“Because a resilient financial system can withstand unexpected developments, identification of bubbles is less critical.”
I didn’t intend for the Fed Chair quotes this week to be so focused on “bubbles”, I wrote them before the DeepSeek news poured some fuel on the AI bubble debate. Nonetheless I think the quotes are interesting in the sense that they illustrate times of laissez faire attitudes about exuberance in certain asset classes, an attitude which I think we know they often eschew in times of financial turbulence.
With the Fed in focus it will be interesting to see if Powell gets any questions related to the potential for over-investment in certain asset classes and, if so, how he responds.
While I’m sure the focus will be on Powell, I think the real action might be in the waiting to see if Trump says anything about Powell or the FOMC following the meeting. We’ll find out soon enough. One of my favorite Trump vs. Fed moments was back in September 2019 when Trump called Fed leadership “boneheads” (which I still think could make a cool logo on some Fed-inspired merchandise - which if anyone is up for funding a retail startup focused on Central Bank inspired merchandise, let me know if the comments). In addition to calling Powell and Co. “boneheads”, Trump also reiterated that rates should be brought way down at the time and how the U.S. should be paying the lowest interest cost in the world. Of course we ultimately ended up with much lower rates courtesy of the Covid crisis. Anyway, it’s these kinds of social media and other exchanges that I dare say I’m looking forward to on the day or not long after.
My advice to Powell remains largely unchanged since my January 2024 post which you can read here.
Speaking of January 2024, in thinking about the DeepSeek news I was also reminded on another post from January 2024, one in which we discussed investing on the basis of projection vs. protection. The latter kind of investing requires humility, patience and time.
In data yesterday, headline durable goods fell more than expected as aircraft orders declined, on a bright spot, the core durable goods rose. The Conference Board Consumer Confidence seemed fine with a solid labor market diffusion indicator in the internals.
On the day stocks rose, including Nvidia, and bond yields rose. The S&P ended up ~1% and the Nasdaq up ~2%. The 2Y moved up to 4.21% and the 10Y to 4.54%. The 7Y Auction looked pretty strong as well, with a very solid bid-to-cover.
Of course tariffs made headlines, that will likely be everyday for some period of time.
The Bank of Canada and FOMC are the highlights on the day ahead.
XTOD: Watch Taleb Says Nvidia Rout ‘Is the Beginning’ - Bloomberg
XTOD: With DeepSeek, investors are (re)learning that those who come up with an *innovative* idea are almost never those who will make money from it.
Eg: Clive Osborne made the first laptop computer & went bust. Same with car, planes...
Next: electric cars.
XTOD: Nothing happens fast. https://pbs.twimg.com/media/GiYgTbdXMAA3pLf?format=png&name=900x900
XTOD: “We believe the pain from rising interest rates has not been reflected in pricing” of CRE CLOs yet, said McNamara, founder of Polpo Capital Management. “While we are hearing more calls that the bottom is here in commercial real estate, we think that’s a tad premature and believe the next couple years will be a bumpy ride with a lot of pockets of distress.”
XTOD: Many situations in life are similar to going on a hike: the view changes once you start walking. You don't need all the answers right now. New paths will reveal themselves if you have the courage to get started.
https://x.com/nntaleb/status/1883859788746076356
https://x.com/JamesMarsh79/status/1884194581773742118
https://x.com/ShaneAParrish/status/1884229041898807648
https://x.com/rcwhalen/status/1884283428943569062
https://x.com/JamesClear/status/1884240162076434919
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