Daily Economic Update: September 14, 2023

Ahead of ECB decision and the U.S. data today (jobless claims, PPI and retail sales), the 2Y is 4.98% the 10Y is 4.26% both down ~5bps from yesterday morning. Yesterday's CPI was largely in line with market expectations, all but cementing the Fed holding rates steady next week.  On the heels of CPI, this post from the BLS hit my feed, "There were 236 work-related suicides in 2021, down from 259 in 2020. Work-related suicides in these years were down from 307 in 2019, which was the highest number since the data series began in 2011. There were 229 work-related suicides in 2015, the lowest number over this 11-year period."  It probably says something about the plight of workers when the government decided to start tracking this statistic (I feel like Karl Marx in writing that sentence).  Speaking of labor the UAW appears "likely" to strike at midnight tonight with UAW President Fain saying: "It’s a battle of the working class against the rich; the haves versus the have-nots; the billionaire class against everybody else.” 

ECB decision day. At Jackson Hole, Lagarde focused on some of the uncertainties around supply-side factors (geopolitics, near-shoring) and technology shocks that under certain labor condition could lead to sustained "tit for tat" inflation.  My favorite quote of hers from J-Hole was that "we should also be clear about the limits of what we currently know and what our policy can achieve. If we are to maintain our credibility with the public, we will need to talk about the future in a way that better captures the uncertainty we face."   (because you wanted to know - my favorite Lagarde quote of all time is "If inflation is the genie, then deflation is the ogre that must be fought decisively.")

Uncertainty is an interesting word and one that is often conflated with "risk" in the financial setting and perhaps is a little confusing. I've found the following to be a helpful guide: "risk refers to all outcomes that can be insured against, uncertainty to those which cannot." And "..uncertainty as both Keynes and Knight define it, but which the mainstream denies: a situation where we have no scientific basis for calculating a ratio (probability)."  To further illustrate: "For example, if one smoker out of ten died of lung cancer, the probability of smokers dying of lung cancer is 10 percent. This set of numerical probabilities [cardinal probabilities] is the standard domain of risk as recognized by actuaries...At the opposite extreme is uncertainty...where we have no scientific basis for calculating a ratio."  Keynes (as reported by Skidelsky) sums this up as "The magnitudes of some pairs of probabilities we shall be able to compare numerically [cardinal probabilities], others in respect of more or less only (i.e. 'more or less likely', "ordinal probabilities), and others not at all [uncertainty]."  If you're ever interested in reading more about risk and uncertainty (and Keynes views on uncertainty), author Peter Bernstein's classic "Against The Gods" is worth a read.   

While uncertainty might be scary, Bernstein laments:

 "A tremendous idea lies buried in the notion that we simply do not know.  Rather than frightening us, Keyne's words bring great news: we are not prisoners of an inevitable future. Uncertainty makes us free."

Or as Frank Herbert said in the Dune series:

 “to know the future absolutely! All of it! What fortunes could be made — and lost on such absolute knowledge, eh?” but “what a hellish gift that’d be. What utter boredom! Every living instant he’d be replaying what he knew absolutely … Ignorance has its advantages.”

Back to the ECB, faced with slowing output in parts of the EU, the betting line is for the ECB to hold their key policy rates with the main refinancing rate at 4.25% and stress data dependence. 

We also still have casino hacks, the first day of Arm trading in the public markets and China with another rate cut

XTOD: Under the Master Plan the pressure on the Fed to "do something" wont start until the banks have offloaded their CMBS and LL exposures to the non-bank tapeworms via "credit risk transfers." That will be 2025 at the earliest.

XTOD: From Goldman, potentially three big hits coming to economic activity. Student loan resumption, UAW strike, and government shutdown

XTOD: An economist looks at this and says hey, grocery prices aren't adding to inflation any longer. A normie looks at this and says hey groceries still are 17% more expensive than 2 years ago. Why aren't they going down?

XTOD: Overall I still feel better than I did a few months ago about the possibility of a soft landing. But I feel a bit worse than I did yesterday.  And if you over-updated based on the noisy June and July data you should probably be over-updating back again based on the August data.

XTOD: Whilst I am not a fan of a 0 deficit policy: there is a limit. The fed government was right to spend more during Covid. But that should never have been more than a temporary response to help out those who sacrificed for the rest of us. Making that spending permanent is reckless.
We are creating new dollar valued assets equal to 10% of GDP every year. The Fed has an inflation target of 2% and, to hit that target, it will need to continue raising rates. As interest rates go up, the deficit will explode further to finance the existing debt.
The likely outcome will be a resurgence of inflation that will act as a stealth tax to help finance the shortfall. This will not end well.

XTOD: Many people will look at this trend and think "it's not sustainable b/c debt service becomes impossible." Nope (not for U.S., at least). It's unsustainable b/c inflation will reverse trend (by making NGDP grow ever more rapidly)...Yes. But when push comes to shove, does monetary or fiscal policy capitulate? Fed is obliged to support Treasury at auction, so unless one is expecting Volcker II...

XTOD: I have yet to find a system that's a good way to track:
- media recs to come back to later
- random ideas I want to spend more time noodling on
- future tasks I have to do
- daily/weekly activities i want to track
i want all of this together, organized, and easy to add to

XTOD (reply): this does not and will never exist. let it go <3

XTOD: Possible Sign Of Life Found On A Planet 120 Light-Years Away https://trib.al/ieel60f

https://x.com/Stimpyz1/status/1701987324102627377?s=20
https://x.com/TheStalwart/status/1701710331092062504?s=20
https://x.com/greg_ip/status/1701954061065449942?s=20
https://x.com/jasonfurman/status/1701944835236593665?s=20
https://x.com/farmerrf/status/1701585945097613725?s=20
https://x.com/dandolfa/status/1701940731986969010?s=20
https://x.com/liminal_warmth/status/1701639949903417578?s=20
https://x.com/economeager/status/1701946760220860658?s=20
https://x.com/Forbes/status/1701992157257556318?s=20