Daily Economic Update: August 30, 2024

The last trading day of August, a month in which the crazy moves attributed to an unwind of Yen-carry trades now seems long forgotten, will end with PCE data.   Yesterday, the Dow and S&P finished up despite NVIDIA dragging down tech and Dollar General hitting a 6 year low. 

Yields rose some as economic data showed the economy was "resilient" and 2s10s remained inverted by 3bps with the 2y at 3.89 and 10y at 3.86.  On the data front the 2nd revision to the 2Q GDP showed that the economy grew at a 3% annualized real rate which was above consensus and seemed to show continued strong consumption. Inventories grew in line with expectations and the jobless claims didn't show any major concerns, though some will note the increase in continuing claims as an indicator that those unemployed are having a harder time finding new employment.

With the soft landing narrative feeling firmly enchrenched, is there a concern that perhaps the market's pricing of rate cuts is discounting the chance that the Fed will need to keep rates a little higher for a little longer and that there will need to be more "pain" in the labor market to bring down inflation back to target?  After all inflation is still above target with the market expecting PCE data in the 2.5% YoY tomorrow, of course some quarterly annualized and nowcast numbers are indicating we're at or back to running at 2% target.  Time will tell.

XTOD: With this release & Q3 tracking at around 2% the economy is looking in fine shape overall. The Fed should still cut because, as Powell said, the unemployment rate is higher than it should be. But absent an (unlikely) rise in the urate in August no pressing reason for a 50bp cut.

XTOD: A story in four parts:

1) US GDP growth has outpaced all other G7 nations

2) it's outpaced pre-COVID projections

3) inflation-adjusted wages are up, and most for low-wage folks

4) wages at the bottom rose so much, income inequality is down, undoing 1/3 of its growth since Reagan

XTOD: Pretty good year so far for financial assets: 

S&P 500 +19.2%

Gold +22%

Bitcoin +39.8%

Nasdaq 100 +16.8%

Russell 2000 +10.3%

MSCI EAFE +12.4% 

Double-digit gains as far as the charts can see

XTOD: Dreams are fun when they are distant. The imagination loves to play with possibilities when there is no risk of failure. 

But when you find yourself on the verge of action, you pause. You can feel the uncertainty of what lies ahead. Thoughts swirl. Maybe this isn't the right time? Failure is possible now. 

In that moment—in that short pause that arises when you stand face to face with your dream—is the entirety of life. What you do in that pause is the crucible that forges you. It is the dividing line between being the type of person who thinks about it or the type of person who goes for it. 

When I really think about it, I want that moment to be my legacy. Not that I won or lost. Not that I looked good or looked like a fool. But that when I had something I really wanted to do, I went for it.

XTOD: 1. If you had a heart attack and had to work two hours per day, what would you do? 

Not five hours, not four hours, not three—two hours. It’s not where I want you to ultimately be, but it’s a start. Besides, I can hear your brain bubbling already: That’s ridiculous. Impossible! I know, I know. If I told you that you could survive for months, functioning quite well, on four hours of sleep per night, would you believe me? Probably not. Notwithstanding, millions of new mothers do it all the time. This exercise is not optional. The doctor has warned you, after triple-bypass surgery, that if you don’t cut down your work to two hours per day for the first three months post-op, you will die. How would you do it? 

2. If you had a second heart attack and had to work two hours per week, what would you do? 

3. If you had a gun to your head and had to stop doing ⅘ of different time-consuming activities, what would you remove?

Simplicity requires ruthlessness. If you had to stop ⅘ of time-consuming activities—e-mail, phone calls, conversations, paperwork, meetings, advertising, customers, suppliers, products, services, etc.—what would you eliminate to keep the negative effect on income to a minimum? Used even once per month, this question alone can keep you sane and on track.

Daily Economic Update: August 29, 2024

I didn't feel like writing about NVIDIA earnings or the 2s10s inversion almost uninverting.

Have you listened to Howard Marks' and Morgan Housel on Oaktree's Podcast discussing Mark's memo that was titled "The Impact of Debt"?  If not and you work in finance or invest, it's worth a listen.  

• Apple: https://podcasts.apple.com/us/podcast/behind-the-memo-the-impact-of-debt-with/id1521551570?i=1000666742345 
• Spotify: https://open.spotify.com/episode/1ewk6BeHzcHadH5vfJvZSy

I covered this memo back on May 9th, you can find the original post here.  "There's nothing more volatile than attitudes."  That includes attitudes towards leverage.

Day ahead is Jobless claims, inventories, GDP, 7Y Auction

XTOD: 76% of Nvidia employees are millionaires, with 1 out if 3 having a NW over $20million

XTOD: Has policy really been restrictive

XTOD: “If I had to summarize money success in a single word it would be ‘survival.’  Not ‘growth’ or ‘brains’ or ‘insight.’   The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference.”  -  @morganhousel

XTOD: “He who jumps into the void owes no explanation to those who stand and watch.” — Jean-Luc Godard

XTOD: The greatest battle of all is with yourself—your weaknesses, your emotions, your lack of resolution in seeing things through to the end. You must declare unceasing war on yourself.

Daily Economic Update: August 28, 2024

I'm not sure where I stand on PE ownership in sports, I know they are allowed to own non-controlling stakes in many sports, but now it's making headlines in the NFL.  I guess the major concern would be that over a time financialization will trump the quality of the sport and the connection with the fans and community, but it would seem that keeping the quality of the on the field product high is generally well aligned with financial success.  Maybe it doesn't matter anyway as gambling culture already has varying impacts on fan engagement. 

Of course once the mosquitos take over we won't have sports. I'm kidding, but I do keep seeing stories about cities and towns dealing with West Nile and closing parks.

Sorry, back to economics and markets. The Conference Board, Consumer Confidence survey showed an increase in confidence and readings in line with the last two years and don't seem to be too concerned with a recession: "consumers did not change their views about a possible recession: the proportion of consumers predicting a recession was stable and well below the 2023 peak.” 

Stocks were largely flat.   We got a little further steepening of the yield curve with the 2Y at 3.90% and the 10Y at 3.82%. 

Of course there is always something to read about the Fed, here are a few recent reads:

" Many investors and economists are already celebrating the achievement of a soft landing even though U.S. financial history strongly suggests that such celebrations are premature......The question in 2024 is whether the Fed’s pivot to accommodative policy will resemble the premature pivots of the 1960s and 1970s, or whether the Fed truly has threaded the needle and orchestrated an unprecedented soft landing. My hope is that the Fed has deftly combined critical lessons from the past with shrewd analysis of the present and will achieve an unprecedented soft landing. But my belief is that the Fed is merely repeating the mistakes that their predecessors made in the late 1960s and early 1970s." - Mark Higgins on his Substack

 "I am late to this, but a few comments on Chair Powell's speech at the Jackson Hole symposium. First, his speech was an implicit but emphatic declaration that we are not in a fiscal dominance regime.  The Fed is still determining the trend path of the price level.... Powell was very clear in his speech that (1) the unwinding of pandemic disturbances and (2) Fed tightening/credibility is what saved the day on the inflation front. Number (2) is a clear indictment against  the fiscal dominance view....heights of the pandemic when the Fed bought up most of the treasury issuance and kept rates at 0%. What is remarkable to me is that despite the worsening trajectory of expected primary budget deficits over the past few years, all we got at best was this passing moment of fiscal dominance.  - David Beckworth on X

Waller, Bostic, 5Y and NVIDIA on the day ahead.

XTOD:  My version of the article PRIVATE EQUITY OWNERSHIP COMES TO THE NFL:“Flush with ‘dry powder’, another word for few attractive assets to buy after gigantic inflows, investors are now going to pay the ungodly fees for #volatilitylaundering AND for their PE managers to make vanity purchases after a historic run-up in franchise prices, all at worse terms than franchise purchases are usually done at.”  But I’m a known cynic.

XTOD: Super Bowl 2026 gonna be the Apollo Browns vs. the Blackstone Lions

XTOD: The Spokesman for the White House National Security Council, John Kirby has stated that Iran is now preparing for an Attack against Israel, and that the United States will aid in the Defense of Israel if or when the Attack occurs.

XTOD: The facts about Australia's new 'right to disconnect' law for employees http://reut.rs/3XiWtRq

XTOD: You don't need to worry about progressing slowly. You need to worry about climbing the wrong mountain.

Daily Economic Update: August 27, 2024

 Durable goods orders far exceeded expectations thanks to a pickup in aircraft orders while the ex-transport and core numbers were ok, but less optimistic.  The Atlanta Fed GDP Now estimate remains at 2.0%.

Stocks saw somewhat of a rotation out of tech ahead of Nvidia earnings as the Dow rose while Nasdaq declined. Yields rose some with the 2Y back up to near3.94% and the 10Y at 3.82%.  Geopolitical tensions remain a concern, but not enough to have seemed to change much in positioning today, even as oil continues to rise.

Home Price Index and Consumer Confidence, 2Y Auction on the day ahead.

XTOD: Trump and NY Governor Hochul Are Pivoting on Nuclear.  Trump: "We will create tremendous electricity for our country, and that will allow AI to compete. And you're right. Whoever gets that, it's got to be a big advantage, you know, that's going to be sort of the oil of the future. And we have to be the main player."  Hochul: Bloomberg reports the New York Governor is Eyeing Nuclear to Help the State Reach its Climate Goals

XTOD: What happens if/when the Houthi Strategy comes to the Caribbean and the world learns who the ELN is, and how essential the Panama Canal and Trinidad shipping corridors are to Western Hemisphere commerce and security?

XTOD: DOJ and 8 states sue RealPage for facilitating price fixing between large landlords around the country.

XTOD: "That's what separates great from average. It's what attention to detail do you have. Can you do the simple things better? Do you get bored with the simple things? You can't get bored with the simple things because they're what makes you different."

XTOD: A person who puts in continuous effort for ten years may achieve more in one week than someone who, having started six months ago, will achieve in an entire year.  - The Joys of Compounding

XTOD: We're all making it up as we go.

Daily Economic Update: August 26, 2024

You already know the line from Friday's J-Hole: "the time has come for policy to adjust".  After reading the speech again, I'm not quite sure if one of the takeaways is supposed to be that inflation was always transitory after all. Hard to argue with "transitory", I mean biologically I think our cells are constantly changing so we're all transitory at some level.  The speech was heavy on disruptions in supply due to Covid and Russia-Ukraine, but seemed short on discussing any of the factors leading to increased demand besides pent-up pandemic demand.  No discussion of the wall of fiscal stimulus that helped fund that spending. 

I guess the second lesson from Powell comes from this line: "An important takeaway from recent experience is that anchored inflation expectations, reinforced by vigorous central bank actions, can facilitate disinflation without the need for slack.".   I read this as Central Bank credibility with rational expectations means you don't need to raise interest rates above the rate of inflation to bring inflation down (even though they did). That wasn't always central bank orthodoxy, but seems to be true of the recent thinking.

Anyway, go read the J-Hole papers, they might be more interesting than Powell.

Yields start the post J-Hole week and the current PCE week at near lows of the year with the 2Y at 3.92% and the 10Y at 3.80%.  Stocks like low rates, at least for now. And why not like low rates?  You get to discount cash flows back at lower rates leading to higher values today.  That's all good, unless the reason for low rates should cause you to doubt your forecasted future cash flows.

Attention turns back to the Middle East with a major clash of missiles between Israel and Hezbollah.

On the week ahead:

Monday: Durable Goods, Daly

Tuesday: Home Price Index and Consumer Confidence, 2Y Auction

Wednesday: Waller, Bostic, 5Y Auction

Thursday: Jobless claims, inventories, GDP, 7Y Auction

Friday: PCE, UofM

XTOD: A question for people out there. Do you believe that a sufficiently restrictive monetary and fiscal policy could have kept inflation near target in light of the shocks affecting the global economy? If your answer is yes, then it was policy that permitted the inflation. Note, Admitting this does not imply that a non-inflationary set of policies should have been adopted. Flexible inflation targeting permits such an outcome in some circumstances.

XTOD: Interesting paper from @GautiEggertsson  and  @PierpaBenigno  (as are the other Jackson Hole papers). They argue that the inflation surge can be substantially explained by labour shortages (which gives us non-linearities in the Phillips curve) 1/nhttps://kansascityfed.org/Jackson%20Hole/documents/10385/Eggertsson_Paper_JH.pdf

XTOD: A new paper from the Kansas City Fed explains how bondholders lose during “unfunded fiscal expansions,” unless the Fed bails them out with QE. But when the Fed bails then out with QE, it’s taxpayers who lose via higher taxes and inflation. 

Source: https://kansascityfed.org/Jackson%20Hole/documents/10341/Hanno_Lustig_Paper_JH.pdf

XTOD: Trump tariffs and mass deportation, taken together, would be the largest adverse supply shock ever inflicted on the American economy. They would in all likelihood generate a combination of inflation and depression America has never before seen. Our macroeconomic troubles... ...would dwarf anything we saw in the 1970s or at any other time:

XTOD: .@AdamPosen : “Evidently, current US monetary policy is meaningfully looser than many Federal Open Market Committee (FOMC) members and market participants think it is.” @ProSyn

https://www.project-syndicate.org/commentary/federal-reserve-monetary-policy-remains-loose-and-ignoring-key-real-world-indicators-by-adam-posen-2-2024-08?

XTOD: “Reading chapters eight and chapters twenty of the Intelligent Investor is really all you need to do to get rich in the world.”   - Warren Buffett

XTOD: “Your time is limited, so don’t waste it living someone else’s life.”  — Steve Jobs

Daily Economic Update: August 23, 2024

 

Another J-Hole Day is upon us. J Pow on the docket for 10am.  For as anticipated as Powell is, your time is likely better spent reading Howard Marks' latest memo titled ' Mr. Market Miscalculates'.  I've talked about Mr. Market back on January 23, 2024  and covered Marks' last memo here. 

So what's in Marks' latest memo?  Well, the starting point is the nod to Ben Graham's Mr. Market and the fact that market prices can diverge from underlying fundamentals because humans are emotional.

Graham himself would say: “The intelligent investor shouldn’t ignore Mr.Market entirely. Instead, you should do business with him - but only to the extent that it serves your interests." Benjamin Graham.  Or as Charles Ellis said: 

“Ben Graham and Warren Buffett have talked about a charming, seductive manic-depressive gentleman named Mr. Market. Every day he shows up on your doorstep offering to do business with you, When he's manic, he'll offer to buy your stocks or sell you his for absurdly inflated prices. When he's depressed, his prices go ridiculously low. The mistake most people make is answering the door just because Mr. Market knocks. You don't have to let him in. Why should you buy just because he's excited? Why should you sell just because he's down in the dumps? A long-term investor shouldn't care about market prices.” Charles D. Ellis

 Anyway, back to Marks' he starts by discussing the recent events from Covid to the recent volatility associated the unwind of the Yen funded carry trade.  He poses the question that if reality changes very little (i.e. if fundamentals of the economy don't change that quickly) why investor sentiment shifts so quickly.   Marks' points to cognitive dissonance as a driver of market reactions as well as investors tendency to view all news in the lens of their particular mood or bias.  Psychology vs. rules.  Marks' notes how there are no immutable rules in the markets.  Reminding me of the words of John C. Bogle:

" The laws of probability don't apply to our financial markets.  For in speculation-driven financial markets there is no reason whatsoever to expect that just because an event has never happened before, it can't happen in the future." 

 Ultimately I think the message in Marks' message is broadly that investors win, speculators lose.  Who are investors?  Those who understand that in the long-run what the investor earns is what the business earns.  As Keynes said: Investment = forecasting a business enterprise  whereas Speculation = forecasting the market.   Speculation is focusing on short-term trading, pieces of paper, not a focus on business. Remember that when the market overreacts to somebody like Powell talking.

As for markets yesterday, manufacturing flash PMI's stunk, services PMI's were ok and we had rising jobless claims and rising home prices.  On that news we had stocks down, yields up.  We head into Powell with the 2Y at 4.02% and the 10Y at 3.87%.

XTOD: I love this @GSpier  story about the design of Berkshire Hathaway's website and annual report.

https://pbs.twimg.com/media/GVdFV9YWQAAXUOx?format=png&name=900x900

XTOD: Physical AI is here. At Robust AI we have developed the foundations for physical robots that do real work in real installations, and we have deployed them in both factories and warehouses. One key is to make them aware of humans so that they play nice, another is zero integration needs because they understand the world. https://aimresearch.co/ai-startups/physical-ai-the-next-breakthrough-led-by-these-startups

XTOD: The astounding efficiency of the human brain and the way babies and toddlers can learn: GPT3 took 1.3 million kWh to train. Converted to calories and assuming 2k calories/day, that's 1,500 years. think about what kids learn in 10! From discussion with  @TerranMott  this morning

XTOD: Ronald Reagan used to say that a Trivial Pursuit game designed for economists would have 100 questions and 3,000 answers.

XTOD: “Genius has the fewest moving parts.”

Daily Economic Update: August 22, 2024

Target beat on earnings, perhaps showing the consumer is still alive.  The BLS benchmark revisions to nonfarm payrolls were delayed in terms of their release timing (for some at least), which of course led to some conspiracy theories. When they were reported, they showed that job creation from April 2023 to March 2024 were revised down by 30%, which was largely expected and presumably priced into markets.  The payrolls revision are again subject to debate in light of illegal immigration, so it's hard to discern exactly how much weight should be placed on these revisions (and on the original data).

Anyway, if you're interested in the history of numbers created by government agencies, may I point your attention to this 2008 article https://harpers.org/archive/2008/05/numbers-racket/

Yesterday's highlight was the minutes to the July 31 FOMC meeting.  Overall the assessment in the minutes reads as one where both the upside risk to inflation had decreased concurrent with the downside risks to employment (very Phillip's curve esque).  The minutes explicitly call out: "several observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision."  And, "The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting. "  There were several participants who did note the risk to inflation that could occur from easing too early.

Stocks seemed to like the minutes and bond yields continued to move lower with the 2Y trading back to levels near the lows (low 3.90's) seen during the yen-carry debacle the other week.

On the day ahead it's Jobless claims, S&P PMI's, Home Sales, J-Hole agenda released

XTOD: At least three banks managed to get advanced word on Wednesday’s hotly anticipated payroll numbers while the rest of Wall Street was kept waiting by an unexpected delay.

XTOD: Want to get people to take action? The magic word is because. 🌟 Humans crave reasons, and when you give them one—even a simple one—they’re more likely to follow your lead.

XTOD: Stupid question maybe. But if I'm an investor in a hedge fund, do I just pay the performance fees when I cash out? 

Or do the hedge fund managers collect their annual 20% take, even if my gains are unrealized?

XTOD: Huh, weird. I thought taking from unrealized gains was unreasonable and insane?

XTOD: Isn’t it crazy when something that makes sense in one context doesn’t make sense in another context?

XTOD: Being busy is not the same as being productive. The 80/20 principle, also known as Pareto’s Law, dictates that 80% of your desired outcomes are the result of 20% of your activities or inputs. Once per week, stop putting out fires for an afternoon and run the numbers to ensure you’re placing effort in high-yield areas: What 20% of customers/products/regions are producing 80% of the profit? What are the factors that could account for this?  

Invest in duplicating your few strong areas instead of fixing all of your weaknesses.

Daily Economic Update: August 21, 2024

9 days would have been too many wins in a row for stocks.  Bond yields fell again, I don't know maybe increased optimism over a dovish Powell and rate cuts  (is that the same as increased economic pessism?) and perhaps in sympathy with Canada, where inflation fell.  Talk about increased taxes on things like capital gains and unrealized gains, probably isn't good for stocks.

While we wait for Powell on Friday, we can talk about the election and taxes, but it's probably more fun and productive to talk about Fantasy Football, so I suggest going that route.

Other than that, it's probably not good to bump the control system when you're flying a plane. 

One of the interesting things you can do when you have a blog where you track daily the topics that have captured market attention each day and week is, if you pay enough attention, realize how much of it is just noise and a waste of your time.  As Taleb says: "the more data you get, the less you know what’s going on."  or as Buffett says about his sister: "instinctively knowing the pundits should be ignored."

We will get NFP revisions today (see XTOD) and Minutes from the last FOMC Meeting.

XTOD:   nobody will remember:

- your salary

- how “busy you were”

- how many hours you worked

people will remember:

- how you put a lid on your trash can

- how we sent rats packing once and for all

- the day we won the “War on Rats”

XTOD: The core problem is that MBA/finance thinking teaches you to see every company not as a fragile organization of human beings with idiosyncratic skills and knowledge, competing against other such organizations, but as a financial product in a portfolio.

XTOD: Hard to measure but I suspect upper middle class and wealthy boomers are funding millennials and younger generational spending by transferring assets/cash and paying bills, and in the process pumping retail sales and the economy. In essence they are liquidating balance sheets to pay for spending. This is likely to continue as long as stocks/housing prices stay elevated.

XTOD: The Nasdaq just had its fastest 10% rally from correction territory ever. 

XTOD (too long, but read this Nickileaks tweet on BLS Revisions if you're interested): https://x.com/NickTimiraos/status/1825966091354648849

XTOD: Matt Holliday on Parenting

• "It's their career, not mine."

• "I want to help them pursue their passions."

• "Your actions have to back up your desires."

⭐️ Forcing vs. Supporting - Let them be in total control of their journey. You can help, but they need to lead.

Daily Economic Update: August 20, 2024

Stocks up again, yields down, oil down, dollar down (and despite Yen strength, nothing blew up). Waller didn’t say anything of importance.  The NY Fed SCE Labor Survey showed some growing concerns about job security, but didn't seem to get people too anxious.  The Conference Board's leading economic indicators concluded: "The LEI continues to fall on a month-over-month basis, but the six-month annual growth rate no longer signals recession ahead..".  The 2Y is 4.07%  and the 10Y is 3.88%.

A story you may have missed is that of container volumes at California ports are hitting highs not see since Covid. One narrative is that the seasonal and precautionary build of inventories (longer shipping routes, possibility of more Chinese tariffs) might end poorly as they are facing a struggling consumer. The other narrative is simply that demand remains strong.

Markets waiting on data, data revisions and Powell.  If you're into politics there's plenty of that around.

Speaking of which some economist were talking about a Kamala Harris response in which she said spending should be thought of in terms of return on investment.  Economist David Andolfatto commented that [1] Determining the value of spending (ROI), especially for projects  w/o pecuniary returns, a difficult problem. This should be focus of debate.   [2] Financing matters, but matters less than [1]. NB: Modigliani-Miller Theorem suggests method of finance not important at all.*  Which led to a discussion of the MM Capital Structure Irrelevance Theory and referenced Merton Miller's famous Yogi Berra joke that he liked to tell as part of his discussion on the theory:

"I have a simple explanation [for the first Modigliani-Miller proposition]. It's after the ball game, and the pizza man comes up to Yogi Berra and he says, 'Yogi, how do you want me to cut this pizza, into quarters?' Yogi says, 'No, cut it into eight pieces, I'm feeling hungry tonight.' Now when I tell that story the usual reaction is, 'And you mean to say that they gave you a [Nobel] prize for that?'"

XTOD:  Don't risk it all betting against a bubble. I know it is tempting, but resist: Spitznagel's come to Jesus moment: close your eyes and imagine + 20% and ~-50%. https://finance.yahoo.com/news/august-stock-market-fiasco-stark-130900158.html

XTOD: This article is the most potentially bearish thing I read this weekend ( and have been watching this issue for awhile).   Recall Q2 GDP surge due to a curiously large positive contribution to inventory.  Which begs the question: are firms preparing for a surge in consumption?  

There are signs that businesses seem to be  optimistic about the future—there is this divergence between current conditions (bad) and future expectations in business surveys, with the latter being way more sunny than the former.   But consumer fundamentals are not supporting that outlook. Labor income cooling and unemployment rising.  So supposed that businesses are indeed frontrunning potential supply chain snares up, as this article describes, and are projecting demand held up.  Even if indeed the demand is there later, Frontrunning implies less inventories later, cannibalizing growth in later quarters.  What evidence have we seen that the front running is cannibalizing future growth? 

Production is down (see ip last week). New orders in manufacturing surveys down.

All that not consistent with a consumption boom.   Now further supposed that firms misforecast demand in the fall, they risk being stuck with excessive inventory.   That sets up for an inventory bull whip effect, possibly in q4.  You know what is often the biggest driver of growth contractions in recessions? Inventories (not consumption.. thanks, Milton Friedman, to your permanent income hypothesis ).

XTOD: Outstanding essay on the worldwide plummeting birth rates and the coming demographic winter by J. Fernández-Villaverde. The 2023 fertility rates are astonishing, e.g:

- South Korea: 0.72

- Colombia and Chile: 1.2

- Argentina and Brazil: 1.4

- Turkey: 1.51 

https://www.spectator.co.uk/article/the-global-fertility-crisis-is-worse-than-you-think/

XTOD: This article on sports gambling is devastating and is an interesting exploration of how we frame money. 

1. The paper claims to have found evidence that for every $1 spent on sports gambling reduces net investments in stocks and other financial instruments dropped by just over $2.

2. So there is an obvious interchange between 'investment' dollars and 'entertainment' dollars. 

3. But the Gambling Association is like, "Haha, no way, bud. Everyone is just having fun here! These wouldn't have gone into stocks, it's just fun money"

4. But the money going toward gambling also reduces savings, increases credit card debt, results in overdrawn accounts, and an increase in lottery play. 

5. That's not 'entertainment' money.

XTOD: Nevada state pension fund invests only in passive index funds and is managed by 1 person. 

It beats almost everyone.  The manager's only decision is whether to have BLT or tuna sandwich for lunch  https://x.com/JimChuong/status/1824138288157843594

XTOD:  Great leaders have no interest in counter-productive communication.  At all costs they avoid gossip, complaining, and dwelling on problems outside their control.  The strong act, the weak chatter.

Daily Economic Update: August 19, 2024

J-Hole Week is Upon us, with Powell on Friday.  In case you were wondering what Powell said there last year, check here. 

Last week ended with stocks higher as retail sales, jobless claims, consumer confidence all were better than expected.  Some optimism on progress on a middle east cease fire doesn't hurt either.  Gold at record highs, might be a sign of a loss of confidence in the instituions that support or fiat currencies, or it might just be speculators feeding on speculators.

There are some narratives out there which are centered around how high rates are causing business uncertainty and harming the economy.  That might be correct at some level, but to me it misses the bigger point that it is inflation that causes the most harm to business and interest rates rising has just been an attempt to quell the ultimate uncertainty which is inflation.  Don't take my word for it, you can take Irving Fisher's as we discussed back here:

 "Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."

Speaking of Fisher, as I wrote back at the September 2023 FOMC meeting, Fisher believed tackling inflation as shared responsibility between the Federal Government and it's independent central bank.  As it relates to deficits, he noted that “when a government cannot make both ends meet, it pays its bills by manufacturing the money needed” and further that “The government has an added responsibility when its own debts are involved. To borrow billions of dollars and then to depreciate the dollar is not even fair gambling. It is stacking the cards.”

Elon Musk apparently is a fan of the Fiscal Theory of the Price Level. If you want a refresher, this post from February on this blog isn't too bad.  Feel free to search this blog for "Cochrane" and "FTPL"

On the week ahead:

Today: Waller, Leading Indicators, DNC starts

Tue: Bostic

Wed: Payroll benchmark revisions, FOMC Minutes

Thur: Jobless claims, S&P PMI's, Home Sales, J-Hole agenda released

Fri: New home sales and Powell at J-Hole

XTOD: For anyone who's interested, the macroeconomic theory Elon is espousing here is called the Fiscal Theory of the Price Level, or FTPL. It has been promoted by top economists Chris Sims, John Cochrane, and Michael Woodford, but remains a minority view.

XTOD: And if you want the FTPL history of US inflation, this is just fantastic: https://aeaweb.org/articles?id=10.1257/jep.36.4.125

XTOD: .@AtlantaFed  ’s sticky price CPI (slow-to-change consumer prices) rose 3.2% on an annualized basis in July, following a 2.6% increase in June. Graph and track the index in FRED: https://ow.ly/VOaG50SZJQa

XTOD: My firm uses a model to forecast interest rates.  She's terrible.

XTOD: Wow, @crampell  pulls no punches in her appraisal of this proposal:  https://washingtonpost.com/opinions/2024/08/15/kamala-harris-price-gouging-groceries/

"It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Some far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk. At best this would lead to shortages, black markets and hoarding, among other distortions seen previous times countries tried to limit price growth by fiat... At worst, it might accidentally raise prices."

XTOD: The return of economic idiocy is staggering and terrifying. Many things are debatable even if I or others may strongly differ. Tax rates are debatable. Transfer programs are debatable. Regulation is debatable (all within reason). But the return of politically driven idiocy that is not debatable, that history and theory have both proven destructive, is terrifying. Almost all economists of the left and right (not the extreme left and extreme right) would agree (though we haven’t heard the former economist Paul Krugman or any of his backup singers, the Krugtones, courageously speak truth to their own party about rent control of this latest asininity on price controls). 

The current top 3.

1) Rent control — has destroyed whatever it has touched, and for clear obvious reasons. The left wants it everywhere and are finally poised to get it.

2) The “blame corporations” utter nonsense on inflation, and the plan to whip inflation now through price controls, is beyond ridicule. From Diocletian to Nixon, from theory to fact, it’s insane. The left is all in on it.

3) Tariffs and trade wars out of the past destroying a ton of prosperity for both us and our trading partners all to claim to have saved some jobs (generally in the industries we don’t really want, they always say “we don’t need cheap crap from overseas in exchange for American jobs” but we don’t want those jobs making “cheap crap” either — also involving “national security” here is almost always just a lie (almost)). This one is mainly from the right but Biden didn’t repeal Trump’s idiocy here and added his own, so the left has no real high ground and is poised to make it worse just not “as much worse” as Trump if they win.

We have a democratic candidate who is economically illiterate and just a far left hack, and a republican candidate who thinks lying about his crowd size is more important than articulating anything cogent.

It is very very bad.

Good morning.

XTOD: “It’s time you realized that you have something in you more powerful and miraculous than the things that affect you and make you dance like a puppet.”         ― Marcus Aurelius, Meditations

Daily Economic Update: August 16, 2024

I thought about making this blog subscription based, but I didn't want to get thrown in with all the discussion about price gouging. Besides the value provided by this blog is no doubt priceless.  

 
All was right with the economy on Thursday.  No barking from the dog, no smog and mama cooked a breakfast with no hog. 

Retail sales data was better than expected, coming in at +1.0% MoM vs. estimates of just 0.4%, the core component was also strong.  Some of it was potentially a makeup for car sales that were slowed the prior month by a cyberattack on dealers, but nonetheless the report seemed to show the U.S. consumer is hanging in there.   Earlier in the week data showed that everyone who had really high mortgage rates refinanced their rate to a moderately high mortgage rate of 6.5%, taking advantage of a 60bp drop in mortgage rates over the last year. That should mean some additional cash for consumers. Imagine if rates fall another 100bps, maybe I should stop writing this blog and become a mortgage broker to catch that refi wave.

Over in job land, jobless claims show you really still can't get fired.  Yes there was other data like Philly Fed and Empire Mfg, but those indexes are notoriously volatile.  Import prices did rise slightly, which seemed to be ignored, even though I'm pretty sure we import like everything.  Industrial production data was weak, but ignored because the Hurricane and because do we really produce anything (we actually do)?

Across the pond UK GDP was stronger than expected, good for them.  It's only going to get better with Taylor Swift performing over there.

You put it altogether and the market seemed to discount the recession narrative for today.   The major equity indexes did very well and bonds sold off sending yields higher by double digit basis points.  As quickly as the nonfarm payrolls, Yen Carry, episode came, it seems to have gone.  And nobody (whoever that is) was talking about Russia and Ukraine, the Middle East or MonkeyPox.

As a reminder, economic data generally falls into leading, coincident and lagging.  Sometimes the narrative hinges on a lagging indicator like a CPI or Payrolls print, somtimes like Thursday it is the leading indicators that win the day.  Speaking of leading indicators or their more evolved "nowcasting", the ATL Fed lowered their 3Q 2024 real GDP estimate to 2.4% citing revised private investment growth based on recent data.  

Somewhere in the shuffle there is some analyst google searching "business cycle" and "business cycle theory" finding some article by Ed Prescott in the 1980's, feeling confused, and generally just trying to figure out how to make sense of the recent economic data. In search of a way to categorize the current state of the economy for some presentation they owe their boss.  Are we still in expansion, slowdown, contraction? You can probably find something to support each of these views, at least for various segments of the economy.

Wait, I take that back, that analyst is now no longer working 100 hours a week pondering macroeconomic questions for a slide deck, their boss watched the first 2 seasons of Industry on HBO and realized the error in their ways.

On the day ahead we get UofM asking consumers about gas prices and politics (not really, but they do seem to really drive this survey).  The 2Y is around 4.10% and the 10Y is 3.92%.

XTOD: https://pbs.twimg.com/media/GVCujATaEAQtynv?format=jpg&name=large

XTOD: “I’m not convinced the Fed should cut in September… to me, consumer spending looks strong and that’s not a surprise because income growth is still strong… we’re talking about [GDP growth] forecasts that are above 2.5%.”

XTOD: Bank of America is finally cracking down on its overworking culture after the death of 35-year-old BoA investment banker Leo Lukenas III  

Earlier this week, the Wall Street Journal revealed that BoA managers frequently required junior bankers to work late into the night, with few safeguards in place to prevent such demands 

In May, Lukenas had reportedly considered leaving his job after being pushed to work several 100-hour weeks, according to Douglas Walters, a MP at GrayFox Recruitment
After his death, widespread call for reevaluations of companies across Wall Street erupted

BoA is effectively now encouraging junior investment bankers to report to upper management or HR if they feel pressured by their managers to overwork or falsify their hours - we will see how this plays out

XTOD: Eric Schmidt says in the next year, AI models will unite three key pillars: very large context windows, agents and text-to-action, and no-one understands what the impact will be but it will involve everyone having a fleet of AI agents at their command

XTOD: Read more history and fewer forecasts.

https://x.com/morganhousel/status/1824149769314586652

https://x.com/AEIecon/status/1824144433102876855

https://x.com/exec_sum/status/1824104515718746211

https://x.com/tsarnick/status/1823500546260787607

https://x.com/morganhousel/status/1824115005949964437

Daily Economic Update: August 15, 2024

ICYMI Japan’s stock market he regained all its losses since last week’s epic route. I'm happy that it didn't take 34 years to recover this time. 

UK inflation was below estimates, New Zealand cut rates, Middle East tensions haven't boiled over (yet) and you aren't really talking about MonkeyPox yet, right? So all was good.  And then CPI was benign: US CPI came in largely in line with estimates, with headline and core both roundng up to 0.2% MoM, which matched estimates.  The YoY headline number was 2.9% which was below the estimate of 3.0%

Of course everyone focuses on the internal components of the CPI report. Shelter and rent not declining, insurance cost, etc. But isn’t it funny how inflation is an increase in the overall price level, thus why we create indexes to measure inflation, but then we spend a bunch of time discussing individual components?  At some level discussing the individual components of the index is ultimately a discussion of relative prices and changes in relative prices isn't inflation. It feels like this insistence to discuss relative prices via the components of CPI reports losses the whole narrative on discussing inflation.   Perhaps this is why so much of the plot is lost when discussing what caused or is causing inflation and whether certain policies are working to lower inflation.  (see Twitter/X Thoughts below - for someone thinking the same thing).

Stocks were up, yields were mixed to down. The 2Y remains around 3.95% and the 10Y is at 3.83% and you're not talking about MonkeyPox.

Retail sales on the day ahead.

XTOD: The problem with this decomposition is that relative prices change all the time. Inflation measures the change in the overall price-level. Seems unlikely that any given component of the consumption basket is "driving" inflation at any given point in time.

XTOD: Here is my earlier thread.  Conclusion unchanged: "This gives [the Fed] permission to do whatever they need to for the employment side of the mandate. IF the next jobs report is weak... expect 50bp. Otherwise probably will go with 25bp..."

XTOD: How does the FTPL make sense of this low inflation? CBO is estimating another $20+ trillion of debt (i.e. sustained primary deficits) will be added over the next decade. @JohnHCochrane  

@Francesco_Bia   @dandolfa  

@HannoLustig

XTOD: With some parents using tablets as digital pacifiers to soothe their children, a new study finds preschoolers who spend 75 minutes or more in front of a screen showed increased anger and frustration as they got older, along with difficulties in regulating their emotions.

XTOD: Essentialism would be easy, if it weren't for the people. 

To bring essentialism alive, upgrade your communication and negotiation skills.

Priority conversations vs. Reactive emails

Talk about underlying vs. Ignoring stuff

Culture of listening vs. Loudest voices

Essentialism is done together or not at all.

Daily Economic Update: August 14, 2024

Yesterday's PPI came in below estimates at 0.1% vs. 0.2% for the month on month reading. The core reading was flat month over month, meaning food and energy made up for the increase in the headline number.

Stocks rallied and yields fell.  The 2y is 3.94% and 10y is 3.85%.  We’ll see what CPI says today, I’m sure rents and OER will be a topic of discussion.

Since CPI is so important I don’t think I can write anything else today.

XTOD: Starbucks CEO Laxman Narasimhan recently said that he doesn't work past 6pm and that if anyone at Starbucks gets a minute of his time after 6 pm they "better be sure that it's important." He was just fired today.

XTOD: There’s been a record number of CEO ousters at US companies this year. Of the 191 chief executive officers who have left companies in the Russell 3000 Index this year, 74 were considered to be fired or forced out

XTOD: Gosh, it almost makes one wonder where the willingness/ability to pay those higher prices came from in the first place

XTOD: Mastery requires lots of practice. But the more you practice something, the more boring and routine it becomes. Thus, an essential component of mastery is the ability to maintain your enthusiasm. The master continues to find the fundamentals interesting.

XTOD: Beyond the basics, money doesn’t make you happier because, beyond the basics, nothing makes you happier.

Daily Economic Update: August 13, 2024

Per the NY Fed survey, consumers revised lower their expectations for 3y ahead inflation to a low not seen since 2013 (2.3%), all while leaving their inflation expectations unchanged for 1y ahead (3.0%) and 5 year ahead (2.8%).  I guess the answer is consumers believe inflation will really fall 2 years and 3 years from now and then rise again, or something like that.  Or the answer is consumers surveyed don't really understand how to estimate inflation?  For some reason the NY Fed made it a point to call out that the biggest decline in 3y ahead inflation expectations was in the the demographic with incomes below $50K.  This is perhaps somewhat puzzling given the outsize toll inflation has had on lower income households.  The 2Y is sitting 4.01% and the 10Y at 3.90%.

U.S. troops building up in the Middle East has been sending oil higher, lest you forget geopolitical impacts on inflation.

Inflation data starts today with PPI.

XTOD: As the world awaits Iran/Hezbollah's retaliation against Israel, the price of crude oil is up ~12% in a week and showing no signs of peaking (at least not yet).

XTOD: If Microsoft and Google were their own countries, they would each rank between Serbia and Jordan in total electricity used in 2023.

XTOD: Report: NFL sets meetings with private equity groups http://reut.rs/4fJ8OWc

XTOD: "I’ve seen men die at the age of 25, yet buried at the age of 75."   -Benjamin Franklin

Daily Economic Update: August 12, 2024

The most important CPI print of your lifetime is Wednesday, are you ready?  Why does it seem like every week we are told that some data point is going to be the secret to the future.  Can you find the signal from the noise?  Here's a quote to think about as you digest PPI Tuesday, CPI Wednesday and Retail Sales Thursday and UofM inflation expectations on Friday (these things do happen every month...):  blinded by noise

Markets will certainly react to the data (the Fed has conditioned them to with "data dependent"), but isn't Action better than Reaction?  Action from clarity of perception and accuracy of response. That's deep.

Today there is No data, so talk about the Jobs report and Sahm Rule...after all there was a Hurricane and some temporary layoffs, and Claudia says this rule is just an early warning system.  When you're done, figure out "R-Star".  Now that's a great start to the week.  Option 2, there is no data, take the day off and prepare for the inevitable CPI discussions.  After all your reward for absolutely killing yourself with an impossible client last week will be to get to do it all over again this week.

XTOD: No matter how efficient or inefficient markets may be, the returns earned by investors as a group must fall short of the market returns by precisely the amount of the aggregate costs they incur. It is the central fact of #investing.  - Jack Bogle

XTOD: “Hard work, honesty, if you keep at it, will get you almost anything.” — Charlie Munger

XTOD: Steve Kerr said, "You gain more respect as a leader when you admit you don’t know everything."   "When you let somebody else make a decision it makes you more powerful." 

It takes humility to lead.   It means valuing others' insights.

XTOD (Question) :  A brief, satisfying explanation for why the multiplication of two negative numbers yields a positive number?

XTOD (Answer): t is the simplest way to keep the pattern going. For example,

-1 x 3 = -3

-1 x 2 = -2

-1 x 1 =  -1

-1 x 0 =  0

Notice the numbers on the right side of the equal sign keep increasing by 1. 

So to keep the pattern going, we define 

-1 x -1 = 1

XTOD (Answer Continued):  Official answer: this definition uniquely allows us to extend the distributive law to negative numbers. Consider 

-1 x (1 + -1). 

This is -1×0, which should = 0. 

If the distributive law holds, then this 0 = 

 (-1 x 1) + (-1 x -1)=  -1 + (-1 x -1), which requires  -1 x -1 = 1

Daily Economic Update: August 9, 2024

"Summertime and the livin's easy" I guess was the motto for equity markets yesterday.  Jobless claims were much better than expected allaying some concerns about the recession word.  Who knew this would be enough to send stocks rallying to their biggest gains in since last November, if indeed it was only this data that helped fuel that move. There have been some headlines that perhaps things in the Middle East may not escalate dramatically that could help too.  Anyway, whatever the driver, mixed with another weak treasury auction (the 30y tailed 3.1bps), it was enough to get the 10Y back to 4% and the 2Y up to 4.05%.  

Atlanta Fed GDP Now is still reading 2.9% estimate, we'll see what the NY Fed's GDP nowcast reading is today.  As a reminder, the NBER definition of recession does not require and is not simply two consecutive quarters of declining real GDP.  That said, it's hard to see almost 3% real GDP in 3Q as being recessionary.

As we hit a summer Friday, one with no data, will this be one of those Friday's where investors "de-risk" heading into the weekend?   In the immortal words of Jay-Z "Do I look like a mind reader sir, I don't know".

XTOD  (I personally have no idea who Paulo is, but I'm sure he's a nice enough guy): From my buddy @PauloMacro  and his excellent blog…  Don’t think guys have thought this through very far.  

-If Fed cuts aggressively here, JPY goes to 120 and every CUSIP has a flash crash, as the carry trade blows up. 

-If Fed cuts slowly, then it may just blow everything up anyway, cause the economy is rolling over and the ‘wealth effect’ was the only thing holding it up. 

-Meanwhile, we just had a 10-yr auction that effectively failed. So if the Fed cuts at all, they blow up the bond market and the banking sector. They realistically need to raise rates aggressively here to save things (imagine that!!). That’s the EM Dilemma. Which is why DMs do not want to become EMs. Or in other words, ‘they’re fuct!!’

XTOD: To show why initial & continuing claims aren't worrying yet, here's how both (as a share of covered employment) reacted in the recessionary year of 2001 relative to the non-recessionary years of 1999 & 2000. The tiny 2024 wedge in continuing claims is nowhere near 2001 levels yet  https://pbs.twimg.com/media/GUdq14lasAAJ5ED?format=jpg&name=small

XTOD: Everyone is fighting a battle you know nothing about. Everyone struggles. Take solace in that.

XTOD: To experience time travel, read.  To achieve immortality, write.

XTOD: Experiences that make you grow as a person are always painful: 

overcoming injuries, getting seriously sick, losing someone you love, losing a lot of money, being treated unfairly because you were different, getting betrayed by someone you trusted. 

The ride isn't easy, but that's the only way to grow mentally and emotionally stronger.

XTOD: Not all disappointing outcomes are failures. Some lead to improvements in your process. 

Success is about more than the results you achieve. It's also about the growth you attain. 

Progress is more than how close you come to your goal. It's how far you've come from your start.  https://pbs.twimg.com/media/GUeTkWGWQAM8l7j?format=jpg&name=900x900

XTOD: We face a disturbing, understanding paradox: as information has exploded, understanding has imploded. It leads people to swallow, simple slogans. These fuel  polarization. 

To escape, we must read, write and think deeply. The time is getting urgent.  https://pbs.twimg.com/media/GUe4GXZa8AA_e1g?format=jpg&name=small

Daily Economic Update: August 8, 2024

 U.S. stocks ended lower and yields rose again.  Yesterday's 10Y auction was considered to be quite poor, with one of the largest tails (over 3bps above where when-issued was trading) in years. Not quite what you might expect in a major flight to safety trade, so I guess debt and deficits matter to investors, even when they are trying to figure out how they are assessing the U.S. growth and inflation picture.  We'll see how the 30Y Auction looks today.  With the 2Y at 3.98% and the 10Y at 3.95%, the 2's10's inversion watch is getting real, sitting at just 3bps.  Are you willing to play for further steepening of the yield curve?  If you need a refresher look here.

I already have seen the talk of the "Fed Put" a few times this week.  On a year when the S&P is up 15%.

Speaking of the "Fed Put", I thought John Cochrane  highlighted an interesting observation in a recent blog post. To paraphrase, he basically alluded to the fact that some of the voices calling for the Fed to cut are making those calls solely being made on the basis of people wishing to see the stock market higher (certainly there are some concerned about the employment picture).  It does make you wonder, if the Fed were to cut early or bigger than what's priced in, will it be a defacto bail out of some of the levered and short vol trades that the current narrative is blaming on the recent price action?  In other words does it perpetuate moral hazard and further encourage investors to behave like Taleb's Turkey, picking up pennies in front of a steam roller.

 

Anyway, this week to date reminded me of "Febezzle"

Jobless claims, 30Y auction, Fed Barkin today and eyes on wars in Ukraine and Middle East.

XTOD: Taylor Swift’s shows in Vienna were canceled Wednesday after two men—one with alleged ties to ISIS—were arrested in connection to a terror plot targeting one of the events. What happened—and what's next for Swifties? Here's what we know: https://trib.al/h15tpaA

XTOD: ISIS just Pissed Off the one Group that you don’t want to Piss Off…Swifties.

XTOD: ""The US is not in a recession, despite the Sahm Rule indicator bearing my name saying that it is. That said, the risk of a recession is elevated, strengthening the case for the US Federal Reserve to cut interest rates."" https://bloomberg.com/opinion/articles/2024-08-07/the-sahm-rule-is-warning-of-recession-but-claudia-sahm-isn-t-sold?srnd=undefined&sref=YAR8Qcu4 my 

@opinion

XTOD: Former New York Federal Reserve President Bill Dudley has a Bloomberg opinion piece out in the last half hour. 

He is hyperventilating that the Fed needs to cut 150 to 200 bps as fast as possible.

* He dismisses the Sahm Rule pushback as being distorted by migration. He is taking it at face value, and it means the economy is in deep trouble.

* He argues that the neutral rate is 150 to 200 bps below the current funds rate of 5.25%.

Dudley's thinking is why I'm worried the result will be 4% to 5% inflation and not a rescue of an economy (that might not need it).

----

https://bloomberg.com/opinion/articles/2024-08-07/federal-reserve-markets-wild-ride-has-just-begun

Dudley ...Monetary policy is tight and becoming tighter as price and wage inflation moderate. It needs to get to neutral. Federal Open Market Committee members’ estimates of the neutral interest rate range between 2.4% and 3.8% (I’d put myself in the top half of that range). This means there’s a long way to go from the current effective fed funds rate of 5.3%. And if a recession materializes, the Fed will need to go into accommodative territory — to 3% or less.

An immediate rate cut is in order, but that’s very unlikely. It wouldn’t be consistent with Chair Powell’s deliberative manner, and the Fed rarely makes such moves outside of its regular policy-making meetings — only when a severe shock changes the economic outlook dramatically or threatens financial stability.

XTOD: I'm toying with starting a "Get on With Your Life" Investing Club. 

Key principles:

+Get educated/make money doing something you enjoy

+Save and invest regularly in something reasonable (60/40, 80/20, whatever)

+Don't peek

+Go do other stuff

Who's in?

XTOD: If you refuse to maintain a proper diet, proper training, proper self-discipline, and an absolute focus on your long-term vision and goals, you are disrespecting yourself, and you are extremely arrogant to believe that you can achieve exceptional results without paying the price.

Daily Economic Update: August 7, 2024

Stocks recovered some losses, bond yields rose some.  The 3Y auction was solid, as you probably expected given risk-off sentiment.  The 10Y reclaimed 3.90% and the 2Y almost got back to 4%.  The Atlanta Fed GDP now is at a very recessionary 2.9%.  That's your recap. 

XTOD: “The stock market is the only market where things go on sale and all the customers run out of the store.” — Cullen Roche

XTOD: That guy who missed 200% move up but feels vindicated about a 9% drop...

XTOD (didn't read it, but sounded interesting): "In a world where survival is all-but-guaranteed, your greatest risk is that you spend your life not really doing a whole lot of anything."  Today's blog, on the cost of apathy: https://youngmoney.co/p/the-cost-of-apathy

XTOD: Senior U.S. and Western Officials believe that the time for preventing an Iranian Attack against Israel has now passed, with decisions likely to have been made by Iranian Government Leaders and Military Commanders to move ahead with a Large-Scale Attack against Israel.

XTOD: I believe that life exists to be enjoyed and that the most important thing is to feel good about yourself.   Each person will have his or her own vehicles for both, and those vehicles will change over time. For some, the answer will be working with orphans, and for others, it will be composing music. I have a personal answer to both—to love, be loved, and never stop learning—but I don’t expect that to be universal. 

Some criticize a focus on self-love and enjoyment as selfish or hedonistic, but it’s neither. Enjoying life and helping others—or feeling good about yourself and increasing the greater good—are no more mutually exclusive than being agnostic and leading a moral life. One does not preclude the other. 

Let’s assume we agree on this. It still leaves the question, “What can I do with my time to enjoy life and feel good about myself?” 

I can’t offer a single answer that will fit all people, but, based on the dozens of people I’ve interviewed, there are two components that are fundamental: continual learning and service.

Daily Economic Update: August 6, 2024

 I remember one year during the GFC we made a calendar with images of traders with their hands on their heads....not good times, but good times.  In the immortal words of Gary Cherrone of Extreme, "more than words to show you feel", images.  If you haven't feel free to read my summary/review of a book about managing risk check out this post 

Imagine if the ISM Services data was bad yesterday?  It was in expansion with strong internal employment and prices paid measures.  

And all of a sudden financial conditions matter again. Remember in late 2023 when people were concerned that stocks had run up too fast, bond yields had fallen to far, arguing Fed policy wasn't tight enough and inflation due to the wealth channel would continue?  Now it's the Fed is too tight look at the last two trading sessions.  I thought part of the whole forward guidance thing was to let the market do the tightening or loosening for the Fed?   Did conditions just all of a sudden get that tight following the jobs data or is it the confluence of jobs and BoJ?  

Of course everyone knows all the answers when there is a sell-off, after all the people with all the answers have been predicting this sell off for (checks calendar)...well forever.  Maybe people need to re-read Howard Mark's last memo "The Folly of Certainty"...hint - you don't know why this is happening and what will happen next.   

If you want answers you have to consult the Oracle... of Omaha https://fs.blog/mr-market/   But he's been selling stocks and is sitting on billions of t-bills...and the "The Buffett Indicator" has been at over-sold levels. “The most that owners in the aggregate can earn between now and Judgment Day is what their business in the aggregate earns.” — Warren Buffett

Anyway, I'm sure you can find all the answers (everyone on the internet is now an expert in Yen carry trades) and the best market-timing strategies....on some other blog.

XTOD: In this time of extreme equity market pain it’s comforting to knew that Private Equity prices are largely unchanged. They win again. Many (not all, some are quite clear about their risk) don’t tell the truth, but again that’s a winning strategy and many of their clients (often also my clients) are complicit in the falsehood as it makes their life safer and easier even at a long term cost of lower ER than your true beta should earn and more risk in a possible long term bear than you thought you had (sorry, truth to power and all that, please don’t shoot the messenger).   Congrats Ostriches.

XTOD: From 1928-2023 the S&P 500 experienced drawdowns of:10% or worse in 64% of all years  15% or worse in 40% of all years   20% or worse in 26% of all years   Losses are normal   https://awealthofcommonsense.com/2024/08/this-is-normal-2/

XTOD: I am beginning to wonder if the popular Sahm Rule is not just a predictor of recessions, but an amplifier of recessionary fears that can become self-fulfilling.

XTOD: When something feels like the top, trust your instinct  https://pbs.twimg.com/media/GUPwz3iXYAAuAx2?format=jpg&name=900x900

XTOD: Yes, it's ugly out there, but this feels more like SVB exploding (taking down some regionals and shaking up the system) than 2008.   I think this will be mostly forgotten next week.

XTOD: Nearly 33 years of (near) Zero Interest Rates (ZIRP) and 23 years of Quantitative Easing come at a price you eventually must pay.  (Japan was always mentioned by the QE fools as a place where the strategy worked).

XTOD: The root of people pleasing is not concern for others. It's concern for approval. A fear of being disliked leads many people to put their image above their values.  A good reputation is not about being adored by all. It’s about earning the respect of those who matter most.

Daily Economic Update: August 5, 2024

Friday's jobs number disappointed markets, leading to major declines in yields and equity indexes. Is the recession that has been forecast for going on 2-3 years finally upon us?  The narrative is currently centered around the Fed being late to cut and how they'll now need to cut aggressively to stave off recession.  Some are even calling for an inter-meeting cut.  Are we really at that stage after this jobs report?  It's a very Fed-centric narrative to say the least. 

You'll hear plenty more talk about the Sahm rule being triggered and whether that will lead to recession, or according to Sahm, maybe not as this triggering is not caused by people losing jobs vs. an increase in the labor force.  I'll let economist figure out whether that matters.  

What else do we have out there, oh yeah, unwind of Yen carry trades, see USD:JPY back at 145, remember 160?  Tough to be short Yen with that move and you might be forced to sell whatever assets you were financing with the Yen short.  Anyway, Japanese markets looking rough at the time of this writing.  Remember back in January when the Japanese stock market hit a 34 year high finally reclaiming it's 1989 level, no you don't.  But I wrote about it here.  Hopefully it doesn't take another 34 years to reclaim the recent highs, but it's been a violent move lower over there.

Other narratives, Buffett selling Apple, that's apparently not bullish for tech stocks.

Let's also not forget about tensions in the Middle East and whatever narratives we have around domestic politics as the U.S. Presidential race tightens.

On the week ahead it's a little light with ISM Services.  It will be interesting to see how officials from the all powerful Fed talk about the Jobs report and the rate cuts the market have quickly priced in.

Monday: Goolsbee, ISM Services, Daly

Tuesday:  trade data, 3Y Auction

Wednesday: take the morning off, come in for the 10Y Auction

Thursday: jobless claims, Barkin

Friday: take another day off

XTOD: This is the biggest market decline since the last decline you don't remember or care about anymore.

XTOD: Interestingly, most of Friday's bond easing was to inflation breakevens. The nominal 10Y yield fell 19bps, but the 10Y TIPS only fell 3bps. The 5Y was a qualitatively similar story.

XTOD: “History never repeats itself. Man always does.”   - Voltaire 

We are in that part of the market cycle where all past corporate governance misdeeds are being overlooked and stocks of promoters who are promising multi-year high growth guidance inspite of negative OCF are soaring.

XTOD:  As of today, it appears as though we are headed into a recession.   You know what is going to get smeared in a recession?   Private equity.   Low exits are going to no exits. Then what? More to say on this in the coming days. Enjoy your weekend.

XTOD: The whole marketplace is pricing exceptionally high probability rates are going down by a lot - which is just consistent with recession pattern. Rate cuts don't do anything (pure superstition) so the higher unemployment goes the lower the Fed will go chasing it.

XTOD:  Your paycheck is the drug that makes you forget about your goals and passions.

Daily Economic Update: August 2, 2024

Jobs Day in 'merica.  The street is expecting headline job gains of ~185K with the unemployment rate holding at 4.1%.  Of course you'll hear all about the effect of things like seasonality, immigration, hurricane Beryl and plenty about how many jobs were in government.  While reviewing the data, remember the headline number comes from CES/Establishment Survey while the labor force participation rate and unemployment rate comes from census data, feel free to read a few articles on how immigration may impact employment data.  A summer Friday, with rate cut speculation heightened against a backdrop of perceived recession risk, political and geopolitical considerations being repriced, could make for interesting market reactions to this report.

August started with a big down day for equities. After hours Intel got smoked and AMZN was down, while Apple was up. Yields also fell double digits again yesterday, with the 10Y breaches 4% for the first time since Feb.  The catalysts include fallouts from yesterday's FOMC, perhaps the "hawkish" BoE rate cut, weaker than expected ISM Mfg, higher than expected jobless claims, positioning ahead of today's Jobs numbers and likely some of the heightened geopolitical risk.  The 2Y is at 4.16% whil the 10Y is at 3.98%.  

XTOD: Past 3 weeks:

-NATO summit

-Attempted Trump assassination

-RNC + Vance VP pick

-Biden stepping down

-Harris becoming Dem nominee

-Netanyahu visit 

-VZ elections

-Hamas/Hezbollah assassinations

-Plea deal for 9/11 attackers

-Biggest prisoner swap deal w/ Russia since Cold War

XTOD: poor guy, we've all been there https://pbs.twimg.com/media/GT54BiDWUAAHw1D?format=jpg&name=900x900

XTOD: Joe Rogan suggests Kamala Harris will win the 2024 election, says "people are giving into the bullsh*t."  Rogan pointed to the media's PR work for Harris and argued that their strategy is working. 

"She’s gonna win," Rogan said to Michael Malice who disagreed.   "Everybody forever was like, 'Kamala Harris is the worst vice president.'"  "She’s the least popular vice president of all time, and then in a moment in time, all of a sudden she’s our solution. She’s our hero."   "[Now], everybody’s with her. All these social media posts about her. Try Googling a negative story on her, you won’t find one."  

"I feel like we are in this very bizarre time where people are giving into the bullsh*t in a way that I never suspected people would before."   "They're willing to gaslight themselves." 

"I’m saying it because she could [win]. I’m not saying it because I think she’s going to and I’m not saying it because I want her to. I’m just being honest. I could see her winning."

XTOD: The S&P 500 withstood a sell-off in tech to end July 1.13% higher than at the start of the month. With the 10-year rate dropping to 4.09%, the ERP for the index stands at 4.12% and the expected return on stocks is 8.21%. http://Damodaran.com

XTOD: Signs point to the upper-limit being reached for what consumers will spend before looking for alternatives, leading to price pushback hurting company profits.  “Top White House economist Jared Bernstein told a room of researchers and reporters Tuesday that price sensitivity would help complete inflation's ‘round trip’ — that is, bring it back to pre-pandemic norms.”

XTOD: We have the meme of the year:  At the Olympics shooting, everyone is wearing ear protection, lenses, glasses, and futuristic gear  Then he arrives from Turkey, 51 years old, with a t-shirt, hands in his pockets, a serene look, and wins the silver medal 🥈 Unlocking a new level

XTOD: “Show up every single day and do the work.”  - Kobe Bryant  https://x.com/i/status/1818299747154923658

XTOD: The top 10% of alcohol drinkers in the US consume 74 drinks per week.
[forbes.com/sites/trevorbu… This article does a good job of explaining the flawed methodology of the study that generated this implausible data. It was based on self-reported data (which is unreliable) and multiplied responses uniformly by 1.9. ]

Daily Economic Update: August 1, 2024

It now feels lost in the shuffle, the BOJ raised its policy rate to 0.25% and also laid out a further tapering of their bond buying program.  Governor Ueda also set up the possibility of further rate hikes at the coming meetings. The Yen liked the rate hike, rallying strongly as the market hadn't fully priced in the hike.  USD:JPY back under 150. 

You can find my FOMC recap by navigating this blog, I believe in you. Most everyone seems to believe Powell is positioning for a September cut.  As an aside, it will be funny when the Fed cuts 3x this year and they’re like “see just like we projected at the start of the year”.   Bond yields fell following the FOMC presser with the 10Y now at 4.06% and the 2Y down to 4.27%.  Remember when we were in the 3.80s on the 10Y at the start of the year?  Stocks did what stocks do, rising as we all believe in AI (thanks META) and rate cuts again. NVDA reportedly added $329 billion in market cap...cool.

In other data the employment cost index rose by less than expected, ADP employment was lower than expected and in the EU inflation was higher than expected.

Also lost in the shuffle of Fed day is rising risk in the Middle East.

On the day ahead it's BoE, Jobless Claims and ISM Mfg.

XTOD: Jay Powell appears to say: another near-quarter of data telling us that the macroeconomy is normalizing, and we at the Federal Reserve will start to normalize interest rates and the yield curve. But another quarter of normalizing data will produce a macroeconomy that is...well, normal. And policy should normalize in step with the economy, not lag behind—that guarantees a complex root in the dynamic equation, hence pointless disruptive stop-go cycles. And what would a “normal” yield curve look like today, anyway?

XTOD: Fed: We decided to take our chances waiting to cut rates cause our jobs are not at risk, only yours are. No seriously, if they get this wrong again not one of them will get fired.

Nobody got fired for the GFC or transitory.

The only ones that had to leave against their will by "retiring" were the ones caught insider trading.

XTOD: REMINDER: Anytime the media quotes a poll, or a prediction market, or a survey -- without simultaneously disclosing the prior track record of that item over the past few election cycles -- they are committing journalistic malpractice...

XTOD: Since 2022, $META revenue up 40% yet # of employees down 19% despite massive new investments in AI.  AI is not only extending and accelerating Meta revenue growth, it is also leading to big leverage on people / opex.  

XTOD: Israel has sent Diplomatic Back-Channel Messages to both Iran and Lebanon, stating that they are willing to go to Full-Scale War if Iran, Hezbollah, and other Iranian-Backed Groups conduct a Retaliatory Response which causes Significant Damage and Casualties in Israel.

XTOD: High draft pick. Doesn’t seem that good. Still a big time player despite not being that good. Gets to the big stage and goes on a heater of a lifetime to take down the Bob Kraft supported overwhelming favorite. Turns out they’re pretty good if not great. Kamala is Eli Manning.

XTOD: "I believe in maximum flexibility, so I reserve the right to change my position on any subject when the external environment relating to any topic changes too." --- Henry Singleton