Another record high close for the S&P 500 and this time the gains weren't lead by AI stocks. The S&P is now up ~10% on the quarter. In fixed income land, bond yields fell with the 2Y down ~3bps to 4.57% and the 10Y down ~5bps to 4.18% as the strong 7Y note auction priced about 1bps through where WI issued was trading, making this a strong week for Treasury demand.
Fed Governor Waller's speech was titled There's Still No Rush, you probably didn't need to make it much past the title to get the gist. "Adding this new data to what we saw earlier in the year reinforces my view that there is no rush to cut the policy rate. Indeed, it tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2 percent." "I continue to believe that further progress will make it appropriate for the FOMC to begin reducing the target range for the federal funds rate this year. But until that progress materializes, I am not ready to take that step."..."In my view, it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data. "..."As a result, in the absence of an unexpected and material deterioration in the economy, I am going to need to see at least a couple months of better inflation data before I have enough confidence that beginning to cut rates will keep the economy on a path to 2 percent inflation. "
You may not have directly heard of Danny Kahneman or read his books (Thinking Fast and Slow is an interesting read, though I found it to be a tough read), but you're likely familiar with some of his work around heuristics, bias and ultimately his impact on the field of behavioral finance. Kahneman passed away yesterday at age 90. I don't know if Kahneman is best known for "prospect theory", but for those unfamiliar with the theory, it essentially says that individuals place different weights on gains and losses. In the work of Kahneman and his long time partner, Amos Tversky back in 1979 they conducted a study in which participants were offered a choice of a sure gain of $500 or a 50/50 chance to either gain $1,000 or nothing at all, respondents overwhelmingly chose the "sure gain". Correspondingly, when another group was asked to choose between a sure loss of $500 or a 50/50 chance to lose either $1,000 or nothing at all, a majority gravitated to the uncertain outcome. It appeared to be that human nature is to prefer an uncertain loss to a certain loss but to prefer a certain gain to an uncertain gain. [aforementioned paragraph comes from a CFA Reading from 2007 on managing investor portfolios written by James Bronso, Matthew Scanlan and Jan Squires)
Further, author and former poker player, Annie Duke, references Kahneman's work on prospect theory and loss aversion in her book, Quit. In it she discussed further work by Kahneman that involving coin flip propositions where a person starts in a $100 position and is offered a coin flip with a positive expected value of $110 that showed that people "are willing to give up extra profit to lock in the sure win. They will pay to avoid their win evaporating with the flip of a coin, and the regret that comes with it." The same experiment also started people off with a $100 loss position and offered them a coin flip with a negative expected value of $110 which showed that "people will indeed pay for the chance to recruit luck into the equation, which is the only way they can turn a sure loss around."
XTOD: My conversation with the legend, Daniel Kahneman. Daniel was gracious enough to spend an entire afternoon with me the first time we met. May he forever rest in peace. https://fs.blog/knowledge-project-podcast/daniel-kahneman/
XTOD: One of the strangest things with tip culture is who does not get tipped. Waiters yes, flight attendants no. Uber Eats driver yes, UPS driver no. Valet yes, front desk no.
XTOD: What turns an Austrian boom into a bust isn't slower credit expansion or disinflation; its real interest rates rising back to their "natural" levels. And my impression is that that's already happened.
XTOD: 16 sentences of wisdom from bond trader turned restaurateur, Sean Feeney, that will make you a better person, friend, and leader.
1. The most important ingredient is the one that’s left out.
2. The greatest gift is courage. Give someone the courage to be themselves.
3. Success is doing something every day for the rest of your life, happy to do it.
4. Everyone has genius inside them.
5. Truly showing belief in others will buy them a ticket to someplace they never knew.
6. Hospitality is creativity plus compassion.
7. “That’s just the way it is,” tells you there’s money to be made.
8. It is tempting to have something for everyone but there is preciousness in not filling demand.
9. Create a brand that people chase, don’t chase people with your brand.
10. Make others feel a part of something.
11. You are one of us, whether you work with us or you're dining with us.
12. Treating others well is good for business.
13. Finish the day, asking, “How did I impact someone in a positive way?”
14. Know what works and be honest with what doesn't and don't do that.
15. Block out all the noise and keep it simple.
16. Believe every day is a good day. But don’t think it’ll be easy.
https://x.com/ShaneAParrish/status/1773042318578200855?s=20
https://x.com/morganhousel/status/1773064353928913386?s=20
https://x.com/GeorgeSelgin/status/1773030503211295157?s=20
https://x.com/InvestLikeBest/status/1773040994801291298?s=20
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