There are a lot of things we don’t know about Russia’s attempt to invade Ukraine, but there are also some things we do know. Mr. Putin’s gamble, and the West’s response, has brought into view one of the few existential tail risks that isn’t a Black Swan, which is to say, it is a known unknown: The risk of an escalation into war between Russia and NATO, and the exchange of nuclear weaponry. The continued call on NATO from Ukraine president Volodymyr Zelensky to impose a no-fly zone his country is an alarming case in point. I have no idea how to quantify such a risk, and it is fair to assume that markets don’t either, at least not with any accuracy. BCA’s suggestion that you might as well be long stocks on a 12-month basis, even if you think an ICBM is headed your way is probably a fair reflection of the level of analysis you can expect from your favourite sell-side researcher. Take everything you read with a heap of salt.
Read MoreEquities seem to be in the throes of the death of a thousand cuts at the moment. The rebound towards the end of January, from the initial swoon, was reversed last week, and at this point a new low is all but certain. There are a number of things troubling equities. Geopolitics are a fickle catalyst for anything, but it has certainly added to the misery in the past few weeks. A Russian incursion in Ukraine remains a distinct risk, an event which would force markets to discount the risk of a more sustained military conflict on the European continent, not to mention a further leap in energy prices. The latter would intensify inflation fears, which are already weighing on markets in the context of the surge in bond yields, and the significant repricing in expectations for monetary policy, for both rates and QE. Investors could do with relief from these headwinds, but I doubt they’ll get it, at least not in Q1.
Read MoreFinancial markets have a tendency to gravitate towards the same narratives over and over, a bit like a good script writer who knows, obviously, that the hero always has to save the cat in the first scene. Core and headline Inflation have soared, and the Fed, as the perennial first mover among the major central banks—curiously flanked by its trusty squire the BOE—is now determined to kill it with rate hikes and QT, having recently abandoned all hope it being ‘transitory’. Cue new scene, and we are witnessing a torrent of forecasters tripping over each other to proclaim that they now think the federales will lift the Fed funds rate by five, six, or even seven, times this year, not to mention shrink its balance sheet by $1T. Markets have been blissfully ignoring the threat of monetary policy tightening, until now. As I type global equities are down 5-to-10% month-to-date in January, and the yield curve is flatter. What comes next?
Read MoreMarkets are moving, and I’ll have more to say about that in due course, but we before we get to that, I am finally ready to present the third chapter in my running demographics project. The landing page for the project can be found here. You can get the PDF for the third chapter below, or via the landing page.
This chapter kicks off the description, analysis and discussion of fertility and birth rates. It is the first of, I suspect, three chapters on fertility. In it, I try to cover three bases. First, I cover the basics, defining the different ways in which fertility and birth rates are described quantitatively in the literature, and the distinction between these terms. Secondly, I summarise the stylised facts about the global fertility transition, when it began, and how it is going. My objective has been to strike a balance between the big picture and sufficient detail to allow for the discussion individual case studies across individual nations, or groups of countries. The key point, from both an empirical and theoretical perspective, is that fertility does not stabilise at replacement levels in the final stages of the demographic transition. In this way, the fertility transition is an ongoing phenomenon, in contrast to the picture painted by the stylised model of the demographic transition. Thirdly, I run through the theory of sexual selection as described by Trivers (1972), and used in Richard Dawkins’ seminal, The Selfish Gene. There are two reasons for this. First, the basics matter. The game of mate selection, which feeds through to how parents share the costs of reproduction and child-rearing, is crucial to understand why births occur in the first place. The idea that evolved behaviour described by Trivers (1972) can be used to explain phenomena in a modern context invites us to heed F. Scott Fitzgerald’s advice that “the test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” It is reasonable to expect that many phenomena observed in a modern society can be traced back to core evolutionary processes. But equally, it is unreasonable to go searching for an evolutionary explanation for every phenomenon that social scientists might be interested in, in a modern economy. Whatever the balance between these two positions, the link between modern behaviour and pre-modern evolutionary theorems is a constant source of debate and controversy in the literature on demographics and fertility.
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