Daily Economic Update: February 7, 2024

The S&P advanced as yields fell as the market digested rising consumer debt levels and Fedspeak.  The 3Y auction seemed decent with pricing thru where when issued was trading.   Mester seemed to indicate the Fed will cut this year, but that there's no reason to rush and likely no need to cut aggressively.  We get more Treasury supply today and Thursday along with more Fedspeak.

On this blog I think I've intentionally or at least subconsciously written about noise, narratives, and forecasting.  In writing about these topics, I have tried to highlight what I see as the challenges that come from simplifying the complex in such a manner that creates a false sense of certainty.  That's not to say that simplification cannot be an appropriate way to make an important message accessible, but rather to build awareness that the ability to create vague, simple messages often wrapped in a well crafted veneer that is alluring, is a trick employed by charlatans throughout history  to cement their wealth and power at others expense (see post on finfluencers and Mill's Civilization essay) .  Obviously with social media and AI, the ability for those who want to create cultlike followings and draw people into otherwise ridiculous ideas has grown and will continue to grow exponentially.  The risk of falling into the simple, vague, but alluring promises is particularly high in financial services and probably a risk we'd be wise to realize exist.

"For years the financial services have been making stock-market forecasts...they are sometimes right and sometimes wrong. Wherever possible they hedge their opinions...in our view...this segment of their work has no real significance except for the light it throws on human nature in the securities markets. Nearly everyone interested in common stocks wants to be told be someone else what he thinks the market is going to do. The demand being there, it must be supplied."  - Ben Graham

The tricks of today's charlatans are very similar to those played in the past, just now done easily with scale.  Awareness of the games played in crafting messages and building a following is a first step towards building a better understanding of potential tricks and determining the appropriate course of action from there.  In fostering awareness of the methods used by charlatans, author Robert Greene, whom I referenced in my FOMC Recap, has what he calls "The Science of Charlatanism Or How to Create a Cult In Five Easy Steps".   Those five steps are (with reduced commentary):

1. Keep it vague; keep it simple: promise something great and transformative, but use total vagueness.  People want to hear a simple solution will cure their problem.  If you explain in detail the benefits to someone, you will be expected to satisfy them, so avoid details.
   
   
2. Emphasize the Visual and Sensual over the Intellectual:  dazzle your followers with visual splendor, colorful charts, new technological gadgets - anything that creates a pseudo-scientific veneer. 
   
   
3. Borrow the Forms of Organized Religion to structure the group - talk and act like a prophet to hide the fact you are a dictator.  Ask people to sacrifice something to your cause (ex. sign up for your newsletter which gives you money).  Even better if you tier your community.
   
   
4. Disguise Your Source of Income - you must never been seen as hungry for money and the power it brings.  Never reveal your wealth comes from your followers' pockets.
   
   
5. Set Up an Us-Versus-Them Dynamic - make it so that any outsider who questions you or tries to reveal the charlatan nature of your belief system can now be described as an enemy.

I can't speak for everyone, but I see so many of those dynamics at play particularly in social media.  You too can probably think of various accounts in the finance "crowds" on X/Twitter or YouTube particularly where the topic is something to do with things like crypto, MMT, certain company's stock (ex. Tesla), "experts" explaining the recent moves in a market, predicting a soon to come recession or crash, people talking their own book, etc.  Once you're aware, you probably then think about where else some of these dynamics are involved in other areas of your life.

"Men are so simple of mind, and so much dominated by their immediate needs, that a deceitful man will always find plenty who are ready to be deceived."  -Niccolo Machiavelli

XTOD:  Great thread outlining the reality and uncomfortable truth behind the headlines and incessant CNBC pumps & promos  https://x.com/ttp_cap/status/1754917296638767318?s=20

XTOD: Adam Neumann just totally crushed the ZIRP era. Nobody close.

XTOD: When Barry Sternlicht was 32 y/o he started Starwood with Bob Faith and an assistant. 18 months later, after acquiring 8,000 MF units, he sold to Sam Zell’s Equity Residential REIT in return for 20% ownership.  By the time he was 37 they owned Starwood Hotels and Lodgings Trust, the largest Hotel REIT in the world with $20B AUM and 120,000+ employees across the globe.  Today Starwood Capital Group and affiliated entities manage over $120B in assets across the globe and have become the giant in the room.  Today’s episode is full of incredible stories of how they climbed to the top of the real estate world: 0:00 - AI & Hotels  6:34 - The Midas touch  8:16 - Scaling to 120k people in 7 years 14:00 - Shared Pair REITs  27:15 - Thoughts on Blackstone  35:25 - How to buy a REIT 39:45 - Taking a company from $1B in AUM to $10B   48:50 - How did you keep Starwood Capital moving while you stepped away?  58:22 - Selling Caesar’s Palace 1:07:53 - Thoughts on the market in 2024 https://twitter.com/i/status/1754852728344363340