Consumers are not exactly brimming with confidence - just ask them. The Conference Board “Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—dropped 9.6 points to 65.2, the lowest level in 12 years and well below the threshold of 80 that usually signals a recession ahead.”
Turns out people don’t like declining stock prices paired with inflation. Inflation is so solved that survey respondents increased their 12-month ahead inflation expectations from 5.8% to 6.2% - hold my tariffed tequila.
Tariffs, Inflation and the Demand Puzzle
Survey data always comes with paradoxes. If consumers expect their income, wealth, and prospects to decline, why do they also expect inflation to rise? Tariffs, duh—imports taxes juice prices - right?
But if consumers are tapping out and demand is shrinking, can tariffs really drive inflation the way people expect? Typically, when consumers feel increased uncertainty around their income and wealth, they tighten their wallets - shifting the aggregate demand curve left. Higher taxes, like tariffs, usually cause the same shift. So if demand is cooling, could supply side constraints still push inflation higher? That’s the stagflation scenario in a nutshell.
Two weeks ago, I sniffed it - now it’s a whiff I can’t un-smell. My TRASH ETF’s popping popcorn.
Expectations: Where Psychology Meets My 401k
Expectations sit at the crossroads of psychology and finance. As author Morgan Housel puts it: “The valuation of every company is simply a number from today multiplied by a story about tomorrow.” Strip away the narrative, and you’re left with cold, hard valuation models like the Gordon Growth Model - where the future is just a set of assumptions out to Judgment Day, just waiting to be discounted.
This is why Warren Buffett is the G.O.A.T. He can simultaneously remind us that "The most that owners in the aggregate can earn between now and Judgment Day is what their business in the aggregate earns.” and “Be fearful when others are greedy and greedy only when others are fearful.”
What’s Priced In? The Eternal Market Question - Just Ask Mr. Market
The most important question in investing: “What’s priced in?”Markets are a constant tug-of-war between rational optimism and collective delusion—which is exactly why differences in opinion make a market.
The parable of ‘Mr. Market’ is a lesson worth remembering. None of this thinking is new - just refer back to our discussions the week of January 21st when we started every day with a Jesse Livermore quote from Reminiscences of a Stock Operator.
Owners vs. Lenders: The Fundamental Trade-Off
The question of what’s priced in, what do investors believe, and what are they willing to risk is fundamental to Howard Marks’ thinking on asset allocation—the decision to own vs. lend.
Owners have no promise of return; lenders have a contractual fixed outcome—assuming, of course, the borrower makes good.
Risk vs. reward. The oldest trade-off in the book.
Final Thoughts: Narratives on Fumes?
Markets, like expectations, are built on narratives. The line between collective delusion and rational optimism is a blurry one—it’s why “differences in opinion make a market.” The key is knowing when the story still holds... and when it’s running on fumes.
My tequila’s narrative? Tariffed to oblivion—hold on or sell?
The Day Ahead: Durable Goods or Durable Pain
The S&P at 5,776, 2Y at 4.03%, 10Y at 4.33% —stocks crawled up, yields yawned. Durable goods, home prices, 5Y note auction—at this stage data is just a tariff on our sanity.
XTODs
XTOD: The White Sox have been eliminated from playoff contention
XTOD: Following the arrival earlier today of 2 B-2 “Spirit” Long-Range Strategic Stealth Bombers, with the 509th Bomb Wing from Whiteman Air Force Base in Missouri, at Diego Garcia in the Indian Ocean. Communications between the bombers and ground stations in San Fransisco have confirmed that another flight of 2-3 B-2s from Whiteman are currently crossing the Pacific Ocean destined for Diego Garcia. This is seeming like a much larger buildup than would be needed for strikes just against the Houthis in Yemen.
XTOD: Shell CEO discloses some more colour about the company's vast in-house commodity trading business, which includes oil, gas, LNG and others: the unit hasn't had a single loss-making quarter in at least 10 years
XTOD: *AT&T SAID IN EXCLUSIVE TALKS TO BUY LUMEN’S CONSUMER FIBER UNIT (BN)
*AT&T DEAL SAID TO VALUE LUMEN UNIT AT MORE THAN $5.5 BILLION (BN)
AT&T showing the classic telecom playbook: Buy assets from distressed competitors, incorporate them poorly, repeat
XTOD: If you work in PE and one of your portcos came into ur office in NYC today. They’re at the bar and they hate u and think you’re retarded. Not divulging specifics here because I’m not snitching but this is very real and I am doing my best to not crack up at these blue collar dudes shitting on the finance bros they met with today and how they “don’t understand how the company works”
XTOD (some interesting replies to this one): For folks who left banking, PE or similar finance roles, what was the exact moment you decided to leave? Would love to hear more stories of people who left behind the golden handcuffs What caused you to make the jump and what did you pursue instead?
https://x.com/MLBONFAX/status/1904261374265717207
https://x.com/sentdefender/status/1904587565123985753
https://x.com/JavierBlas/status/1904523965453750491
https://x.com/junkbondinvest/status/1904598522453713134
https://x.com/GordonGekko420/status/1904311634815783333
https://x.com/BoringBiz_/status/1904585856255427041
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