The MSM has gone a bit gaga this morning for a new thesis from PIMCO’s Joachim Fels called The Three Gluts. It’s very much on MB territory so let’s take a look:
Macro thinking: three key elements
For starters, I strive to simplify macro matters as much as possible, even at the risk of the occasional oversimplification. Simple is beautiful. I believe my bias for simplification goes back to what I learned decades ago in my econometrics classes: One should always aim for a parsimonious model – the simplest plausible model with the fewest number of explanatory variables. Also, I admit that Tiki Küstenmacher’s “simplify your life” mantra probably also rubbed off on me: While writing, I often whisper “simplify your macro” to myself, and I constantly try to find simple catchphrases to describe the state of the world and express my views.Actually, this is something PIMCO has been doing for a long time: Just think of the simple, elegant and powerful New Normal concept that was coined at PIMCO’s 2009 Secular Forum to describe the prospective post-crisis macro environment. The term has become common among policymakers, commentators and market participants alike. The same holds for PIMCO’s more recent The New Neutral thesis – the idea that the neutral rate of interest is much lower than in previous cycles, resulting in a shallower hiking path toward a lower terminal rate once central banks decide to escape from the (somewhat magnetic) lower bound. Following the company’s 2014 Secular Forum, PIMCO identified and described The New Neutral as the natural progression from The New Normal and it has since been largely endorsed by markets and commentators.
