Daily Economic Update: September 29, 2023

U.S. yields start this Friday with the 10Y some 15+ bps off yesterday's high of 4.68%, now trading around 4.53% and the 2Y is also down to start the day trading at 5.04%.  Despite a strong jobless claims data point yesterday and a weak 7Y auction, late day Fedspeak from Barkin and Goolsbee which leaned dovish were able to help sentiment with stocks improving. We've got people like Dalio, Fink and Ackman all in the yields go higher camp.

 EU inflation data out this morning showed inflation falling below estimates at a headline of 4.2% v. estimates for 4.5%.  The BoJ bought some bonds overnight and 

All attention will be the Fed's preferred inflation measure PCE this morning, as well as personal income and spending and the UoM survey of how consumers feel about gas prices.

In this endless barrage of economic data, speeches and forecast, it leaves one to wonder just how much is noise and where exactly is the signal.  For example, we have some serious divergences in the Atlanta Fed's GDPNow, the NY Fed's GDP Nowcast and private forecasters models of Q3 GDP.  We have other divergences in estimates of the neutral rate of interest, R*, and so on.

On the topic of R*, I was reading "The Stars Our Destination: An Update for our R* Model" by Lubik and Matthes in which the authors attempt to address the differences in the Richmond Fed's estimate of R* which is above 2%, and the NY Fed's estimate which is below 1%.  Perhaps the biggest takeaway is just how difficult it is to estimate R* and therefore the stance of monetary policy. 

This had me thinking about a conversation on Simon Sinek's podcast "A Bit Of Optimism" with guest Robert Greene .  Beginning around the 27:30 mark Greene begins discussing the fluidity and complexity of life and how in all this complete flux "our brains freeze them into these little snapshots..into good, bad, moral, evil, etc...and it is stupidity..it leads to stupid ideas on politics [and by extension policies]."  Greene goes on to state the source of human stupidity is a belief in certainty. It's worth a listen, perhaps more so, for those in charge of fiscal and monetary policy and all the voices on social media platforms who tell you exactly how the economy or markets are going to play out over the short or long run futures.  And yes, I know the Fed, use models that are "dynamic" and "stochastic" therefore recognizing elements of randomness or uncertainty.  A criticism by some is that these models fail to fully capture the complex and adaptive behaviors of the economy.  

Given the uncertainty and the bombardment of noise in the current economic environment, I was reminded of two quotes in the famous wall street book "Where Are the Customers' Yachts?" by Fred Schwed: "In this case, the notion that the financial future is not predictable is just too unpleasant to be given any room at all in the Wall Streeter's consciousness" and "For one thing, customers have an unfortunate habit of asking about the financial future.  Now if you do someone the signal honor of asking him a difficult question, you may be assured that you will get a detailed answer.  Rarely will it be the most difficult of all answers-"I don't know".

In all the complexity there was a great FT article on a recent JPM Research piece by Jan Loeys, who seems to be keeping it real https://www.ft.com/content/651cc7a4-27e3-4026-9381-76421a0203bb

Anyway, I wouldn't spend your Friday and weekend worrying about the economy, in a few years you're going to be walking around in Ray-Ban smart glasses from Meta or Apple's Vision Pro in complete bliss.

XTOD: Cocktail waitresses turned realtors learning about the Fed for the first time this week

XTOD: As we travel southwest across higherer for longerer island waving to @BillAckman

 and @real_bill_gross   along the way. Nice call guys. We will come to a crossroads.  To the south lies "Old Normal" continent where Jamie lives.  The new DSR available to clients of DS Read has a map

XTOD: The probability of another rate hike is deflating, especially for a November hike (green). 

Is this why yields are shooting higher? If the Fed is no longer going to be vigilant about fighting inflation, then US Treasuries are a sell.

XTOD: “Inflation still needs to come down. But we also can’t lose sight of the fact that the Fed has the chance to achieve something quite rare in the history of central banks—to defeat inflation without tanking the economy."

XTOD: Revised picture for GDP is the same as the old picture for GDP: real GDP is basically just about where you would have expected if there had been no COVID/policy response to COVID.

XTOD: The U.S. economy is showing signs of another Global Financial Crisis warns JP Morgan strategist Marko Kolanovic who urges investors to be in cash

XTOD: Thank You Big Fiscal

XTOD: "Bank of England plans permanent lending facility for non-banks"

XTOD: In an era of TikTok investing dominated by short-term monkeys, narratives change to match the price movement. 

Eg This week’s narrative: “The sell-off was attributed to the the US government losing control of the bond market. Parallels with 1987 are inevitable.” Aka IT’S SO OVER

Next week’s likely narrative: “The equity sell-off was attributed to JP Morgan’s collar and was a mere technicality.  The bond sell-off was attributed to a couple of hedge funds using leverage irresponsibly and they have now unwound their positions.” Aka WE ARE SO BACK

And I’ll be here to fade each and every one of these narratives. After all: Bears get killed, Bulls get killed, shrubs photosynthesize 

https://x.com/DonMiami3/status/1707075689554342265?s=20
https://x.com/dampedspring/status/1707350426389987764?s=20
https://x.com/biancoresearch/status/1707011094341103629?s=20
https://x.com/Austan_Goolsbee/status/1707496684576546999?s=20
https://x.com/jasonfurman/status/1707381987609088395?s=20
https://x.com/Barchart/status/1707213253896527985?s=20
https://x.com/vebaccount/status/1707401204370686459?s=20 https://x.com/StevenKelly49/status/1707466788533924122?s=20 https://x.com/agnostoxxx/status/1707656608505868603?s=20