What is the purpose of this blog? Where can it add value? These are existential questions this writer would like to attempt to address.
Well the plan for this blog was to write "the definitive guide to financial history”, note the lowercase, a deliberate choice used to de-emphasize the importance of everything written in this blog and to make a perhaps not so subtle jab at the often-inflated importance of financial news. As I’ve lamented in the past "...the irony of maintaining a daily economic update blog while firmly believing it is best to ignore all of the noise and false stimuli is not lost on me. If you’re paying attention it’s the message of this blog that you can’t predict the future and it's a waste of time to focus on the noise or 'what the world looked like ten minutes ago’.” When it comes to forecasting, a December 31, 2024 post from the St. Louis Fed examines the historical performance of “blue chip forecasters” from the period of 1993 to 2024, finding that when it comes to forecasting GDP growth, employment, inflation and the 10Y Treasury Yield, finding that it’s essentially a coin flip as to whether economic variables will fall within the range of the average of the top 10 and bottom 10 forecast and there is a decently large mean forecast error around these variables.
If you’ve spent any time reading this blog you would notice a couple of prevailing themes that often arise, three of which are worth highlighting. The first theme is one of uncertainty and unpredictability which is centered on an observation (dare I say belief) that economic forecasts are notoriously elusive, wrong, inaccurate and that unexpected events often overshadow carefully thought out plans. This theme of uncertainty calls for a certain level of humility and calls for the allowance for some degrees of freedom. The second theme is closely related to the first and that is a theme of the importance of risk management. With respect to risk management you will likely find a reminder of the importance of identifying your goals as the first step towards good risk management, “taking a risk without having a specific goal in mind is like driving around aimlessly and hoping to end up somewhere good.” The third prevailing theme often discussed in this blog is a discussion of the human condition, the seemingly universal human conditions of greed, fear, envy and other emotions and behaviors that appear repeatedly in history.
Reporting and analyzing economic data is clearly something done repeatedly across many financial news sites, podcast, YouTube channels, research notes, etc. (and in this author’s opinion is largely “noise”), so where might this blog add value?
Sharing market commentary, data releases, topical discussions on economic thinking, etc. but doing so in an accessible way that is grounded in the themes mentioned above and employs humor and satire, which hopefully makes for a short and enjoyable read that hopefully provides some basic, dare I say educational value steeped in the humility of the reality that “I don’t know” all of the answers.
Occasionally try to provide additional context or differing perspectives related to prevailing topics, such as has been shared previously with writing on topics like “yield curve strategies”, “market monetarism”, and the “fiscal theory of the price level”.
Consistently curate a collection of thought-provoking ideas. It is no secret that the X Thoughts of the Day (XTOD) have consistently been a highlight of this blog. That section frequently features interesting quotes, pop culture references and provides a variety of “takes” on topics including investing, personal growth, societal trends, and even critiques of contemporary culture. The goal of this section has always been threefold, to provide humor, spark reflection and foster critical thinking.
Hopefully you find this blog to be an intellectually humble source of timely diverse perspectives, thought-provoking content, that ultimately empowers you to become more informed and discerning investors and individuals.
As we enter the first full week of 2025, I thought it would be good to reflect on 2024 and try to set the stage for the year to come.
2024 was a year characterized by inflation persistence, a robust labor market, the rapid adoption of AI, geopolitical tensions with continued wars in Ukraine and the Middle East, the Presidential Election, continued unaffordability in housing and debates over “R-Star” and market valuations and perhaps above all else another year of cryptocurrencies and meme trading.
By now you’ve already read a dozen or more 2024 recaps, but I’m not sure you’ve read one as “honest” as this one. Here are 10 of the more interesting “stories” you may not fully remember from 2024:
Bill Ackman’s “Name Destiny Theory” - I’m not sure if you ascribed to this at a personal level yourself, but sure, why not “Billionaire Activist Man”?
Remembering Cathie Wood sold NVIDIA right before the run up.
Trump selling Gold Shoes for $7,500
Discussing Reddit shares on Reddit?
Jensen Huang (CEO of NVIDIA) signing boobs back in June. It turned out to not signal a market top.
All things Hawk Tuah - so many memes of Hawk Tuah vs. Excel Grind
The return of Roaring Kitty - I’m not sure what this meant for society, but I want to post random images that people read into and trade off of.
The emergence of the ultimate safe haven asset, Fartcoin
Anchored inflation expectations, wait you don’t see the humor in that?
While not really a story, a reminder that it’s ok to text co-workers about fake meetings and when in doubt to adhere to the immortal advice of South Park and “Blame Canada” for anything that goes wrong in 2025.
You can draw your own conclusions as to what, if any, meaning there is in some of these 2024 stories.
Onto 2025, I think everyone is aware of the major themes:
The direction of fiscal policy under Trump. Remember the idea that this administration might provide “huge fiscal deficits, protectionism, and industrial policy," potentially "on steroids"
Equity valuations, particularly in AI and tech sectors, continue to be a central theme with questions around overvaluation and “bubbles”
The Federal Reserve’s policy path which will seemingly hinge on two key topics: (1) where is “R-star”? And (2) How will Trump’s policies impact the Fed’s outlook
Cryptocurrencies, what happens next? The blind capital, as we call it, of the country - is particularly large and craving; it seeks for someone to devour it, and there is a "plethora"; it finds someone, and there is "speculation"; it is devoured, and there is "panic."...maybe?
China on two fronts. First, what's going on with its domestic economy (have you seen Chinese yields?) and second, geopolitics and tariffs.
Aside from these themes if you’re looking a refreshing read, I would recommend Cliff Asness of AQR’s piece: 2035: An Allocator Looks Back Over the Last 10 Years
That’s plenty for today. We start the day with stocks having ended a 5 day losing streak and a 10Y at 4.60% and a 2Y at 4.30% (remember the yield curve inversion?).
On the week ahead: Mon: S&P PMI’s, Factory Orders, Durable Goods, Fed’s Cook and 3Y Note Tue: JOLTS, ISM Services, Fed Barkin, 10Y Note Wed: ADP, Fed Waller, FOMC Minutes, 30Y Note Thur: Jobless claims, inventories, Fedspeak Fri: Jobs Day in ‘merica, UofM sentiment XTOD: Starting 2025, the S&P 500 is at 5882, up 23.3% for 2024. With dividends+buybacks increasing 11.3% & earnings up 9.9%, the equity risk premium stands at 4.33%. Adding in the ten-year treasury rate of 4.58% yields an expected return of 8.91% for US stocks. http://Damodaran.com XTOD: Your occasional reminder that privates may or may not have alpha vs. indices, but they are not “alternatives” in any sense that the word used to and should mean (i.e., diversifying low correlation). That word is being ruined by volatility laundering. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-alternatives/ XTOD: Yields will now keep rising until the equity market collapses. The die is set. XTOD: This explains almost all modern politics: When you can't grow the size of the pie, you focus on how to divide the pie. When you're growing the pie, there is more for everyone. When you're dividing the pie, it's all about how big of a slice you can get. People who can grow the pie are heroes, not villains. XTOD: i started my career w the US shale boom in 2009, rural towns flooded with money and jobs data center boom is starting to look the same, rural regions flooded with money and jobs from one of the largest physical infrastructure builds of the century you know what’s next… https://x.com/AswathDamodaran/status/1875248175931592953 https://x.com/CliffordAsness/status/1874510344283980239 https://x.com/his_eminence_j/status/1872768699280896444 https://x.com/ShaneAParrish/status/1875645047841992787 https://x.com/Melt_Dem/status/1871950737531662633
Completely agree on the difficulty of forecasting. Forecasting the weather is also difficult, and in that scenario you're only working with natural science. Forecasting economic/financial outcomes has a scientific element, but also a human behavior element. The assumption that people are rational economic actors is needed to make models work, but its a far cry from the real world.
ReplyDeleteOne of the interesting things for me to watch in 2025 is the interplay between Trump wanting low rates (remember him constantly pushing Powell?) vs common sentiment saying Trump's policies point toward higher rates.
This is a person who changes his mind frequently.
Trump changing his mind frequently, never heard of such a thing :) Another lense to consider the desire for low rates juxtaposed with policies that many consider to be inflationary, is through the lense of "Fiscal Theory"....clearly not the dominate macroeconomic narrative but as Cochrane 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." As for monetary policy, "all monetary policy can do is to shift inflation over time. With short term debt, a model can get only inflation below the nominal rate by producing higher inflation later. With long term debt, a model can only get inflation to go down by accepting higher inflation later. I call this “unpleasant interest rate arithmetic”"
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