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
https://x.com/benaverbook/status/1858143648363188390
https://x.com/farmerrf/status/1857929309341483158
https://x.com/elonmusk/status/1857960746635636813
https://x.com/WorkRetireDie/status/1857199290428608573
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