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.
https://x.com/nntaleb/status/1825604558724411691
https://x.com/AnnaEconomist/status/1825286071527125273
https://x.com/lugaricano/status/1824578208429174965
https://x.com/kylascan/status/1824786488380252258
https://x.com/farnamstreet/status/1824374336934887442
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