The consensus about macroeconomic trends is overwhelming: 2021 is widely anticipated to be a stellar year from an economic growth perspective, with a strong momentum extending to 2022. The expectations suit a popular pattern: after the rain, the fine weather.
To be fair, it is difficult to resist the optimism when looking beyond the next couple of months: vaccines are being approved and readied for a rollout around the world; the U.S. presidential election process will be essentially completed by mid-December; a bi-partisan fiscal package is likely to be approved by year-end in the U.S.; the Fed and the ECB are firmly committed to financial repression (see ‘Financial Immortality’); a former dovish Fed Chair with deep Keynesian roots is expected to run the U.S. Treasury Department, bringing monetary and fiscal policy closer to fusion; and the interminable Brexit process is set to come to a conclusion next week. If 2020 will be remembered as a year to be forgotten, it has at least the courtesy of finishing on a strong note.
From a macroeconomic, financial market and socio-political perspective, the most critical source of uncertainty may well be the senatorial race in Georgia in early January. Some observers call it ‘the Super Bowl of American politics.’ Under the scenario of a Democratic win and control over the Senate, a new fiscal stimulus package of $1 trillion or 5% of GDP – if not more – could be agreed. This matters not only to the United States, but also to the rest of the world given the presumed scale of the package. The outlook for 2021-22 is bright and could get even brighter, the first years of the ‘Roaring (20)20s’.
What would a contrarian say when seeking to dispute this outlook? After all, the stock markets are on fire and it would not take much to trigger a correction, including in the coming days and weeks. Perhaps, but even Nouriel Roubini, the outspoken contrarian-in-chief, is silent on the matter these days. A more inspired contrarian could focus on an increase in real long-term rates as interest rates rise faster than inflation expectations. Without a commensurate improvement in the long-term growth outlook, this would have devastating implications for equities and credit, including sovereign risk given the government debt tsunami triggered by the health crisis. 2022, if not 2021, could end in tears.
And what would a contrarian do? That is even more complicated. He or she would have to find a critical mass of rare liked-minded people in their organization to drive decision-making according to a non-consensual view. Note that reaching a consensus amongst contrarians represents nothing short of an oxymoron in the first place. Even if a team of contrarians were to reach that improbable stage, the contrarian decision would have to be marketed to stakeholders, the majority of which rely on a consensus view. The chances of success are slim.
Given the prevailing circumstances and as the world moves into 2021, do not fight the consensus. Instead, use it to get things done.