Daily Economic Update: November 29, 2024

"If you are confident you have done everything possible to prepare yourself, then there is nothing to fear. There's no stress in losing under those circumstances. It just wasn't meant to be.” - Michael Jordan

Daily Economic Update: November 28, 2024

 "true power" stems from traits such as honesty, compassion, and a dedication to enhancing other people's lives......"You can't get away with lying to other human's"

- David Hawkins

Daily Economic Update: November 27, 2024

 “I don’t know what I would have done. I would have perhaps produced a few things and who knows where I would have went? But if I’d continued to dedicate my life to Bruce Springsteen’s vision I would never have realized my potential. I still haven’t, obviously, but I got a few things done and I think they wouldn’t have gotten done if I’d stayed.”   

                 - Steven Van Zandt [on leaving the E Street Band]

Daily Economic Update: November 26, 2024

 "Keeping your organization simple is not simple, but it is very important."  Robert Kierlin (The founder of Fastenal)

  "the more simple anything is, the less liable it is to be disordered…" - Thomas Paine in Common Sense

Daily Economic Update: November 25, 2024

One of the things the Federal Reserve does correctly is implement a blackout period, every once in a while it's good to cut the noise out, especially when it comes to financial news.  As I've done in the past this holiday-shortened week my economic update will consist solely of one quote.

The week ahead does feature some relatively important data with FOMC Minutes on Tuesday and PCE along with GDP data on Wednesday ahead of the market close on Thursday and a shortened day for fixed income trading on Friday. 

 "The great defect of scale, of course, which makes the game interesting—so that the big people don’t always win—is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature...And in a bureaucracy, you think the work is done when it goes out of your in-basket into somebody else’s in-basket. But, of course, it isn’t...So you get big, fat, dumb, unmotivated bureaucracies...They also tend to become somewhat corrupt...you get layers of management and associated costs that nobody needs.Then, while people are justifying all these layers, it takes forever to get anything done. They’re too slow to make decisions and nimbler people run circles around them..." - Charlie Munger

Daily Economic Update: November 22, 2024

For all the talk that Nvidia earnings were more important than the FOMC and really everything else in the year, it just didn't seem to be the major event that options markets had implied.

Duct tape banana sells for $6.2mm, and I thought NFTs were crazy.  The DOJ continues to push towards Alphabet spinning out the Chrome browser.  SEC Gensler announces his resignation effective Jan 20, no shocker as Trump wasn’t keeping him around.  Bitcoin $100K.  Stocks were positive on the day.  Yields were little changed with the 

In U.S. data, you still can't get fired and you pretty much still can't buy a house.  In Asia, Japanese inflation data is in focus.

On the day ahead it's really just UofM survey.

XTOD: Just keeping a running list for myself to repost in future:

1. MSTR now represents a mid single digit of all converts in US

2. Meme coin bro buys 6.2m banana to eat 

3. 10 year old rug pulls greedy meme coin people for $30k -> someone kidnaps his dog and asks for money back 

4. Some of the best L/S guys I know giving up shorting stocks 

5. 2/3 my feed is not ICBM rockets but “retardio” and “fartcoin” 🚀🚀

6. DJT rumor to be buying BAKKT (FT)

7. James Howell is paying 10s of millions to search landfill for lost bitcoin 

8. SBF would be richest man in world right now 

9. Scottie Pippen knows Satoshi and talks to him in dreams

10. TikTok “ChillGuy” meme coin is now $400m mkt cap and up 400,000%

Feel free to add so we can catalogue this time in

XTOD: Nvidia keeps crushing because Jensen runs it unlike other CEOs:

- No 1:1s

- No 1 or 5-year plans

- No status reports

- 60 direct reports

Once you see why he does it, you can't unsee it  And it explains everything wrong with the traditional way of running a compan

XTOD: Breaking: Top hedge fund managers are growing wary about the debt situation — $35 trillion and counting but also how they believe  @SecYellen  and the  @JoeBiden  were manipulating interest rates in the run up to Nov 5 by selling so much short dated debt so as not to cause a spike in longer dated yields, which would upend stocks and could cause a significant economic slowdown. Now  whoever  @realDonaldTrump  nominates for  @USTreasury  will be stuck with a mess of a balance sheet, a mismatch to unwind that will put pressure on bonds and markets. Story developing

XTOD: Limiting your options now will expand your opportunities in the long run because you can remain focused enough to master something.  Keeping your options open now will reduce your opportunities in the long run because you divide your attention and end up doing an average job on seven different things.  Are you falling into the pattern of always mastering one thing or always chasing the next thing?

Daily Economic Update: November 21, 2024

Why does it take so long to count votes in Cali?   The G20 wrapped up and to the best of what I read, didn't seem like there were too many major takeaways other than the usual dysfunction.

10Y remains range bound around 4.40% and the 2Y in much the same boat around 4.30%.  There doesn't seem to be an imminent catalyst that will cause a break out in either direction, though perhaps an escalation in Ukraine in the Middle East or a surprise Treasury Secretary pick could be such a catalyst in the near term.

High mortage rates, higher gas prices and rising inflation in the UK were all in the picture.  Stocks fell into Nvidia earnings.  The Hawk Tuah Girl thanked Michael Saylor for getting her into crypto, to which responses generally are in the realm of "emergency 100bp intra Fed meeting rate hike needed", and "has there ever been a sentiment signpost as big as this?".

After the bell Nvidia earnings beat estimates, but shares traded lower as of the time of this writing on what was characterized as disappointing guidance, whatever that means in the context of that stock.

In other news you likely missed, the Treasury Office of Financial Research put out it's 2024 Annual Report on Financial Vulnerabilities, you can read the full 111 pages here.  In full disclosure I did not read everything in the report, but some of the high level takeaways are that: 

• CRE credit remains a risk, specifically office and particularly at smaller banks
• Asset valuations are likely streched and the use of leverage and complex strategies is elevated
• Runs on money-like instruments are always a risk, including risks associated with stablecoins
• The debt ceiling poses risks as do basis trades in the Treasury market
• There are still areas where data is limited, such as Private Credit and other non-bank financial areas that could pose risks
• Technology comes with risks, including cyberattacks

Some quotes you can use if you want to impress your relatives with your financial market knowledge over Thanksgiving:

" Equity valuations and investor sentiment are high relative to historical averages, raising the risk of large, sudden price declines. In Treasury markets, the design of the U.S. debt ceiling is a major vulnerability. Exposures to some complex and opaque trading strategies are high"

" The increasing interconnectedness of digital assets with the traditional financial system is an emerging vulnerability."

" The cyclically adjusted price-to-earnings (CAPE) ratio for the S&P 500, for example, is 36 and in the 98th percentile of historical values"

" Trading liquidity in the Treasury market can become stressed in other circumstances as well. One potential source of stress is an abrupt unwinding of the Treasury cash-futures basis trade."

" The spreads on investment-grade and high-yield bonds are low by historical standards"

" about half as many employees are physically working in the office compared with before the COVID-19 pandemic"

" OFR researchers find that while PoS saves energy and provides for greater scalability of a crypto asset, it may be unstable because a significant drop in the crypto asset’s price may cause validators to exit their investments"

" The number of transactions occurring outside of the traditional exchange system, or off-exchange, is substantial"

" Nonfinancial corporate business debt contributed to financial instability at least three times during the past 40 years: 1989-91, 2000- 02, and 2007-09.17 Each episode featured a mix of unusually high borrower default rates and constraints on weaker firms’ ability to issue or renew debt. Often, the two interact and form a debt-default spiral. "

" The price of insurance, where insurance is available, is rising rapidly, especially in areas experiencing adverse climate events." "The researchers estimate that the average homeowner stands to lose approximately $11,000, or 4% of their home value and 34% of their home equity at the time of home purchase if prices change to reflect climate risk"

" The 2024 cyberattack on Change Healthcare (Change) illustrates how a cyber event that disrupts the business sector can transmit stress to the financial system."

" Since the 2023 banking turmoil, banks have increasingly used reciprocal deposits as a tool to expand FDIC insurance coverage and to reduce liquidity risk from runs. Through thirdparty reciprocal deposit network sponsors, such as IntraFi and others, banks swap customer deposits with one another to keep the amount in each account at or below $250,000. This makes it possible for a bank customer to hold tens of millions of dollars in insured accounts with a single relationship bank. "

"  Since private lenders are connected to the rest of the financial system through funding arrangements and shared credit exposure, their distress could propagate rapidly. The lack of data about private lenders’ portfolio risk and leverage may obscure or worsen vulnerabilities in the financial system"

" Vulnerabilities associated with stablecoins remain elevated. Issuers of the dominant stablecoins continue to invest a material fraction of their reserves in illiquid or volatile assets. For example, as of June 30, 2024, more than 12% of the assets that support Tether’s value were in Bitcoin, precious metals, and secured loans"

XTOD:  What makes superstars so powerful:- Can't substitute quality  (10 bad phones ≠ 1 iPhone)

- Innovation a public good - everyone uses the best ideas

- Top talent leveraged and clusters 

Result: Winner takes all (Rosen (1981, 1982)). POST LINK https://siliconcontinent.com/p/it-is-all-about-the-superstars....If you look beyond tech giants. US economy isn't that special: - Banking? Worse than EU - Insurance? Worse - Manufacturing? EU growing faster  But superstars change everything. 5 tech firms spend 2x more on R&D than entire EU public sector.

XTOD: Howard Marks' interview with Bloomberg just dropped: 

- Be less aggressive, but don't exit the market. Nobody can time the market. Instead, calibrate your behavior between aggressiveness and defensiveness.  

- You can be right about the events but wrong about how the markets react.  There are many speculations about the new administration, but the truth is, nobody knows how it will play out.  

- He doesn't think things are crazy high now and doesn't believe it is time to get out of the market.  

- China is trying to calibrate the right amount of stimulus. They're wary of overshooting.  

- Howard Marks sees the Chinese market as a bargain right now.   

- The problem with the property surplus will take time to be absorbed. It doesn't just disappear with new policies. He believes the government will do what it takes to digest these excess properties and implement policies to prevent this from happening again.   

- When people say China is uninvestable, it becomes music to their ears.

XTOD: Archegos founder Bill Hwang was ordered to spend 18 years in prison for fraud and market manipulation tied to the stunning 2021 collapse of his $36 billion family office, capping a case that riveted Wall Street.

XTOD: 10 observations about Michael Jordan and Kobe Bryant —from their trainer: 

1.  Everyone wanted to be like Mike. Mike did not want to be like anyone else.

2.  Stop adding. Start deleting. 

3.  Their minds were stronger than their feelings.

4.  You can't buy a map to the top.

5.  Motivation is entry level.

6.  They didn't allow themselves to be told what to think.

7.  If you can't master the fundamentals, you can't master anything else.

8.  They each possessed an unshakable confidence in themselves that never wavered.  

9.  When you're giving everything you have, making every sacrifice, and devoting every part of your life to winning, it's hard to tolerate anyone in your circle who isn't doing the same.

10.  The greats figure out what works for them, regardless of what everyone else does.

Daily Economic Update: November 20, 2024

The news that Ukraine struck targets inside Russia using U.S. weapons and that Russia would consider responding to an attack considered to be backed by a nuclear power by using nuclear weapons did little to dissuade equity investors on the day.  In equities Walmart earnings provide some indications that the U.S. consumer is doing well and poised for a healthy holiday season.

In data, housing starts fell by more than forecast largely due to the impact of weather in the south.  Buidling permits fell by more than expected as well but the deline seemed to be driven by a decline in multi-family permit component which tends to be volatile.

Away from data, Trump cabinet nominees remain a hot topic.  Kevin Warsh is the increasing betting favorite for Treasury Secretary.  In Fedspeak, KC's Schmid expressed confidence in lowering rates, and a belief the Fed can offset fiscal deficits through higher interest rates.

The dollar, gold and Bitcoin all traded well, while the Euro is a currency that has steadily declined post Trump election.

The word of the day is DePINs, you may already be familiar with this term, but it was new to me. DePIN is the acronym for Decentralized Phyiscal Infrastructure Networks that are based on blockchain.  Somewhere in that acroynm is the idea of using tokens to fund physical infrastructure somehow.  I'm not 100% sure what problem it solves, but figured I'd share in case one day it leads you to lead a massive DePIN project.

On the day ahead, all eyes are on NVDA earnings, but there is UK inflation data out in the morning if you're into that.

XTOD: My journey from energy to crypto comes full circle with DePIN. Scaling decentralized infra demands novel financing models rooted in credit, cash flows, and decentralized coordination 

XTOD: French farmers continue protests as union threatens food supply disruption http://reut.rs/3OepXun

XTOD: Didn’t expect Ben Affleck to have the most articulate and realistic explanation where video models and Hollywood is going https://x.com/i/status/1858211286066073922

XTOD: Special Forces Vet. Evan Hafer & Joe Rogan on Trump Declaring War on the Cartels: 'It Is Going to Get Wild Come January 20th'  "If we declare war on the cartel, these dudes are not gonna understand what the f*ck is going on. They are in for a world of ultra-violence they've never actually felt before ... They have f*cking no clue if we organize these Tier 1 units against them ... What I would be doing if I was down there ... I would be getting ready to retire right now because if Delta Force is hunting me, bro I would be so terrified."

XTOD: “Companies that focus on their stock price will eventually lose their customers. Companies that focus on their customers will eventually boost their stock price. This is simple, but forgotten by countless managers.”   — Morgan Housel

Daily Economic Update: November 19, 2024

Concerns over NVDIA blackwell chips overheating weighed on their shares ahead of their earnings this week, but other tech names performed well with Tesla continuing a Trump bump.  A little under the radar shares of dental related companies were rising as investors consider what a removal of flouride from drinking water might mean for dental health.  Overall the S&P 500 rose.  

Treasury Secretary pick remains a hot topic with list of candidates seemingly growing and Polymarkets now sees former Federal Reserve board member Kevin Warsh as the favorite, with the other contenders now including Marc Rowan (Apollo) to go along with Bessent and Lutnick.   

Yields rose with a steeper curve. as the 10Y rose to nearly 4.47% before trading back to 4.42% while the 2Y remains around 4.30%.  Bitcoin and crypto continues to trade well.

Israel says last months attack hit some part of Iran's nuclear capabilities and Biden approved the use of U.S. long range missiles by Ukraine to hit further into Russia.  On geopolitics in general, reports of attacks on underwater internet cables, and some production shutdowns in Norway, all lead to rising oil prices.

On the day ahead it's Housing Starts.  

XTOD: BetMGM says that Tyson-Paul was its most bet combat sport fight (MMA & boxing) in its history.  The fight had 3 time the bets and 4 times the money vs. any other combat fight in its history.

67% of the money was on Tyson.

XTOD: Scoop: @BlackRock’s Larry Fink and at least one senior  @BlackRock  exec has been contracted by Team Trump as they search for  Treasury Secretary,  @FoxBusiness  has learned. 

@realDonaldTrump  has had a long relationship with Fink, who is one of the best risk managers in the business and has often leaned on him for his views on the market etc. Fink will not be a candidate for Treasury but it tells you something about  @realDonaldTrump  that he has a big tent idea on how to run economic policy. Refreshing

XTOD: Texas is the energy capital of the world.  We’re ready to be #1 in advanced nuclear power. Today, we released our plan to build that industry in Texas.  By utilizing advanced nuclear energy, we’ll enhance the reliability of our state grid & provide affordable, dispatchable power.

XTOD: In September, Russian President Putin said if the US were to lift the ban on long-range missile use it would be seen as NATO's "direct participation" in the war.

He added: "This, of course, will significantly change the very essence, the very nature of the conflict."

XTOD: Eliminating the unnecessary is more powerful than automating the unimportant.

Daily Economic Update: November 18, 2024

The dissappointing spectacle that was Tyson v. Paul only added insult to a week that ended with an equity sell-off.  The downward move in equities was perhaps a response to a growing sense of “higher for longer”. Retail Sales data did little to dissuade an attitude that more rate cuts might not be as necessary.  Other data was decent, including a really strong Empire Mfg report.

There's still a good bit of discussion and debate around possible Trump economic policies, including tariffs.  John Cochrane had an interesting post reminding people that while he doesn't defend tariffs as a policy, he argues they do not, in and of themselves, cause inflation.  He poses this statement which is worth thinking about:

It is curious that many economists who bemoan Trump’s tariffs for their inflationary effect also want to raise corporate taxes. Corporate taxes are also passed along to consumers though higher prices. If tariffs raise inflation, so do corporate taxes! And if the revenue from corporate taxes (if there is any, after long-run Laffer effects) lowers inflation, so does the revenue from tariffs.

Sales taxes are paid by the seller. Yet everyone understands that sales taxes are passed along entirely to consumers in the form of higher prices. That tariffs work the same way should not be too hard to understand.

We start the week with the ATL Fed GDP estimate for the 4Q at 2.5%, at 10Y at 4.44% and the 2Y at 4.33%.  

The Trump pick for Treasury Secretary remains hotly debated in the media and social media, that will possibly be resolved this week.

I was going to summarize the week ahead but El Erian wrote this on X: This week, corporate earnings will attract a lot of attention in the global economy/markets, including Nvidia’s, Target’s, and Walmart’s releases. In a relatively light week for economic data, watch for  PMIs, UMich consumer sentiment, and existing home sales;   UK inflation, retail sales, and October budgetary gap; and  Eurozone PMIs and consumer sentiment. On the central bank front, expect many Fed speakers, the ECB’s financial stability review, and closely watched comments from Bank of Japan Governor Kazuo Ueda.

XTOD: His metaphor for what happened:"The left became like Imperial Stormtroopers—identical, programmed, no individual thought." "We became the ragtag Rebel Alliance - diverse, messy, but real.".....But Thiel warns: The real challenges are just beginning.

• Blue state bankruptcies loom 

• Student debt crisis exploding 

• Border chaos intensifying 

• Foreign threats multiplying

"The problems are harder than 8 years ago."

XTOD:  Correct. Economic theory predicts that tariffs will change relative prices. They will not create a persistent increase in the rate of change of prices, aka inflation. The puzzle, to me, is why the government budget deficit — currently running at 7% — has not — at least not yet — been reflected in domestic inflation.  The answer, I suspect, is because 30% of the dollar assets created by the Treasury are being soaked up by the rest of the world — largely China — and stoking a current account deficit. 

The 60k dollar question, is how much the Yuan/$ exchange rate will react to a 60% tariff. We have promised to repay China with pieces of paper. In exchange we have received a flow of consumer goods. That is about to end.  @JanJekielek @jeffreyatucker  @michaelxpettis  is worth following for anyone interested in this issue.  

If U.S. companies respond to the tariffs by repatriating manufacturing, and if the promised mass deportations of undocumented aliens occur, American workers may well end up better off. Wages may rise more than the cost of the consumption basket of the average worker contrary to recent claims from the Peterson Institute  @PIIE

XTOD: We live on a thin crust of solid rock, beneath which is vast ball of molten rock.   Earth’s core, which generates most of our magnetic field is ~85% iron and moves independently from the surface plates, which is why the magnetic pole changes position.

XTOD: Life hack - always be the one at work who sets up the meeting. That way if you completely forgot to prepare slides for the touch base in 45 mins, you can just say ‘pushing to next week to accommodate schedules’ and no one will question you. I do this like 3x a week

Daily Economic Update: November 15, 2024

Stocks fell yesterday.  The likely catalyst of the next market move is of course tonight's Mike Tyson v. Jake Paul fight.

In Fed-land.  Fed governor Kugler says Fed needs to pay attention to both sides of their mandates, implying inflation hasn't been firmly defeated.  Powell said he doesn't think "we need to be in a hurry to lower rates", which of course leads to questions as to why they started this rate cutting cycle with a 50bp cut.  When asked how and when we'll know if we hit the neutral rate, he ambigiously answered that the best way to find the neutral rate is by moving carefully and possibly slowing the pace of cuts.  He was asked, "why are we cutting rates?", his response was to "look at the labor market", that it's cooling and he stll still sees inflation's downward trend intact.  Overall Powell comments appear to be taken by the market as somewhat "hawkish".   

Powell combined with the data discussed below lead to a higher front end of the curve, the 2Y is 4.36% (up about 10bps on the week) and the 10Y up to 4.46% (up about 15bps on the week).

PPI came in line with expectations with services leading the way and core PPI slightly exceeding expectations. I’m always amazed when portfolio management services rise 3.6% as "Over one-third of the rise in the index for final demand services can be traced to prices for portfolio management, which advanced 3.6 percent."  The BLS definition of portfolio management is: 

"Price movements for this index are based on changes in the amount of revenue a mutual fund manager receives for providing investment advice. To track price movement for the index, data on management fees are collected. The management fee is most often based on a percentage of assets under management or a certain number of basis points."

Does this imply that rising portfolios are inflationary?  In other words if people are paying AUM fees and asset prices are rising, it seems like this portfolio management component rises.  Whether or not that has follow through to inflation, I guess is debated, but it touches on the "wealth effect" and "financial conditions". 

Irrespective, it reminds me of one of my favorite Charlie Munger talks on the "Febezzle":

Munger’s “febezzle” occurs when an investment manager earns compensation from the rising value of the assets under management during periods of rising asset prices. In his example, the asset manager receives the “wasted” asset management fees and other stock compensation from the investors as income, making them richer, and the investor, despite paying the asset management fees, also feels richer. Both parties believe they are “virtuously earning income” and can sustain spending from what they believe is income but is in reality spending from a “wealth effect,” which dissipates if asset prices decline. Munger went on to bemoan the impact “febezzle” can have on the misallocation of capital to unproductive projects and foolish spending which cannot support the continued increase in values, the fall of which led to real and long-lasting macroeconomic consequences once the “febezzle” starts to unwind. Munger’s advice: “when the financial scene starts reminding you of Sodom and Gomorrah, you should fear practical consequences even if you like to participate in what is going on.” 

In other data, despite continued announced layoffs the jobless claims data remains super benign. 

On the day ahead it's retail sales data as the highlight.

XTOD: I doubt Fed Chair Powell will do another interview like this anytime soon.  He struggled with some of the smart questions, often deflecting with historical explanations, and he confused the economics of different possible scenarios. His response to the question on a new monetary framework will likely leave many perplexed.

XTOD: Donald Trump picks Blackstone’s entire Real Estate Private Equity team as Secretary of Housing and Urban Development  

XTOD: US Investment Grade Credit Spreads have moved down to 0.77%, their tightest levels since July 1998.  US High Yield Credit Spreads have moved down to 2.61%, their tightest levels since June 2007.  Investors are reaching for yield and behaving as if there will never be another default cycle again.

XTOD: Charlie Munger: "No matter how wonderful [a business] is, it's not worth an infinite price. So we have to have a price that makes sense and gives a margin of safety."  "The reason that our ideas have not spread faster is they are [so] simple."

XTOD: "Each year Buffett is asked what’s the main difference between himself and the average investor, and he answers: 'Patience.'"  — N. Sleep

XTOD: This hits different in today’s hustle culture. Burnout isn’t about working long hours or pushing hard. It’s about working in systems that drain your soul. Quote by @adam_chal https://pbs.twimg.com/media/GcRJ-wyWIAAXGNO?format=jpg&name=900x900

Daily Economic Update: November 14, 2024

Inflation comes in right on the screws, but lest we lose track that with this reading, the YoY inflation rate is higher than it was a month ago, with food and shelter remaining sticky.  Airfare and used car prices were in the category of larger risers this month.  Initial reaction was lower yields as odds increased for a December rate cut, but yields ended up mixed on the day.  The 2Y is 4.29% and the 10Y is 4.45%.    Stocks were mostly flat with the S&P up slightly and Nasdaq lower, Bitcoin of course was higher.  

The NY Fed quarterly report on consumer and household debt was out and the conclusion drawn by NY Fed researchers is that while debt levels are at all time highs, the debt to income levels have been falling and deliquency rates all are indicating these debt values are manageable

.

In Fedspeak, Lorie Logan, cited risks around fully acheiving their dual mandate goals as: 

"But I am paying particular attention to three that, in my view, pose the largest potential challenges for monetary policy in the months ahead.

One, unexpectedly strong demand or negative supply shocks could keep inflation above the FOMC’s 2 percent goal.  Two, tightening financial conditions could trigger a rapid deterioration in the labor market. Or, three, financial conditions could ease too much if the neutral interest rate, the theoretical level that would neither slow nor accelerate the economy, proves to be higher than expected."

To me two of Logan's three concerns point to risk around higher inflation, not lower.

In politics you have Team DOGE, whose actual status and ability to do anything within the government remain a bit vague as Trump continues to round out his appointments.   Howard Lutnick, the Cantor Fitzgerald CEO is a name that is rumored to be in the mix now for Treasury Secretary.  Lutnick is apparently fond of crypto as Cantor acts as custodian for Tether's UST portfolio.  And Republicans officially retained control of the House.

We'll get PPI and more Fedspeak, including Powell on the day ahead.

XTOD: My only crypto take is that if you don’t find some of it incredible you’re not paying attention, and if you don’t find most of it absurd you’re not paying attention, and you could say the same thing about most new industries.

XTOD: The idea that Trump's program -- cumulatively bashing the Fed, raising tariffs, sending workers home, bloating budget deficits -- the idea that it is a highly inflationary program generates about as much consensus among people who follow economics as any proposition I can remember in the past 40 years.  @CNN @KateBolduan https://youtu.be/vUpudX_cFoo?si=HTJDKTf9OGEI191V via 

@YouTube

XTOD: The FBI seized the Cell Phone and other Electronic Devices of Polymarket CEO Shayne Coplan today, during a Search Warrant on his Home in New York City. Coplan was not Arrested during the Raid, with a Source close to him calling it “Grand Political Theater at its Worst.”

XTOD: The business community is giddy with excitement about the @realDonaldTrump

 administration. I am hearing this from everyone, including from people who didn’t vote for Trump. 

Business confidence is a self-fulfilling prophecy. Business leaders are becoming more confident about the country and the economy. This means they will be making more investments in our future which will drive the economy and the stock market, reducing the cost of capital and bolstering confidence further, catalyzing more investment and more growth in a self-reinforcing, virtuous cycle. 

Merger and acquisition activity is about to explode as there are an enormous number of deals that have been deferred pending a more favorable regulatory environment for transactions. M&A will drive efficiency, greater profitability and growth. It will also enable the return of capital to investors who will seek to redeploy their profits and proceeds in new investment opportunities. 

The DOGE and deregulation will drive government efficiency and make America a vastly better and lower-risk place to do business efficiently and effectively. 

I am also hearing about non-US companies that are desperate to immediately create a presence on U.S. soil. They are frightened to be locked out of the most important economy in the world. They will build factories and make new investments here to avoid the risk of tariffs and because they don’t have a better place to invest capital. 

China’s economy is in trouble. Europe’s is a mess. The U.S. has now become by far the best country for investment. 

Growth is about to explode.

XTOD: The irony of ‘work-life balance’ is that you spend all your work time thinking about life and all your life thinking about work.

Daily Economic Update: November 13, 2024

Some of the Trump trade rally took a breather yesterday as yields rose after returning from the day off.  It was the first down day for equity indexes since the election.  The dollar continued to rally, nearing a 2 year high with tariffs and rising yields cited as the catalyst for the move.  The 2Y yield rose to 4.35% and the 10Y to 4.43%.

We learned yesterday that former NBA great Scottie Pippen is a psychic, having predicted back on September 3 via a dream in which Satoshi appeared to him, that Bitcoin would cross $84K on November 5th.  Of course the move in Bitcoin of late has led to a treasure trove of comments and memes of late.  I've seen more than a few images of copies of The Intelligent Investor getting thrown in the trash and of investment bank analyst working 90 hours only to be surpased by crypto degens, etc.  We'll see how Pippen's latest comments age: "Bitcoin in 2024 is giving me flashbacks to the Bulls in ’91… a dynasty just starting. Get ready for what’s next."

In Fedspeak we had Barkin described the economy as "in a good place" buoyed by a discerning consumer and productive labor force.  He believes policy is restrictive and the Fed is well positioned to respond to any challenge that may come along.   Gov. Waller's speech and Q&A was focused on fintech and didn't expressly touch on anything related to monetary policy.

In other Fed tangent news, the NY Fed Survey of Consumer Expectations showed very slight softening in inflation expectations, with the year ahead inflation expectation falling to 2.9%, the first time below 3% since late 2020 I believe.  Labor market conditions continued to be faily well regarded in the survey. 

Much focus also remains on Trump appointees with the pick for Treasury Secretary expected soon, an appointment where hedge fund billionaire, John Paulson, has pulled his name from consideration.  Scott Bessent, an investor involved in George Soros and Stan Druckenmiller's famed GBP short trade that "broke the BoE" back in 1992 is currently considered the most likely appointee, but we'll see.

CPI is the highlight of the day ahead, consensus expectations are for a YoY increase of 3.3% on the core inflation component and 2.6% YoY increase in headline.

XTOD: “Hey, that Bitcoin sure is climbing fast!  Me? No I can’t buy into it, I have all my money parked in low cost index funds and a high yield savings account earning 4.20% APY”

XTOD: imagine putting in 16 hour days doing research only to underperform scottie pippen trading off visions that came to him in a dream

XTOD: MSTR borrows money and issues shares to buy more #Bitcoin. As a result, the price of Bitcoin goes up, which causes the price of $MSTR to increase, allowing it to borrow more money and sell more shares to buy even more Bitcoin. Wash, rinse, repeat—what could possibly go wrong?

XTOD: Accumulating Concerns.... Bottom Line So we have an overbought on the S&P Oscillator (near 3.5%), a Woodstock-like drug festival in Tesla  ($TSLA)  and Nvidia  ($NVDA)  0DTE call options, sky-high price-earnings multiples, near universal investor bullishness, evidence that the post-election breadth thrust might be over (look at today's 2-1 negative breadth),  ($RSP)  (equal weighted S&P) -0.86% and  ($IWM)  (Russell Index) -1.67%)... and now bond yields starting to break out to the upside.  Not a word of these concerns on the "shows."  What, me worry?

XTOD: The things that matter most never come with a price tag. If lost, no amount of money in the world can restore them.

Daily Economic Update: November 12, 2024

It’s all about the digital benjamins I guess.  Wonder if Diddy can remix “digital” in from the slammer? 

Crypto and all things Tesla continue to look like clear post-election winners. Away from the obvious "Trump Trades", private prisons had a nice pop following Trump naming Tom Homan as his “border czar”. Meme stocks also rallied because why not. Must be that restrictive Fed policy that needs further loosening.

Outside the U.S., Chinese data continues to stink and there has been little in the way of fresh news out of the Middle East.

In the background the debate rages on regarding U.S. debt levels, taxes, growth and the like, but for now optimism in structural reforms and growth are taking the lead in markets (or at least it seems).

On the day ahead it's Fedspeak led by Gov. Waller.  Remember record highs on stocks, record highs on Bitcoin, the Dollar is actually performing well and 2Y at 4.25% and 10Y at 4.30%, you're all caught up.

XTOD: Somewhere some hedge fund is justifying to their LPs why they’re down 10% while the market is ripping

XTOD: “total dollars spent on compute will exceed spend on crude oil in the next 10 years,” he said. “Does that mean that compute becomes the largest commodity in the world? I think that reasonable.” https://t.co/sxkhxRyN5d

XTOD: Bernstein ($800 billion AUM) just put out their Monday morning note to clients:  “Welcome to the Crypto bull market. Buy everything you can. Don’t fight this – add crypto exposure asap.”  Stage 3 really is upon us.

XTOD: What you’re feeling isn’t a temporary high - it’s the relief from the crushing burden of the state, which was getting heavier by the day.

XTOD: The amount of cash flowing into ETFs is ridiculous, about $12b/day for the past week (normal is $3-4b). And it's basically all risk-on: $SPY, $QQQ, $IWM, $MTUM, $HYG, $XLF, $IBIT..  Also +$154b in 1M is unprecedented. YTD now $881b, 97% of way to breaking record, $1T in sight..

XTOD (conclusion from good thread on trade): I would argue however that we have very little experience in the world of free trade because in that world, countries have balanced trade accounts as they export products in which they have comparative advantage in order to import products in which they don't.  The system in which we live today, however, is almost a classic beggar-thy-neighbor trading system in which countries compete by preventing the income of workers and households from rising in line with productivity. It is a formula for rising inequality.

XTOD: Steve Jobs on the most important job of a CEO 

“The greatest people are self-managing. They don’t need to be managed. Once they know what to do, they’ll go figure out how to do it… What they need is a common vision, and that’s what leadership is. Leadership is having a vision, being able to articulate that so the people around you can understand it, and getting consensus on a common vision.”

Steve continues:

“We wanted people who were insanely great at what they did… and the neatest thing that happens when you get a core group ten great people is that it becomes self-policing as to who they let into that group. So I consider the most important job of someone like myself is recruiting.”

Daily Economic Update: November 11, 2024

Stocks at fresh all time highs, coming off the best week of the year. We start the week with the bond market closed for Veteran's Day.  As we start the week, #endthefed gained some traction on social media with endorsement from Elon.  

I'll keep it short.  To start the week the 2Y is 4.25% and the 10Y is 4.30%.  Despite Powell not being willing to speculate on policies that haven't yet been enacted, Minneapolis Fed Pres Kashkari expressed some concern around tit for tat tariff wars having an impact on inflation.

On the week ahead we get a CPI report on Wednesday and retail sales on Friday. 

Today: no data

Tuesday: Fed Waller and other Fedspeak

Wed: CPI, Fedspeak

Thur: PPI, Powell speech,  Fed Williams

Fri: Retail Sales

XTOD (long thread on the Fed): But Wall Street has an addiction to speculative investments and demands lower rates, while the narrative is that the economy is doing well. When no average worker can afford a home without going deep in debt, this is an elite, high inequality economy. 7/n..The Fed is the main actor fueling the speculation, and inequality, and the proof is in their "transitory" narrative a while back. 9/...The current Fed scheme is outdated and elitist. It assumes that the objectives of banks and large corporations match those of labor. 10/n...Conclusion: I don't expect a shift to pro-labor policies but instead a continuation of pro-capital policies and higher inequality until workers realize they have been fed hopes and dreams by political actors from all sides. The Fed must be reorganized to focus on labor. 12/12

XTOD:  "It’s a race between technology-driven abundance and government-driven poverty." 

• Governments rarely make things better  • They're terrible at spending • And they go into huge debt

The government isn't going to save you. Save yourself.

XTOD: Let's start with my long term basic point that should be where you stop reading this thread and go about building your wealth through your profession.    Owning a long only diversified portfolio of assets (what I call beta) is free money.  And should be your ONLY investment strategy to build your savings   That is MY CALL.  It will always be my call and anything I write on Twitter or at DampedSpring or 2GrayBeards is an order of magnitude LESS important that this CALL 

Why?  Because any deviation from this plan requires market timing or identifying those who can. It requires an investor to underweight or go short or overweight and leverage in order to outperform MY CALL. 

XTOD: The money supply is not currently in the hands of the central bank, for those unaware of this fact....They set the overnight interest rate. They do not in any way control the supply of money. Textbook nonsense. 

XTOD: Zen and the Art of Motorcycle Maintenance, what a paragraph...https://pbs.twimg.com/media/Gb37hLdWgAAixZC?format=jpg&name=900x900

Daily Economic Update: November 8, 2024

The Fed cut rates 25bps to 4.5-4.75%, you can find my recap here.  The BoE also cut rates 25bps to 4.75% citing inflation returning to 2%, a need to proceed with cuts slowly, and that future cuts will continue as things play out as they expect.

Labor cost rose faster than expected. Jobless claims remained benign.  Post FOMC markets remained higher with the S&P closing in on 6,000, led higher by the tech stalwarts while bond yields fell almost 10bps.  The 2Y fell back to 4.22% and the 10Y 4.33%.

This Friday will feature UofM and otherwise not much.  Ahead of a bond market close on Monday for Veteran's Day, you might as well make it a long weekend.

XTOD: 40+ Monkeys escape U.S. research facility Police have apparently set traps and are using thermal imaging to find them. Residents are advised to keep doors and windows shut and report sightings to 911.

XTOD: US expands bird flu testing after finding symptom-free infections in people http://reut.rs/40CuApn

XTOD (decent thread on betting markets): quick rip on why @Polymarket matters and why the future of information is markets markets are efficient at pricing information. if you have information or insight that others don't, there's a huge opportunity to generate alpha. alpha generation requires information edge.

XTOD: The Cult of Experts (an excerpt from Wanting)—in a world where there are few polymaths and little synthetic knowledge, guys like Silver can emerge projecting wisdom they do not possess and fool people. It’s a modern day gnostic impulse. Voegelin was right. https://pbs.twimg.com/media/GbyRYQRWkAk5ES8?format=jpg&name=900x900

XTOD: Be extra careful in the work environment with those who like to maintain their position through charm and being political, rather than getting things done. They are very prone to envying and hating those who work hard and get results. They will slander and sabotage you without any warning.

FOMC Recap: Got Debt?

• Fed cuts 25bps to 4.50% to 4.75% range as expected
• The statement removed the sentence that the Committee had gained greater confidence that inflation was moving sustainably to 2%.
• "In the near term the election will have no effect on our policy decisions." "We don't guess, we don't speculate, we don't assume what policies will get put into place."
• Powell seemed to characterize the recent run up in bond yields as being driven largely by expectations around growth and decreased risk.  He further questioned whether there will be any persistency to the recent yield moves, characterizing the moves as "not a major factor" in how they are thinking about things"
• "We don't comment on fiscal policy" he further characterized the path of fiscal policy as "unsustainable" and a "threat to the economy" over time.
• Powell comments that he will not resign.

Raise your hand if you've heard a lot of recent talk about fiscal policy and deficits recently?

" Deborah Lucas was the moderator, and she asked a much more pointed question just right out of the gate when the panel started, and she asked, how much bearing does the fiscal theory of the price level or some version of that have on your thinking at the Fed?"

" if you take this theory seriously, it really undermines the whole point of the Federal Reserve"

The quotes above are from the David Beckworth's most recent episode of Macro Musings, during which he was discussing the Hoover Institution’s recent monetary policy conference, *A 50-Year Retrospective on the Shadow Open Market Committee and its Role in Monetary Policy*  with his guest Jon Hartley.

With so much post-election talk about the sustainability of debt, deficits and the like, along with some talk heading into the election around the Fed's independence and the occassional calls to end the Fed, I thought the comments above were interesting to consider.  After all if fiscal policy is a major driver of inflation how is the Fed supposed to fulfil their price stability mandate?

Is it an unspoken secret that the macroeconomic models include some budget constraint and some fiscal-monetary coordination.  As one of the leading proponents of the Fiscal Theory of the Price Level, John Cochrane would say that the Central Bank can move or smooth inflation over time, but that ultimately they don't have full control:  "the Fed’s interest rate target sets expected inflation, fiscal policy sets unexpected inflation."  and "the Fed makes a threat: If unexpected inflation doesn’t go where the Fed wants it to go, the Fed will blow up the economy with hyperinflation or hyper deflation. "  He also says "If you don’t like my little fiscal theory model, we don’t have a good model of the most basic question, how higher interest rates lower inflation, without a contemporaneous fiscal tightening." and "The news is that without such contemporaneous austerity, higher interest rates don’t lower inflation at all in standard models. Intuitively, if the Fed raises interest rates, that raises interest costs on the debt. Taxes must rise or spending must fall to pay those interest costs. If not, no reduction in inflation."

Which bring me back to my favorite quote about the role of central banks:

"I define central bank independence in one sentence, it's the ability to raise interest rates when the Treasury doesn't want you to. And the Treasury almost never wants you to, because of the cost of the debt.” – Peter Stella

I think my general commentary over the years (and here)  has been to remember that there is a lot of economics and finance that we just take for granted as to our understanding as to how it all works. If you’re reading this and are now questioning your worldview of interest rates and FOMC policy — good. 

Irrespective of the economic models you believe in, it's undeniable that that they all contain unobservable variables and are difficult to test empiracally. 

As for the FOMC today, Powell was well prepared for election related questions, including questions around whether he could legally be fired by the President.  He admitted that there are policies that come through Congress can have an impact on economic variables that will ultimately be taken into account.

Listening to the Powell presser, I was left largely with an impression that the FOMC is struggling to communicate what lane they are driving in, they're largely trying to say in the "middle" of the road. It sounds like they originally set a goal in the rate hiking cycle that they would bring inflation back to target, without declaring victory in terms of meeting that goal, they started to drive out of that lane and are now "in the middle".   

I'm sure there are some blogs or even self-help books out there about being stuck in the "messy middle".  Since I haven't read any of them, for my advice to the Powell Fed, I'll stick closer to my knitting and encourage Powell to listen to the wisdom the late, great Mr. Miyaki of the 1984 movie classic "The Karate Kid" gave to Daniel-san with regards to the risk of only being moderately committed to your goals.

“Walk on road, walk right side, safe. Walk left side, safe. Walk middle, sooner or later, get squish just like grape” 

 

Daily Economic Update: November 7, 2024

FOMC Thursday. 

Markets beat polls this go around, as betting markets and the market as a whole seemed to be much better barometers of this election than polls.  The story of the French guy who made a bunch of money betting on Polymarkets is pretty fascinating, he argues that pollsters should use "neighbor polls" where you ask respondents who they expect their neighbor might vote for, as apparently people will indirectly reveal their preferences in that manner. 

With the Trump election victory and a likely Red sweep in Congress, so-called ‘Trump trades’ performed well. How much of the move is a reaction to expected policies versus simply “relief” that the election is over is somewhat hard to disentangle, but certainly some areas that will benefit from expected tax, trade and deregulatory ideas benefited from the election news.

Crypto, yields and stocks all moved higher. 

Stocks hit their 48th new year to date high even as bond yields soared.  The reaction in bonds is likely some combination of expected inflation, deficits (perhaps a driver of inflation) and growth expectations.

The 2Y heads into the Fed at 4.27% and the 10Y at 4.43%.  We'll see where we end up after the BoE and the Fed today. Keep an eye on Germany as well where the coalition government is collapsing.

XTOD: The Fat Joe curse continues

XTOD: So the French Polymarket guy woke up $80m richer today by simply betting that polls were wrong yet again, just like they were in 2016 and 2020.  “The simplest outcome is always the most likely.”

XTOD: Inflation has been an incumbent-killer everywhere. The U.S., it turns out, was not an exception.

XTOD: Upcoming deregulation wave will create an economic sonic boom.

XTOD: "I'm short bonds. I'm not mega-short...I'm like 25% NAV short 10-year equivalent."  LOL. Druck is a GOAT.

XTOD: We are often so focused on being right that we miss the advantage of simply avoiding stupidity.  https://pbs.twimg.com/media/GbswynnXYBM8Z5j?format=png&name=900x900

Daily Economic Update: November 6, 2024

As of the time of this writing, the election outcome was unkown.

Markets were pretty happy during the election trading day. Stocks indexes rose almost 1%, there was some interesting trading in DJT stock, but hard to know what the drivers were.  The 10Y ended the day at ~4.30% falling in the course of the morning and holding that changes through the day. the 2Y remained around 4.20%.

ISM non-mfg pmi comes in at 56 v. 53.7 est. the employment component and prices component were both firm and above expectations.  The 10y UST auction was pretty good, printing slightly through where WI was trading and a solid bid to cover.

Boeing strike is over.  West coast Canadian port strikes begins.

Limited data, so it's probably just a lot of hearing from pundits about policies.

XTOD: We need Blackstone to take America private, right-size our cost structure, clean up the capital structure, and get us ready for an IPO before the next election

XTOD: Millennials are aging faster as they spend >8 hours/day sitting.   30 min of daily intense exercise can counteract, making your body 5-10 years younger.  A study published today showed that US millennials (28-49 years) spent >8 hours a day sitting which leads to faster aging indicated in markers including higher body-weight and increased fat in the blood at a younger age.   Fortunately, Intense exercise mitigates this effect of longer sitting hours, as millennials working out vigorously for 30 minutes a day demonstrate a BMI (Body Weight relative to height) and blood fat levels (TG/HDL ratio) equivalent to that of 10 year and 5 year younger peers that do not exercise.

XTOD: "Fannie Mae...wrote that it anticipates decreases in the multifamily property values it projected, reflecting 'uncertainty relating to property values and the ongoing investigation of multifamily lending transactions with suspected fraud.'"

XTOD: Election "break even" analysis... 

UST 10yr rate:  17bps; 1.33 points

$MOVE now @ 136 

SPX:  1.8% or 102 points

$VIX now @ 20.3

Gold:  1.6% or $44

Let's hope it's a clear victory....either way

XTOD: When you hear the call to 'do more' and 'be more,' do you ever pause to ask:  At what cost to my soul?  Have you weighed what you are trading for the achievements you pursue?

Daily Economic Update: November 5, 2024

"Elections have consequences." - Obama

"I conjecture that if you gave an investor the next day’s news 24 hours in advance, he would go bust in less than a year.” - Taleb

Are you familiar with the "crystal ball trading challenge"?  Basically it's an experiment where participants are given the front page of the WSJ in advance and you basically get to trade knowing that information.  The result was people did poorly, you can read more here.  In a post by Victor Haghani, the conclusion is summarized as:

Most stories involving people seeing into the future... don’t have “happily ever after” endings. There are usually unintended consequences that come with perfect prescience – a reminder that even prophets can’t escape risk and uncertainty. The best we mortals can do is make our decisions with a framework that explicitly accounts for the presence of risk in just about every big choice we face.

Whether we know the election results by the end of the day or not, doesn't necessarily mean we will understand the market reaction.  On top of that we often forget that everything can change because of some tiny event that no one is thinking about (ex. don't forget about Iran, Russia, etc.). 

In yesterday's new Factory Orders fell in line with expectations but showed decent growth in core durable goods.  The 3Y Note auction tailed by 0.9bps, printing 4.152%.  Bond yields fell with the narrative centered around increasing odds of Harris winning.  

Heading into the day we have the S&P at 5,712, the Nasdaq at 18,179, the Dow at 41,794, the 2Y at 4.18% and the 10Y at 4.29%.  Where will it be this time tomorrow?

On the day ahead we get services data and the 10Y Auction.

XTOD: Time to trot out the Hindsight Bias Buster.  To keep yourself from saying, after the election, that you knew all along that what did happen would happen, take a moment to leave a record for yourself. 

Your predictions for:

the Electoral College vote (must sum to 538):

Trump _____

Harris  _____

the popular vote:

Trump ___%

Harris  ___%

XTOD: Goldman has some potential reaction functions: 🇺🇸  

* Trump w/ Republican Sweep = 25% probability; S&P +3% 

* Trump w/ Divided Government = 30% probability; S&P +1.5%

* Harris w/ Democratic Sweep = 5% probability; S&P -3%

* Harris w/ Divided Government = 40% probability; S&P -1.5%

XTOD: NOBODY:         WALL STREET/ SILICON VALLEY: what if private credit bubble was combined with AI bubble and then Nvidia related-party transactions were thrown in just for fun???

XTOD: Iranian-Backed Channels in Iraq are claiming that a Large Swarm of Drones have been launched from Iraqi and Syrian Territory towards Israel.

XTOD: Al Pacino. Love the work. "I want to do this forever." https://pbs.twimg.com/media/GbfVw0CagAAeWgD?format=png&name=900x900

Daily Economic Update: November 4, 2024

"There are decades where nothing happens; and there are weeks where decades happen"--Vladimir Ilyich Lenin.

The media would probably make you feel like this statement is true most weeks, but nonetheless, a huge week ahead with the Election, the FOMC and a number of Treasury auctions in the mix.  It's gonna be lit! 

"Risk is what you don't see...The biggest news, the biggest risks, the most consequential events are always what you don't see coming. - Morgan Housel

If you've paid attention to this blog over time there is probably a message of avoiding market forecast, about preparation over prediction, being able to survive the volatility that comes from uncertainty, about patience, humility, avoiding complexity and noise. 

"If you are merely forecasting the most likely outcome over the next year or two you will be most unlikely to hang your spreadsheet on predicting a discontinuity. It’s much more sensible to predict a continuation of current business or to follow guidance. It’s rare for us to know when a dramatic change will occur but frequent for it to be close to inevitable at some point. Certainty is an abject temptation. The world is too complex, too erratic and too full of surprises to make spot forecasts of anything of significance. I’d push this further: trying to be ‘correct’ is the enemy of good investing. It’s much more valuable to have doubt and to make portfolios the beneficiaries of potential Black Swan. Therefore the best we can do is to come up with a set of possibilities and probabilities, endeavour to make them extreme, blend them with each other and then think about the potential returns. Then we watch. It’s better than acting. Or as Charlie Munger urges “this habit of committing far more time to learning and thinking than to doing is no accident”. Occasionally we

adjust our sights as time, learning and our thoughts progress. We need to give up the excessive arrogance implicit in forecasts if we are to maximise returns." - James Anderson, "Abberration or Premonition" (2018)

 As for the end of last week. Jobs missed big, but didn’t seem to matter, as investors seemed to look through the noise that was generated by weather and strikes.  The establishment survey had a very low response rate and the household survey showed a large weather impact.  Yields rose further even as markets price in 25bps of cuts at Thursday's FOMC decision (delayed a day due to the Tuesday elections).   The 10Y is nearly 4.40% and the 2Y is over 4.20%.

ISM manufacturing missed but prices paid component beat by a lot, looking a little stagflationary, but really when was the last time ISM manufacturing really mattered, aren't we a services oriented economy?

Warren Buffett is sitting on over $300 billion of cash. 

Mon: Factory Orders, Durable Goods, 3Y Auction

Tue: Election Day, ISM Services, 10Y Note Auction

Wed: Mortage Apps

Thur:  BoE Decision, FOMC Decision, Jobless Claims, Productivity

Fri: UofM sentiment

XTOD: Sure looks like Warren Buffett sees a storm coming.  He’s liquidating out of the stock market. 

Cash reserves now sit at a whopping $325 billion.

XTOD: “It's so easy to get so busy that you no longer have time to think—and you pay a huge price for that.”

XTOD: So why not buy the building and simply rezone it?  Well... rezoning in NYC isn't a 'simply' sort of thing. The details of what that process entails are for another post.  (You're not the first person to think of that 😉)  The city has recognized this area is obsolete and has been working on a plan to rezone the "M" zoned areas of midtown south.  But the plan is yet to pass. A draft of the plan is public, and there have been several public meetings about it.  There is definitely progress.  However, there is no certainty regarding the requirements or when exactly the change will go into effect.  This means that the only possible value of 29W 35th Street is uncertain while the building continues to incur in costs. 

Perhaps a low-enough basis can make it an attractive investment if an investor is willing to take the risk of an uncertain timeframe and an uncertain set of requirements-- which may cap the asset's value to an unknown degree.   So far, it seems that the basis isn't yet low enough for anyone to accept those risks.

XTOD: “Look for the job that you would want to hold if you didn’t need a job.”  — Warren Buffett

Daily Economic Update: November 1, 2024

Jobs Day in 'merica.  Consensus for the headline is +105K, with strikes and hurricanes (mostly Helene due to timing of Milton) expected to distort the data.  The range of estimates seems larger than normal, with Bloomberg's Anna Wong at/near the low end expecting -10K.  We go into jobs with a 10Y ~4.28% and a 2Y at ~4.18% compare that to where things sat prior to the last report back on October 4th where yields were 3.84% and 3.71% for the 10Y and 2Y respectively.  Remember it was that report that came in way above consensus and led the market to start to price out the possibility of a 50bp cut.  We'll see what happens this go around.

Stocks fell as the prior day's tech earnings disappointments (MSFT and META) filtered through.  After the bell Apple and Amazon earnings are likely to help boost market sentiment as AMZN revenue and margins were up.   Apple earnings were mixed, with iPhone sales exceeding estimates, but shares were trading mixed.

Later day news around Iran preparing for a potentially large retaliatory strike against Israel through Iraq made headlines, but didn't seem be a major mover, though it's a reminder not to discount the risk of attacks around the U.S. elections.

Yesterday, PCE rose 0.2% on headline basis and 0.3% on Core PCE, the highest in 5 months, with the Core PCE YoY rate of 2.7%.  Jobless claims were super low again (216K v. 230K est), ECI up 0.8% below estimates (0.9%), spending rose 0.5% which was above estimates.

Over in the UK, I guess the budget situation is not quite Liz Truss level, but the rise in the amount of borrowing over the next several years definitely spooked investors, sending yields rising.  Gilt yields are up something like 40bps over the last two weeks.

Payrolls and ISM on the day ahead.  Sentiment out there in the X/Twitter verse is always interesting.  Here's some bearish takes to start the month.

XTOD: $IBIT took in more cash than any other ETF in the world over the past week. This is out of 13,227 ETFs, which includes $VOO $IVV $AGG etc. It's so hard to beat those veteran Cash Vacuum Cleaners, even for a week, especially for an infant ETF (3mo-1yr old) 

XTOD: Market’s message is crystal clear: governments wanting to steer away from austerity will need financial repression. It’s coming and with it capital controls.

XTOD: Here’s my advice regarding next week’s election. Don’t stay up all night on November 5th because I sense we will not know who actually won the electoral college vote. This will be the mother of all contested elections replete with recounts and legal challenges. It will be Gore vs Bush in November 2000 on steroids. Remember that period of political uncertainty lasted a full month and went all the way to the Supreme Court. The playbook: long gold, bonds and the VIX; short the SPX and the USD.

XTOD:  suspect that, on the whole, this is not what the #FederalReserve expected data-wise when it suddenly decided last month to increase the pace of interest rate reductions from 25 basis points to 50 bps.  According to today’s data, core PCE #inflation, widely regarded as the Fed’s favorite measure, was 0.3% in September, its highest level since last April (2.7% annually, 2.1% for headline).

The distribution of the price increases will also capture the #Fed’s attention, as will the robust increase of 0.4% in real consumer spending. Having said that, not all of today's data releases point in the same direction. At 0.8%, the quarterly estimate for the #employment cost index, another data series closely followed by the Fed, showed the smallest gain since the middle of 2021.

XTOD: The biggest quagmire of this market.  You have two choices:

1) Sit in cash and watch your wealth get destroyed by currency debasement. 

2). Take on tremendous risk and buy overpriced equities and attempt to keep up with inflation. 

What’s an investor supposed to do?  Neither of these are great options but neither presidential candidate has any interest in slowing government spending so the investment environment isn’t going to change.  So you pick your poison and stick w it or do a little of both to hedge yourself.   Plus buy some gold/crypto  Unfortunately sitting in cash is no longer as safe an option as it used to be thanks to our deficit and out of control government spending.

XTOD: How to know if you are doing the job? by legendary NFL coach Bill Walsh https://pbs.twimg.com/media/GbMahHnW0AARbnY?format=png&name=small