It was once wittily remarked of the early writers on economic problems, “Catch a parrot and teach him to say ‘supply and demand,’ and you have an excellent economist.” Prices, wages, rent, interest, and profits were thought to be fully “explained” by this glib phrase. - Irving Fisher 1907
So, what is wrong with being a parrot? Any story for determining investment returns is simple. Where is demand going? Where is supply? There can be deep narratives with a lot of facts, but it still boils down to simple issues. Can the facts describe a shift in demand and supply?
If you cannot parrot some conclusions about these shifts, you will not be able to forecast returns. Yet, something so simple can be very difficult to assess in practice. The slopes of the curves have to be addressed. The link between macro and fundamental variables, expectations, as well as capital still must be measured. Of course, for any investment discussion there may be multiple demand and supply curves that should be considered. There is no one perfectly simple chart.
Any market discussion should loop back to supply and demand. Inflation is moving higher. What does that mean for the demand of some financial assets? How will it impact the supply of assets? The Fed will taper at the end of the year. What will happen to the demand for Treasuries? How will supply be affected?
Give me the good investment parrot and I can be happy. For more on the origins of the parrot phrase see the Quote Investigator.