Daily Economic Update: October 17, 2024

Equities had a solid recovery, as big bank earnings season has proved at least the largest financials are able to generate solid returns.  As we are awaiting retail sales and ECB (expected to cut another 25bps) the 2Y is 3.94% and the 10Y is 4.02% ahead of the data.  We had oil dip below $70 on WTI before recovering. Concerns over supply continue to dominate fear of attacks on oil assets that could impact supply (betting markets seem to be pricing in only a 21% chance of an Israel attack on Iran by Friday).  

In other news, there is an increasing narrative coming from betting markets and DJT stock that the market is pricing in a Trump victory.  Away from politics, we're going to use nuclear to power all data centers and unrelatedly, all of Florida is for sale.  There, you are caught up.

Setting that aside, for me the Druckenmiller interview, was the hihglight of the day.  You can find tons of takes on it, including plenty of people who honed in on his comments on politics, perhaps cherry picking some of those comments.  Setting that aside the two things I found most interesting were:

1. "We don't see any restriction whatsoever" (as it relates to monetary policy). He believes the Fed is acting very assymetrically, waiting forever to hike rates (13 months), only hiking 25bps at first and was trapped by their forward guidance, now they cut 50bps and signal they are restrictive, will they be trapped by their forward guiance again?  The risk is if they are wrong and inflation isn't killed, he believes it will have major implications for markets and perhaps the Fed's independence.
   
   
2. "I don't know what very short means, we shorted bonds the day the Fed cut 50".  He views the risk reward related to bonds as one where by being short you can see a scenario where yields rise 100s of basis points, while being long maybe yields fall 50bps.  Why?  He was taught the golden rule for bonds is that the 10Y yield should be equivalent to nominal GDP, which he believes is 5.5%.

On the day ahead it's Retail Sales and ECB action as the highlight. 

XTOD: ever since i was young i wanted to transform unstructured data into actionable business insights

XTOD: Very lucky to have Bethany McLean @bethanymac12  come to speak to us at the @StanfordGSB . One of my favourite sessions of the year. The best investors are able to perform the kind of investigative research she does.  A few points hit home:

1) The worst crimes in history have been committed by those who believe they are doing the right thing - yes, this is more philosophical than investing related, but it did hit me hard.

2) Just because financials have been signed off by auditors or regulators, doesn't make them right. The incentives for these parties just aren't aligned with drawing out the truth.

3) The key to good writing is clarity. The key to clarity is writing. Writing is an iterative process than forces me to face your my own lack of understanding and continue to work until I grasp it.

4) Low interest rates breed greed, and greed breeds fraud. I guess we better be on the lookout!

5) Believing in something that may not be entirely (or yet) true is the mark of a visionary or a fraud. What differentiates the two is often a case of luck or timing. Society needs visionaries and believers, but we need very healthy cynicism to avoid being fooled.

6) The hardest thing is to get started, or to take the first step. After that, the momentum can often carry you forward, even if you remain terrified!

Thanks Bethany for the great session!

XTOD: “You need to know if you're going to set up business in a country, that you can do it quickly, predictably, and that the stuff you produce won't just be taken from you. Venezuela lost that. Many places have lost that. Cuba didn't even allow it to begin with. The places that have really grown, like Japan, Singapore, South Korea, you know if you start a successful business, you'll be allowed to see it through.” -Tyler Cowen

XTOD: Think of it this way: There are two kinds of failure. The first comes from never trying out your ideas because you are afraid, or because you are waiting for the perfect time. This kind of failure you can never learn from, and such timidity will destroy you. The second kind comes from a bold and venturesome spirit. If you fail in this way, the hit that you take to your reputation is greatly outweighed by what you learn. Repeated failure will toughen your spirit and show you with absolute clarity how things must be done.

XTOD: “The game is a process of discovering: who you are, what you’re interested in, what you’re good at, what you love to do, then magnifying that until you gain a sizable edge over all the other people." - Li Liu

https://x.com/netcapgirl/status/1846233047273754673

https://x.com/sammccolgan/status/1845979607096610819

https://x.com/RickRubin/status/1846574609535254953

https://x.com/RobertGreene/status/1846536726279520452

https://x.com/FoundersPodcast/status/1846521672876052893