Daily Economic Update: January 23, 2024

Stocks continue setting all time highs (is there a market for Dow 40K hats?...trying to be proactive) as yields fall slightly and the curve flattened a little.  Some observers question whether the Mag 7 or other stocks are in a bubble.  At some level the concept of "bubbles" implies that the foundations of finance are flawed, that markets are not efficient and that people will buy an asset at a price above what they judge to be a fundamental value (people do by Bitcoin...so). As David DeRosa writes in his monograph Bursting The Bubble: Rationality in a Seemingly Irrational Market:

"Although it is not certain that anyone will be ever able to prove conclusively whether or not bubbles exist, research shows that many famous financial crisis that have been portrayed as bubbles were not bubbles at all."

DeRosa references Occam's razor, which calls for always seeking the explanation that makes the fewest assumptions possible, and Mark Rubinstein's The Prime Directive, which says that you should attempt to explain asset prices by rational models as reasons to search first for fundamental, rational explanations for asset prices before resorting to "bubbles" as the last resort.  If you want to hear DeRosa speak on the topic of Bubbles, he was interviewed here.  If you're not familiar with the story of John Law and the Mississippi Company, listen around the 11 minute mark for a quick overview, though Niall Ferguson's account in The Ascent of Money  is much better in my opinion.

Are markets rational?  I'll leave it to those smarter than me to answer.  While I believe Ben Graham believed in efficient market hypothesis, his parable of "Mr. Market" is always worth a read and reminder.

In other news, according to yesterday's NY Fed Survey of Consumer Expectations, SCE Public Policy Survey, "The average perceived likelihood of an expansion in federal student debt forgiveness increased to 28.7 percent in December, up from 27.8 percent in August but still well below its year-ago level of 34.7 percent." .....see MMT ?? 

On the day ahead it's Richmond Fed Mfg Index as markets await Thursday's GDP report and Friday's PCE report. 

XTOD: Private Credit is Having a “Golden Moment” – Buy or Sell? I read whatever @LaurenceBSiegel  writes. I’d recommend you do too.  https://www.advisorperspectives.com/articles/2024/01/08/private-credit-golden-moment-buy-sell-laurence-siegel

XTOD: Former Federal Reserve policymakers Robert Kaplan and Eric Rosengren were cleared of legal wrongdoing in a years-long probe into their trading activity in 2020

XTOD: My boss arrived to work in a brand new Lamborghini  I said: “Wow, thats an amazing car” 

He replied: “If you work hard, put all your hours in, and strive for excellence, I will get another one next year”

XTOD: MY FIRST X VIDEO MADE OVER $250,000! 😲  But it’s a bit of a facade. Advertisers saw the attention it was getting and bought ads on my video (I think) and thus my revenue per view is prob higher than what you’d experience

https://x.com/CliffordAsness/status/1749431432563318911?s=20

https://x.com/business/status/1749532448373768672?s=20

https://x.com/HeroDividend/status/1749199996811903351?s=20

https://x.com/MrBeast/status/1749499065979576613?s=20