Daily Economic Update: February 28, 2025

We’ll start with economic data today for the first time in a while.  Jobless claims hit 242K—thanks, Elon, for the DOGE days of firing—and pending home sales dove 4.6% to a record-low index. Weather’s the fall guy, per Millie Vanilli’s greatest hits: blame it on the cold, not the rain, but I’m lip-syncing my way through this mess.

With consumer fears front and center, the 2nd read of 4Q2024 GDP showed consumers hanging in there. The personal consumption component came in at 4.2% with solid spending on durable goods.  Overall the 2.3% real GDP was in line with expectations, but the PCE read in the report showed inflation to be as stubborn as my mother-in-law.  Speaking of durable goods (not mother-in-laws), orders appeared to rebound with vehicles and machinery driving it.  Everyone gets a car, even though auto loan delinquencies are expected to continue to rise.  Don’t worry, we’ll get an updated read on the 1Q2025 GDP estimate when the Atlanta Fed releases their updated estimate today and we’ll see if it confirms what the vampire squid (aka Goldman) believes which is a 1Q2025 GDP under 2% (1.8% is GS current estimate).

In the markets Nvidia and the latest tariff talk weighed on markets.  Remember yesterday when Nvidia didn’t move too much after earnings, well, it decided to move down ~8% today.  The Nvidia vibe shift seemed to be something like cool, you killed it, but not as much as you used to kill it, can the insane growth continue?  Microsoft seemed to weigh on some of the AI sentiment for sure, what does Satya know?  Maybe those who say that history shows the companies that spend early and often in most historical technology infrastructure booms don’t end up being the winners will be proven correct.

Chips and tariffs seem to go hand in hand and today Trump confirmed that 25% tariffs on goods from Mexico and Canada will go into effect next week, but why stop there, we’ll add another 10% on top of the existing 10% tariff on Chinese imports, and the EU is next in line for a 25%.  One minute it’s tariffs come April, the next it’s March, and there’s still “reciprocal tariffs” being floated as well. Is the uncertainty around and the actual imposition of tariffs going to lower growth and demand and is that driving oil lower?  It’s probably part of the answer, along with a strong dollar and expectations for continued U.S. energy output.

We talk about AI everyday, so I asked Grok what I should do in the face of a wobbling job market, looming tariffs and oil prices acting like demand is falling and markets expect the Fed to cut in June.  Grok’s advice: “Buy a toaster, hoard some oil, and pray the tariff fairy leaves us a tax cut under the pillow. Tomorrow’s another circus—bring popcorn.”  I love quoting AI - it’s less unhinged than most economic commentators.

The Fed’s preferred inflation gauge PCE is on the docket today, along with Income & Spending data, but the real action likely comes from Pennsylvania Avenue.  We’ll start the action with the S&P at 5,861, the 2Y Treasury yield at 4.07% and the 10Y Treasury yield at 4.27%.

In a world where tariffs drop faster than Nvidia stock and AI advice is as good as any economist’s, the only safe bet is to keep your popcorn stockpile high.

XTOD: This guy gets it https://pbs.twimg.com/media/Gkv6AFoW8AAOueS?format=png&name=900x900

XTOD: Pam Bondi: "We're releasing the first of the Epstein files tomorrow." 

Americans: "Cool! Then we'll get to read them?" 

Bondi: "Well actually you'll get to see fun little photo shoots of conservative personalities & influencers holding a binder!"

XTOD: Meta plans to release standalone Meta AI app in effort to compete with OpenAI's ChatGPT

XTOD: ok fine maybe we'll do a social app

XTOD: TSLA symmetry 280 to 480 to 280  as glorious as any memecoin chart

XTOD: The best career advice I ever followed.  At every job you have you either earn or learn. Ideally both. The second you stop... you quit.

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Daily Economic Update: February 27, 2025

Let’s face it, your day could have been worse, you could be some guy named Evan who is apparently still dating Mary Kate Cornet.  Don’t worry there is already a Memecoin dedicated to this “news” story - I think it was up 800% at one point.  I can only imagine that Mary Kate Cornet will relocate to the AI generated Gaza with Evan’s dad soon.

The long awaited earnings report from Nvidia showed numbers beat across the board on both revenue and earnings. As of the time of this writing the stock reaction was fairly muted, which was unexpected as reports were that options markets were priced for moves around 10%.  The messaging around Blackwell chips seemed promising and Jensen Huang expressed a sentiment that we’re still in the early innings of AI and that there is still plenty of need for increased compute.  I’d summarize Huang’s case for Nvidia with him stating, “I’m fairly sure that we’re at the beginning of this new era.”  I guess we’ll have to wait a little longer to see if investor’s continue to buy into the growth story or whether the overhang of the Deep Seek story, questions around data center capex and concerns about tariffs will weigh on investor optimism.

Post Nvidia earnings, if you're looking for a reason to be bearish, the yield curve inverted between 3m yields and 10 year yields.  The inversion, where 10Y yields fall below 3m yields, has historically been considered a leading indicator portending a recession.  In this blog we’ve spent a good bit of time discussing the inversion between the 2Y and 10Y, you can find a good link to a summary of the yield curve inversion and recessions in this post.  It’s hard to know the current predictive power of yield curve inversions given the October 2022 inversion failed to predict a recession in the usual timeframe. But as some say, the four most dangerous words in the English language are “This Time Is Different.”

With uncertainty seemingly very high, it might be wise to revisit some of our previous discussions on the topic of “uncertainty”.  You can find a bunch of posts that discuss “uncertainty” here.  Some of my favorite advice around this topic are from Peter Bernstein:

“In making decisions under conditions of uncertainty, the consequences must dominate the probabilities"   And "The more uncertain the outcome, the greater may be the value of procrastination."

Unfortunately, the procrastination advice doesn’t always tend to lead to good business and economic results - business always seems to be injured by uncertainty.  However, the reality is that decisions are always made under uncertainty - being able to think in terms of opportunity cost can sometimes be a superpower.

In economic data the 10.5% decline in new home sales exceeded expectations for a less steep decline. It’s likely high interest rates coupled with high prices are weighing on sales and I wonder if the “great stay” in the labor market is a factor as well.  Of course, when in doubt, you can also blame the weather, which was something a few commentators on the report did.

Fedspeak this week has been uneventful.  The 7Y Treasury auction was solid, printing at 4.194%, which was through where When-Issued was trading.  Foreign demand was solid, but not as spectacular as previous auctions this week. 

If you’ve missed it, Tesla shares are somewhat quietly down ~25% this year. The S&P closed down very slightly at 5,952.  The 2Y yield is 4.08% and the 10Y yield is 4.26%.

With Nvidia out of the way, attention turns to today’s GDP report and tomorrow’s PCE report.

XTOD: Much of investing is avoiding FOMO buying and panic selling.

XTOD: All the alleged details and alleged pictures you need about this alleged story about a girl allegedly named Mary Kate who allegedly slept with her boyfriend’s dad. Allegedly.

XTOD: I shared this note with the Washington Post team this morning:  I’m writing to let you know about a change coming to our opinion pages.   We are going to be writing every day in support and defense of two pillars: personal liberties and free markets. We’ll cover other topics too of course, but viewpoints opposing those pillars will be left to be published by others.   

There was a time when a newspaper, especially one that was a local monopoly, might have seen it as a service to bring to the reader’s doorstep every morning a broad-based opinion section that sought to cover all views. Today, the internet does that job.  

I am of America and for America, and proud to be so. Our country did not get here by being typical. And a big part of America’s success has been freedom in the economic realm and everywhere else. Freedom is ethical — it minimizes coercion — and practical — it drives creativity, invention, and prosperity.   I offered David Shipley, whom I greatly admire, the opportunity to lead this new chapter. I suggested to him that if the answer wasn’t “hell yes,” then it had to be “no.” After careful consideration, David decided to step away. This is a significant shift, it won’t be easy, and it will require 100% commitment —  I respect his decision. We’ll be searching for a new Opinion Editor to own this new direction.  

I’m confident that free markets and personal liberties are right for America. I also believe these viewpoints are underserved in the current market of ideas and news opinion. I’m excited for us together to fill that void.     Jeff

XTOD: Imagine being max long Orange Juice futures and getting smoked -40%, getting shoulder tapped at your job, and then having to go home to your wife and explain why the kids need to move to a cheaper school district.

XTOD: Charlie Munger: "It's hardly a competence if you don't know the edge of it. If you have a misapprehension regarding your own competency, that means you lack competency. You're going to make terrible mistakes."

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Daily Economic Update: February 26, 2025

Do we need a growth scare?  Yesterday, Treasury Secretary Bessent hinted at the brittle footing of the private sector, which has been propped up by excessive government spending. It begs the question: is there a trade-off between short-term economic conditions and long-run fiscal sustainability that might be necessary?  A growth scare could lead to interest rate cuts from the Federal Reserve and lead investors to demand lower returns on their debt investments.  Lower interest rates could reduce pressure on the Federal budget where interest payments have become a growing concern.  “Ferguson’s Law” states that any great power that spends more on debt servicing than on defense risks ceasing to be a great power and the U.S. is currently paying more on debt service than defense. A growth scare in theory could help alleviate inflation both by reducing demand and potentially reducing fiscal-driven inflation.

I remember when Powell said: "Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.".  If you forgot about that, you can read more about it in this post.

But this question and argument has some risky spots. First, didn’t lower interest rates potentially get us into this unsustainable fiscal position?  When rates were low and money appeared “free” didn’t that help to fuel a binge on fiscal spending? While slower growth might lower the interest expense component of the deficit, it would also seem to risk lowering tax receipts and also seeing increased spending through automatic fiscal stabilizers.

Personally, I’m not sure that a “growth scare” is the right answer to solving fiscal problems.

Nonetheless, this discussion reminds me of something we talked about, which was “Fiscal R-Star”.  You can get a quick refresher of that discussion from this post earlier in the year.

The other thing that comes to mind, is that when you cut waste and fraud from any system, do you get a “febezzle” induced recession?  You can read about “Febezzle” here, but Munger’s “Febezzle” describes a situation where an investment manager and investor both feel wealthier due to the illusion of stable financial gains, even though a portion of that income is actually wasteful or illusionary (fraud).  When that waste is uncovered, it all falls apart.  If you apply that concept to government spending, through something like DOGE, you could see the possibility of a similar dynamic.  For example, if you assume it to be true that some government contractors and employees are receiving income from inefficient spending or fraud, those people are consuming and investing as if that income will be permanent. When wasteful spending is eliminated the result could be lower consumption, lower investment and perhaps declining asset prices (like real estate in certain areas).  Of course the idea is that if there truly is wasteful or fraudulent spending then in the long-run the reallocation of labor and capital to more productive uses is a positive. 

If you believe that the fiscal situation is concerning, it is a little scary to think about the last time either political party embarked on policies that were geared towards growth and discipline without a hard external shove. 

In data, Consumer Confidence fell to 98.3 from a previous reading of 105.3, continuing a trend of negative economic surprises.  Pessimism around future labor conditions was highlighted as a concern.  The 5Y Auction seemed pretty good, especially when you consider that yields have been down solidly this week with the 5Y down almost 30bps in the last week..  Again the foreign demand seemed solid.  Home prices continued to rise, though no one seems to actually know who is buying houses these days.  

In politics, tariffs remain the economic topic du jour.  Elsewhere, it appears that the U.S. reached some sort of deal with Ukraine around rare earth minerals and lastly apparently we might be selling citizenship via gold cards. I think that was all, but you never know given the amount of stuff that comes out of the Administration daily.  You’ll have to follow a political blog to keep up with all that in detail.

The S&P posted a 4th straight losing day, closing at 5,955, led by losses in tech.  The 2Y treasury yield is all the way back down to 4.10%, which sounds crazy but the 2Y was under 4% for most of the 4th quarter of 2024.  The 10Y treasury yield is 4.30%, down from a local high of ~4.85%.

On the day ahead my guess is Nvidia earnings will trump the economic data, 7Y auction and the Fedspeak.    We’ll see if the growth scare narrative gains further fuel post Nvidia.

XTOD: The email request was utterly trivial, as the standard for passing the test was to type some words and press send!  Yet so many failed even that inane test, urged on in some cases by their managers.  Have you ever witnessed such INCOMPETENCE and CONTEMPT for how YOUR TAXES are being spent?  Makes old Twitter look good. Didn’t think that was possible.

XTOD: The weakness in today's market and the past few sessions underscore one of my concerns that is rarely discussed in the business media - market structure (i.e. the dominance of passive funds that worship at the altar of price momentum).

It is those (Index and Quant) funds (abetted by unprecedented inflows) when coupled with company buyback programs (they usually buy near highs) that generated the valuation reset (to the 96%-tile) over the last eighteen months.

The bulls, as I have consistently pointed out, ignored the high valuations - favoring the concept of a new paradigm of price earnings multiples. But now, they are all in the same long boat. Those funds know everything about price but nothing about value.

XTOD: They’re literally telling you their playbook and markets are just whistling past the graveyard.  Fed is cutting at least 4 times this year imo. Homebuilders desperately need it.

XTOD: By the time everyone calls it a great business the exceptional returns are usually in the rearview. The time to buy is when it is misunderstood, undiscovered and under-appreciated.

XTOD: “Without courage we cannot practice any other virtue with consistency. We can't be kind, true, merciful, generous, or honest.” — Maya Angelou

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Daily Economic Update: February 25, 2025

Sorry, I thought we had until midnight last night to write down everything we worked on last week - that was the rule, right?  I got this post written in time.

Spring training is in full effect. In baseball they have a statistic called WAR, Wins Above Replacement. Back on January 6, I started the year discussing where this blog adds value to you, the reader, check out that post here. To recap, this blog’s value-add is its ability to enhance your understanding of financial markets, risk management, and the human factors that influence investment outcomes.  You can read about financial markets anywhere, but I believe it’s rare you can find a source that is intellectually humble, provides timely yet diverse perspectives on financial topics, presents content in a way that is accessible and enjoyable by using humor and satire, and of course provides thought-provoking ideas through a curated selection of “X Thoughts of The Day” (XTODs). 

So the question is, why aren’t you sharing this blog with everyone you know?  My ask is everyone who reads this to send a link to 5 people you know.  In this “attention economy”, I would like to think this blog is worth the few minutes of time each daily post takes to read.  I can’t think of anywhere else where someone can find a daily financial blog that contains some humor and satire, incorporates pop-culture references, embraces an “I don’t know” mentality that acknowledges the inherent uncertainty in financial markets, all while providing an accessible perspective on economics, investing, and the human condition.  You can certainly find plenty of opinions and “takes” on X, but a consistently curated XTOD section that fosters humor, sparks reflection and fosters critical thinking, good luck finding that elsewhere.

If you agree with the above, share the blog! Use the desktop search feature and find something you enjoyed and send it to your friends and coworkers. 

I’m clearly biased, but surely you trust AI.  ChatGPT’s favorite recent blog post was from February 6, 2025. Read the first sentence of that post and it seems obvious why ChatGPT chose it as a recent favorite.  ChatGPT describes the blog’s value as follows: “By combining sharp humor with insightful observations, "Where Is Edward Quince?" offers a refreshing perspective on economic discourse, making intricate subjects more relatable and engaging for its audience”. “The blog’s irreverent yet insightful tone is its biggest asset.” Is it appropriate to quote AI?  Can AI actually provide a testimonial? Oh well, I did it anyway.

Away from self gloat and across the pond, if you missed the weekend election in Germany, you should know that voters leaned right in backing largely establishment parties and the coalition government will be led by Friedrich Merz. There is a belief that the election result will lead to stability and more fiscal spending, especially on defense. We’ll see what happens once the coalition government actually comes to fruition.  Trump clearly seems to want to see a larger role in their own security.

In markets, Microsoft data center spend, or purported lack thereof, is all the rage following a TD Cowen report that they were canceling leases. Tariffs remain front and center with Trump indicating that he’s following through with tariffs on Canada and Mexico starting next week…we’ll see. The S&P closed below 6K, at 5,983.25.  Nvidia’s earnings on Wednesday hold the potential to weigh heavily on sentiment from here. In bonds, the 2Y auction cleared around 4.17% with a real strong foreign bid (indirect bidders).  The 2Y treasury yield closed at 4.19% and the 10Y at 4.41%.

Following last week’s data, the narrative has shifted somewhat to questioning the strength of the economy and specifically the health of the consumer.  Nevertheless, Jamie Dimon kept inflation on the radar, laying out a list of inflationary forces in the near term, including what he called “wasting money on the green economy.”

On the docket for the day are Home prices, Fedspeak, and the 5Y note auction.

XTOD: Three years into Russia’s war against Ukraine, the battlefield remains uncertain—but geopolitics is shifting fast. A reality check on where we stand: very long post 💡

1️⃣ This war isn’t just about Ukraine.

Russia isn’t fighting just to expand its borders—it’s dismantling the European security order and securing its pole position in the U.S.-China great power rivalry amid Cold War 2 between America and the #DragonBear.

Yet Europe still refuses to fight back strategically.

2️⃣ Russia’s war on Europe isn’t just military—it’s non-conventional too.

🔹 Weaponized energy, food & fertilizers

🔹 Migration flows as a destabilization tool

🔹 Cyberattacks & sabotage ops inside EU/NATO

🔹 Nuclear blackmail

Meanwhile, Moscow is not isolated—it’s adapting.

3️⃣ Europe’s grand promises vs. reality:

❌ Germany’s “Zeitenwende” was all talk—no real defense shift so far (new Chancellor Merz might bring out the long-awaited shift)

❌ Europe imposed the greatest sanctions packages (16)—then bypass them via Russia's proxies.

❌ €150B in aid—yet Europe failed to create a wartime economy to mass-produce weapons and consistently support Ukraine.

Russia? It just secured more reliable suppliers via North Korea, Iran & China.

4️⃣ The #DragonBear Alliance is real.

For 15 years, the West downplayed Russia-China ties as a "marriage of convenience", "junior partner" and "impossible".

🚨 Wrong. China keeps Russia’s economy alive by:

🔹 Buying Russian oil & gas at scale

🔹 Supplying microchips & industrial tech

🔹 Offering financial escape routes from sanctions

🔹 Strengthening BRICS+, SCO and other organisations with Russia's participation

Russia is NOT China’s junior partner—it’s Beijing’s Eurasian and Arcic power lever as well as commodities safeline amid Cold War 2 with the U.S.

5️⃣ The Global South is NOT on the West’s side.

Many Western leaders assumed the world would isolate Russia. That never happened.

Instead, Russia deepened ties across Asia, Africa & Latin America.

🔹 India & UAE buy Russian oil

🔹 Brazil, South Africa & Turkey refuse sanctions

🔹 Africa sees Russia as an anti-colonial counterweight to the West

This war is redefining global power alignments.

6️⃣ The West is losing the long game amid Bifurcation of the Global System due to long-term structural and systemic crisis on the old continent.

🔹 Ukraine still lacks weapons systems and ammunistion promised by the West

🔹 European defense industries are too slow and fractured

🔹 Russia is outproducing NATO in artillery shells & drones

Putin is betting the West will lose interest before Russia runs out of men & munitions.

7️⃣ What happens next? Three scenarios:

💥 Scenario 1: Ukraine wins

🔹 Requires a U.S. shift back to full military, diplomatic and financial aid; the EU switches to partial war economy

🔹 China stops tech transfers and dual-use to Russia

🔹 Global South cuts strategic exports to Moscow

🔮 Likelihood: Low (U.S. disengagement under Trump 2.0 + EU hesitation)

⏳ Scenario 2: The War Drags On (War of Attrition until now)

🔹 Russia sustains war with Chinese & Iranian aid

🔹 Western aid to Ukraine slows but doesn’t stop

🔹 Global South expands sanctions evasion & energy trade

🔮 Likelihood: High (We’re already here)

🤝 Scenario 3: The Frozen War (Increasingly Likely)

🔹 U.S. & Russia negotiate a ceasefire, restore strategic dialogue

🔹 Ukraine is forced into territorial concessions

🔹 China brokers the deal to stabilize global markets

🔹 Global South pushes for diplomatic resolution due to food and energy inflation

🔮 Likelihood: Rising fast (Trump’s 2025 policy shift)

8️⃣ Final Reality Check:

The EU and its members are becoming the geopolitical backyard of global affairs if they don't get their act together.

🔹 A new Iron Curtain is emerging along NATO’s Eastern flank amid Cold War 2 between America and the DragonBear

🔹 U.S. focus is shifting to China & the Indo-Pacific where the greatest geopolitical tensions will occur in 2025.

🔹 The EU members are divided—some want to fight, others want peace at any cost. The Bifurcation of the Global System is now affecting the old continent - as above, so below.

Russia is playing the long game. Is the West?

XTOD: Apollo Investments worried about downside risks to economy, notes that every 1 federal employee may actually be 3 jobs because of 2 contractors.

XTOD: Fella lost all his money chasing meme coins and killed himself while recording it live. And they made a meme token in his honor and rugged more people. Crypto is easily the most toxic space right now. Crypto easily a net negative for our society, I'm dying on this hill.

XTOD: My favorite ideas from my conversation with @GuptaRK22  

“In a decade, every person will be more capable than any person is today.”

“The best founders today don’t just embrace AI, they re-underwrite their entire business with it.”

“The next billion-dollar companies will be built by people who understand customer problems deeply and understand what AI can do.”

“The more digital-only your product is, the faster AI will create magic—and if you don’t, someone else will.”

“This moment is about ambition—what race are you in, and how many cars can you pass in front of you?”

“For high-agency, ambitious people, AI is a chance to enter a race you never thought possible—and win it.”

“Customers are divinely discontented—either you give them magic, or someone else will.”

“If you had a genius join your company tomorrow, how much would you change to make the most of them? AI is that genius.”

“If you just knew the person was brilliant and they would work 24 hours a day for you, the first time they messed up, you wouldn’t say, ‘Oh, they suck’—you’d say, ‘I need to do something differently to get the most out of them.’”

“What percentage of time does the senior leadership team think about how to deliver value to the customer in the best, fastest, and cheapest way? The lower that percentage is, the bigger the opportunity.”

“Anything that reduces your agility is a massive problem.”

“If you’re a public company CEO and you feel held back by what you said last year, you’re in trouble.”

“If your leadership team isn’t spending most of their time thinking about customers, you have a massive hidden cost dragging you down.”

“Optimists will own the future—pessimists will watch it happen.”

XTOD: “The road to valor is built by adversity.”  — Ovid

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