Daily Economic Update: July 10, 2024

 Another day, another record for the S&P as Powell says the economy is "no longer an overheated economy".  Powell was reluctant to get into the specific timing of rate cuts and remains 'data depedent', but there seemed to be more emphasis on downside risks to holding rates this high for much longer.  Markets increasingly believe a rate cut is likely this September, ahead of the November election. 

Of course stubborn inflation data could prove problematic, we'll get a look at CPI later this week.  Before that it's another day of Powell, today in front of the House.  We also get the 10Y note auction.

Away from Powell there seems to be an increasing chorus of people warning that stocks and in particular AI stocks are getting too rich (see GS).  As mentioned earlier this year, Bubbles are an interesting topic (reprinting from January 23, 2024 post):

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. 

What makes things more interesting is that many calls for AI stocks being overvalued are being driven by fundamental views that capex spending is too high for the current and expected use cases, not to mention things like energy consumption and water usage.

XTOD: Arthur Schopenhauer: "Man can do what he wills, but not will as he will."   Modern medicine: "Hey, Arthur, ask your doctor of Ozempic is right for you."

XTOD: The infamous 'Warren Buffett Indicator' has officially hit 195% which is the highest in history - higher than the dot com bubble, global financial crisis, and the 2022 COVID crash

XTOD: Currently one of the most compressed periods for the $VIX in the last 10yrs. Dispersion has been at or under current levels during just a handful periods of time.

XTOD: DALIO: ".. I feel like I am faced with the choice between a strong, unethical, almost fascist Republican Party and a frail, untruthful, and enigmatic Democratic Party that is failing to make clear what they will do when their sitting president can no longer serve."

XTOD: Excitement is a better motivator than discipline. The people who appear to have an exceptional work ethic or remarkable discipline are often those with a genuine curiosity or interest in that area. The person who smiles is more likely to keep working than the person gritting their teeth.

https://x.com/BuffetTracker/status/1810701711406940353

https://x.com/AndrewThrasher/status/1810661235689427241

https://x.com/carlquintanilla/status/1810699276957446284

https://x.com/JamesClear/status/1810712592391815659