impenetrable as the reality it is meant to describe.

Hopefully the global economy really is in a good place.

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