Daily Economic Update: April 30, 2025

GDP Now Or Never

There are genuine signs that some trade deals are getting done and positive news around removing “stacking” tariffs on autos. But at the same time, weakening U.S. data and a surge in pre-tariff imports suggest we may just be watching the calm before a downturn. Some pundits believe the knock on effect of the rush of imports into the U.S. currently is just foreshadowing the major decline that’s on the come, one that will lead to empty jobs and empty shelves.  You know a slump that could hit both employment and inventories hard. 

Don’t take my word for it, it’s what consumers tell the Conference Board, which reported that “business conditions, employment prospects, and future income—all deteriorated sharply, reflecting pervasive pessimism about the future. Notably, the share of consumers expecting fewer jobs in the next six months (32.1%) was nearly as high as in April 2009, in the middle of the Great Recession.”  And they reported that “average 12-month inflation expectations reached 7% in April—the highest since November 2022, when the US was experiencing extremely high inflation.”

Maybe the Atlanta Fed GDPNow is onto something with a negative 1.5% estimate of 1Q2025 GDP? Guess we’ll see if they’re right when we get  the first official release of GDP this morning.

Elsewhere in data, job openings fell broadly, but with no indications that firings are rising. 

Soft Data, Meet Hard Data

In addition to 1Q GDP we’ll see how inflation is behaving before diving into stage start of earnings from tech behemoths Microsoft and Meta. Which I guess means we’ll get more insight on whether the AI hype is still driving earnings or running out of steam.

We enter the trading day with the S&P index at 5,560, on a little winning streak.  While the 2Y and 10Y are both testing year to date low yields at 3.66% and 4.18% respectively.

Before we move into May flowers, let’s pause to remember the April that was.

Circus Apriles Recap
April 2025 was exactly the kind of financial circus we've come to expect, just replace the clowns with talking heads yelling about tariffs and the tigers with volatile market swings that happened seemingly because someone sneezed near a headline.

"Liberation Day" on April 2nd, supposedly the day we'd get clarity on tariffs, arrived with all the fanfare of a damp squib, offering slim odds of actually knowing anything. Markets spent the month ping-ponging around tariff news, including a delightful moment where news of a 90-day pause got promptly "body-slammed by reality". 

Treasury yields bounced around like a pinball as markets debated if tariffs meant inflation or recession. Auctions showed tepid demand, and the "safe haven" label felt more like a "hot potato", thanks to the tariff drama.

While the Dollar decided to take a break from its "exorbitant privilege," weakening to under 100 on the DXY for the first time in three years. The Fed, those dependable "Powell Rangers," stuck to their script: solid economy, "somewhat elevated" inflation, "elevated uncertainty," and the ever-popular "proceed cautiously". riveting stuff.

Beyond the daily whipsaws, the month offered plenty of reminders that perhaps we really don't know what's going on, but that's okay because nobody else does either. The existential dread of whether markets are in "bubble" territory lingered, prompting reflections on timeless wisdom like remembering "trees don't grow to the sky" and Howard Marks' evergreen advice that "overpaying is the greatest investment risk". So, as tariffs continued their starring role and the economic picture got murkier, April reinforced the timeless truth that navigating financial markets requires less prediction and more prudence, patience, and a healthy dose of "I Don't Know".

What Timeless Lessons Did We Learn This Month:

• Accept "I Don't Know": Certainty is an illusion; uncertainty is the norm, and admitting it is often the most truthful approach. 

• Patience Over Panic: Focus on long-term goals and underlying business value. Discipline beats drama.

• Your Behavior is Your Biggest Risk: Be mindful of emotional biases like fear and greed, and remember overpaying is a major risk.

• Filter the Noise: Tune out predictions and commentary, and feed your mind with wisdom, not noise.

• Face Reality: Persevere through tough times, learn from mistakes, and face reality as it is.

Embrace uncertainty, maintain patience, and focus on timeless principles of investing over futile prediction and market noise.  Sounds reasonable enough.

XTOD’s:

XTOD: Why didn’t electrical engineers forecast the Iberian electricity crisis? Looking forward to reading many op eds in the @FT  on how the study of electrical engineering is in a crisis. Researchers should go back to reading Maxwell’s Elementary Treatise on Electricity

XTOD: The jump in consumers' year-ahead inflation expectations over the last three months in the Conference Board survey is as swift as the rise seen over the course of many months in 2020-21

XTOD: The most socially accepted form of self-sabotage:  Overthinking.  It’s why you can’t make decisions, finish anything, or sleep without scrolling.

XTOD: My brilliant partner Antti Ilmanen’s latest on his lifelong obsession with expected returns. This one on how people actually form them (rational or not). Link below. https://t.co/QZFv1PRUDK

XTOD: Kobe Bryant on why not everyone is up for greatness. https://pbs.twimg.com/media/Gpn-FNfXIAA8o2x?format=png&name=900x900

https://x.com/R2Rsquared/status/1917186959480402001

https://x.com/NickTimiraos/status/1917267816517972240

https://x.com/0xAbhiP/status/1917210910810124666

https://x.com/CliffordAsness/status/1917217161010888896

https://x.com/Cyrushshirazi/status/1916842493385036010

Daily Economic Update: April 29, 2025

I Was Going To Write More But..

I got a phone call from who I thought was the Editor In Chief at Bloomberg News, he said they were about to pick up my blog as a major feature column, similar to Matt Levine’s, but then at the end of the call they said I was going to have to wait a little longer.  So I waited around and didn’t get a lot of writing done.  Turns out it wasn’t the Editor at Bloomberg at all, too bad, my dreams of being the next Matt Levine, deferred.

Speaking Of Deferred Dreams

Seems like some other dreams remain deferred, like that of the trade war ending quickly and that of improving the U.S. fiscal deficit.  Treasury Secretary Bessent has news on both.  When it comes to China he said it’s up to them to de-escalate.  When it comes to the deficit, his department just said they need more money than they thought.  Now in fairness some of that is debt ceiling related.

Bullwhips

Remember during the pandemic there was a lot of talk about the “bullwhip effect” in supply chains? I’m a little surprised that I haven’t seen as much talk about this topic with the uncertainty surrounding tariffs.

What is the “bullwhip effect”, it’s the idea that fluctuations in demand at the retail level can get amplified as they move upstream (to the manufacturers) and can cause big impacts in inventories, production, logistics and prices.  The real problem is one of distortion, that tariffs create artificial demand signals and supply chains that are engineered to work in synchrony all of a sudden become unsynchronized.

Have companies learned from Covid, or are these bullwhip effects happening at smaller scales and the effects will be magnified if or when tariffs fully take effect.  Will we see hoarding, panic ordering, shortages followed by gluts?  And if you think that doesn’t matter, remember: gluts and shortages are exactly what made inflation so painful post-Covid.

Dalio Doesn’t Care, It’s Too Late

According to Ray most companies who are impacted by tariffs say it’s too late to get to a resolution that will reverse permanent damage.  And by damage he means a failure to deal with major structural imbalances in trade and capital between the U.S. and the rest of the world. Ray wants to see a coordinated approach to addressing the problems:  “In my opinion, what would be best is calm, analytical, and coordinated engineering and implementation, with the imbalances and the needs for self-sufficiencies treated as shared challenges, to produce the “beautiful" deleveragings and rebalancings that need to take place.”

But You Have To Agree On The Problems

According to Andrew Grotto at a recent Hoover Institute tariff conference, there is a foreign policy aspect to all this and sometimes threatening tariffs is better than pushing for changes with aircraft carriers.

Blockchain And AI Haven’t Solved Politics

The S&P closed at 5,529, up slightly. The 10Y treasury ended at 4.21% and the 2Y at 3.70%.  We’ll see what the data and earnings bring on the day ahead. Remember the themes of the week are earnings and labor markets.

XTOD’s:

XTOD: The PCE price index (due at 10 am on Wednesday) is expected to show core prices rose just 0.08% in March, according to forecasters who map the CPI, PPI and import prices into the PCE.  Headline prices are anticipated to have been flat (-0.01%) in March

XTOD: Iberia power cut leaves people trapped in lifts and trains, or stocking up at supermarkets http://reut.rs/3GrHoXy

XTOD: We have no idea how good we had it.  The only better 15-year eras were: Post-WW2 thru May 1957 ~18% annualized + tech boom in 1980-90s, 15 years peaking in April 1999 ~17% annualized.   This current 15-year peak was through February 2024 at ~16%/yr.

XTOD: Robots will surpass good human surgeons within a few years and the best human surgeons within ~5 years. @Neuralink  had to use a robot for the brain-computer electrode insertion, as it was impossible for a human to achieve the required speed and precision.

XTOD: You can literally just wake up and decide to be a completely different person.

https://x.com/NickTimiraos/status/1917023663976599778

https://x.com/Reuters/status/1917023569013285194

https://x.com/Ritholtz/status/1916963236194259164

https://x.com/elonmusk/status/1916573094367625556

https://x.com/Jayyanginspires/status/1916533672141848582

Daily Economic Update: April 28, 2025

Last Week Of A Crazy Month

It’s going to be a big week for earnings, with 4 of the Mag7 and a few big corporations on the slate which will pair nicely with a heavy week of jobs related data. 

We’ll start the week with the S&P 500 at 5,525.  Over in fixed income land the 10Y is 4.24% and the 2Y is 3.77%.  Where will these numbers be after Jobs Day Friday?

Long before tariffs hit the headlines, one of my key themes for 2025 was whether markets, or certain asset classes, were already in “bubble” territory. Remember back in January our conversation was about competing meta narratives, one being the proverb that “trees don’t grow to the sky” and the other, competing narrative that “this time is different” and there are increasingly companies that are not subject to laws of diminishing returns and earn increasing returns from scale.

Earnings ultimately matter and the risk of high valuations hasn’t been lost on the regulatory apparatus at the Fed.  As Howard Marks warned in his January investment memo, “On Bubble Watch”, put it: "overpaying is the greatest investment risk".

Ahh, whatever. Who needs investment wisdom when you can just do what everyone else is doing and create a Bitcoin perpetual motion machine. 

If You Don’t Know Now You Know

The Federal Reserve released their most recent Financial Stability Report on Friday, April 25th, and you’d never guess what they found, that the most frequently cited near-term risks to U.S. financial stability included risks to global trade, policy uncertainty, and U.S. fiscal debt sustainability. Novel, that’s why they pay those guys the big bucks I guess. 

Setting the obvious aside, here are a couple of items that might have fallen out of the headlines with all the focus on trade:

1. high asset valuations coupled with hedge fund leverage that had been at or near all time highs, were certainly factors that probably didn’t help market volatility this month

2. Banks are still sitting on fair value losses on their fixed rate assets that are in the hundreds of billions

3. CRE has ~$1 trillion of loans maturing this year.

But Trade Still Rules The Day - And The Issue is Friction

Economist Allison Schrager had a piece last week which was subtitled ‘Revenge of the neoliberals’ discussed her opinion on the real problem of the globalization, economic deregulation, financialization, etc. that have come from “neoliberalism”, explaining:

“The real problem was the market frictions we imposed that made it hard for people to build, develop new economic projects, get a decent education, or just move. There were also many toxic social issues. Seeing these failures up close is why I became an economist—I wanted to find solutions. I did: better development of human capital, free markets, with a robust safety net. It’s not complicated.”

“Market frictions—even well-intentioned ones that try to freeze an economy in time or turn back the clock—only make things worse. Tariffs and industrial policy are just another form of friction. And frictions are always tempting in times of change that bring uncertainty—they slow things down. But it would sound absurd now to say we need to bring factory workers back to agriculture—yet people said the same thing 100 years ago. And that desire made the transition to industrialization messier than it needed to be, too.”

My summary is: You can't fix frictions by adding more frictions; the real solution is policies that boost productivity and enable economic flexibility.

What are the odds we’ll get more tariff headlines this week, my guess is pretty high.

The Week Ahead:

Monday: No major reports, I’d check on Shaduer Sanders

Tuesday: Conference Board Consumer Confidence, JOLTS, Coke and Visa earnings

Wednesday: 1Q2025 GDP (1st), PCE, ADP, MSFT and META

Thursday: ISM Mfg and Construction Spending, Jobless Claims, AMZN and AAPL

Friday: Jobs Day in ‘merica, Berkshire Hathaway

XTODs:

XTOD: Warren Buffett: "I think people's investment would be more intelligent if stocks were quoted about once a year."

XTOD: In #investing, you get what you don't pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course.   ~John C. Bogle

XTOD: “Let me never fall into the vulgar mistake of dreaming that I am persecuted whenever I am contradicted.” — Ralph Waldo Emerson

https://x.com/kejca/status/1915839912479277250

https://x.com/bogleheads/status/1915828508078604602

https://x.com/tferriss/status/1916497384198013123

Daily Economic Update: April 25, 2025

More Chicken For Your Stocks Please

You’ll take another 2% gain and say thank you. 

Do Chinese Insults Translate to “Number Go Up” in English?

While Chinese social media makes fun of him, saying he’s chickened out, calling him: “10,000 Tariff Grandpa”, “King Know-It-All” and “Trump The Nation Builder… for China”, Trump says we’re talking with China on trade and that’s good enough for the stock market these days.  Even after hours, Alphabet earnings looked pretty good.  That makes for 3 straight days of wins, so winner, winner, chicken dinner.

We finished the day with the S&P at 5,484, up 2%.  Yields also liked the continued prospects of de-escalation, or maybe they’re worried about growth, nonetheless yields moved lower. The 2Y closed at 3.81% and the 10Y at 4.32%.

While durable goods orders showed consumers and businesses rushed to mitigate the risk tariffs posed to the cost of things like aircraft and auto parts, you have to look elsewhere to remember that the real risk is what you don’t see.

Mounting Risks Don’t Always Make the Front Page

With so much of the geopolitical focus being placed squarely on trade, if you haven’t been paying attention, you might have missed the fact that the next geopolitical hotspot is Kashmir between nuclear armed India and Pakistan.

It’s not about India and Pakistan or any specific geopolitical risk, the point is that risk comes as a surprise. As author Morgan Housel would counsel, it’s better to have expectations that risk will arrive, though you don’t know when or where, than to rely on forecasts.

Forecast, We’re Still Talking About Forecast - Not What’s Realized

As some major money center banks research teams revise down their forecast for where the major equity indexes will end 2025, I can close the week with a forecast of my own, “investment returns are tied to business profits.” 

Sure, valuations can swing, but in the long run, you can't outrun business profits.

Nominal GDP: Your New Weekend Buzzkill

Your weekend thinking can be about deriving expectations for future equity returns. 

So how do you start to figure out what businesses in aggregate will earn?  For a long-horizon forecast, some economists would say to start with Nominal GDP. Why? Because over a longer horizon the proportion of GDP that is captured as corporate profits tends to be pretty stable, a result that is in part due to competition and in part due to it not being politically sustainable to have profits take an ever increasing piece of the GDP pie. 

Most equity valuation models have a growth term, g (look at a Gordon Growth Model for example). The growth in Nominal GDP can be used as a solid proxy for that g term under the premise that over the long-run, expected nominal earnings growth should converge to nominal GDP growth. 

"Of course, that still leaves you with the weekend bummer: how the hell do you forecast Nominal GDP?

Setting expectations in Finance and Economics is hard.

So go ahead enjoy this little equity rally, worry a little about Kashmir, and let Nominal GDP haunt your Saturday. Just remember what Munger said: "The first rule of a happy life is low expectations."  And the first rule of investing? Same.

XTOD’s:

XTOD: Bridgewater's message to those who think that stocks always goes up in the long run and that any slight correction is the generational buying opportunity.  We are facing a radically different economic and market environment that threatens the existing world order & monetary system https://pbs.twimg.com/media/GpPQeJjXQAEP9o0?format=jpg&name=small

XTOD: The annual booing of Roger Goodell is an American tradition that should make us all proud.

XTOD: So Tether, Softbank, and Cantor Fitzgerald are forming 21 Capital with CEO Jack Mallers.  Let's be real:  This is a corporate exoskeleton for Tether's global liquidity machine to operate inside U.S. equity markets and hoard the scarcest asset on Earth without regulatory speedbumps.   It’s like giving a cartel diplomatic immunity, then asking it to do quarterly earnings calls.   SoftBank didn't join for fun. They saw MSTR mint a 2,000+% return on BTC purchases and said, “Cool, now let’s do it ourselves."   This company is launching with $585M in PIPE funding, $385M of it in convertible notes backed by Bitcoin at a 3:1 collateral ratio.  That’s financial LSD for every structuring desk on the Street.   The moment BTC rips, they release collateral, unlock capital, and buy more. Recursive BTC compounding inside a public vehicle. 

This is Saylor with a global stablecoin treasury, a high-frequency derivatives desk, and a Tokyo war chest.  They literally measure success in Bitcoin Per Share (BPS) and Bitcoin Rate of Return (BRR) - not fiat cash flow, not EBITDA, not shareholder yield. Bitcoin. Per. Share. That’s the KPI. That’s the religion.  And here’s the kicker: Tether will own majority control.   That’s like OPEC launching a public oil ETF that owns half the oil and pricing it at NAV.  And Wall Street’s fine with this. Why? Because the fees are good, the volatility is tradable, and the suckers at home still think we’re “early.”   This isn’t the institutional adoption phase anymore. This is the corporatized colonization of the Bitcoin protocol, executed through a Cayman shell and priced in your grandchildren’s tears.  You’re not front-running Wall Street anymore.  You’re being front-fed the illusion that you are.  And the price?  You’ll watch it go vertical while CNBC blames inflation and 7 sovereign ETFs pretend they understand what just happened. Bitcoin’s next leg up won’t be demand-driven. It will be capital-structured. Engineered. Manufactured. Monetized. Mega corporations are now turning Bitcoin it into the new global collateral standard - and selling you the derivative.  Welcome to the great absorption. Hope you brought a chart.

XTOD: Robert Pirsig died on this day eight years ago.  His work has had a profound impact on me, and I wanted to share some words about it along with a few images…The book also led me to adopt a philosophy of life around what Pirsig calls “Quality,” a state where the difference between subject and object fades away. Quality emerges when you care deeply about what you are doing—and it’s where genuine excellence, meaning, and love reside….The best way to honor Pirsig is to read his work. So I’ll leave you with one of my favorite quotes. 

“To live for some future goal is shallow. It’s the sides of the mountain that sustain life, not the top. The only Zen you find on the top of the mountains is the Zen you bring up there.”

https://x.com/GeorgeWegwitz/status/1915103578680676856

https://x.com/mtaibbi/status/1915557819085983996

https://x.com/AdamBLiv/status/1915220871699890312

https://x.com/BStulberg/status/1915380033410998656

Daily Economic Update: April 24, 2025

You’re Not Fired…

So we’re not firing Powell, we just want lower rates. Score one for Fed Independence, for now at least.

And China, You’re Kind of A “Big Deal”

Treasury Secretary Bessent channeled Ray Dalio when he said there’s an opportunity for a “beautiful rebalancing”, a play on Dalio’s beautiful deleveraging. He also highlighted the opportunity for a “big deal” if China wants it, which of course is the million dollar question, where does China stand with respect to de-escalating the trade situation?  

For the day at least, Trump and Bessent both seemed to hint that tariffs will be lowered and soon.

Equities 'Likey'

News on Powell and trade were good enough for 3% gains at one point, but we’ll settle for the 1.7% gain that ended the day, with the index closing at 5,375.

Even bonds got into the action with a solid 5Y auction, though the 10Y yield was little changed at 4.39%.  The 2Y yield moved higher on the rotation into risk and perhaps a sense of less political pressure on the Fed to cut rates, closing at 3.89%.

We’ll see how the dreaded 7Y auction goes today.

Detachment, Day Two: From the Oracle Himself

Yesterday I called “detachment” a super-power of some of the world’s greatest investors and as a reprisal today, I bring you that sentiment directly from the mouth of Warren Buffett, “You can't look around for people to agree with you. You can't look around for people to even know what you're talking about. You have to think for yourself. An ability to detach yourself from the crowd is a quality you need.”

Strategic Detachment in Global Trade

I said yesterday that we should let go of our attachment to things that no longer serve us and for the Trump administration that means trade.

I argued against mercantilist policies last week, but what if we’re just entering an “age of scarcity”.  Even before tariffs, economist William White had been arguing we were moving from an age of abundance to one of scarcity. The reasons: demographics shrinking the workforce, debt levels limiting future maneuvering, COVID shining the light on the fragilities of globalization and other factors.

Scarcity is the New Abundance

In White’s work, detachment from global entanglements is just a rational response to inherent systematic fragilities. The Triffin dilemma is unsustainable for the U.S., market forces alone can’t be trusted to manage strategic supply needs, and we can’t rely on a system of coordination for everything. In other words, tariffs and industrial policy are a somewhat natural reaction to a world where things are becoming more scarce and dependency could be dangerous. An era of precaution that prioritizes “Can you still get this when the world breaks?” over “Ship it from wherever it’s cheapest.”

Said differently perhaps the real risk we’ve been forgetting about in all of the noise could be summarized as the return of limits.

Is this theory correct?

Malthusianism for the Win?  Nah

The original Malthusian economics that population growth would outpace the resources needed to support them has been proven wrong, but perhaps some of the principles are correct?

More likely is technological progress, policy adaptability and further global cooperation win the day. 

Sure it will take tackling some structural issues, but it can be done.

Feel free to share your thoughts in the comments.

XTOD’s:

XTOD: MUNGER: There's a lot to be said for developing a temperament that can own securities without fretting. The fretful disposition is the enemy of long-term performance.

BUFFETT: It's almost impossible to do well in equities if you go to bed every night thinking about the price.

XTOD: In the 1970s Henry Singleton made a move that baffled Wall Street but cemented his legacy, although it would be years before other realized its brilliance.  After aggressively acquiring 130+ companies throughout the 1960s, he suddenly stopped cold. While competitors desperately continued buying at inflated prices, Singleton pivoted completely, redirecting Teledyne's resources to buying back its own undervalued shares and never making an acquisition again. 

This dramatic reversal was purely rational, a hallmark of Singleton's business philosophy: https://pbs.twimg.com/media/GpOcxbBWYAAZ0K_?format=png&name=900x900

XTOD: Looking at incoming vessels to the Port of Los Angeles (America's largest port):

1.) This week we're still in frontrunning mode (57%+ YoY). 2.) Next week we're basically at normal (-8% YoY).3.) Two weeks from now we're in The Bad Place (-44% YoY)

XTOD: X is a swarm of grifters. All those grifting fringe research outlets that surf the podcast circuit and have logos with a veneer of respectability and ETFs to prey on retail, had 7K SPX targets last year when the recession was in motion. They are now touting a regime change.

XTOD: When Charlie Munger was asked, “You seem extremely happy and content. What’s your secret to living a happy life?”  he replied,  “The first rule of a happy life is low expectations. If you have unrealistic expectations you’re going to be miserable your whole life. You want to have reasonable expectations and take life’s results good and bad as they happen with a certain amount of stoicism.”

https://x.com/kejca/status/1914754403338178604

https://x.com/farnamstreet/status/1915048526175777039

https://x.com/Brendan_Duke/status/1914748283622129951

https://x.com/INArteCarloDoss/status/1914619654133240253

https://x.com/SteadyCompound/status/1914998689602609649

Daily Economic Update: April 23, 2025

Markets Rally On Words…so join my Signal Chat?

Have you guys joined my Signal chat? It’s all the rage. Should’ve invited Scott Bessent to it, we could have been first to hear his comments about the need to de-escalate trade tensions, words that boosted stocks yesterday, sending the S&P up 2.5% to 5,287.

Too bad as Treasury Secretary he couldn’t talk the markets into a better 2 year Treasury auction.  Foreign demand looked weak as the auction tailed.  The 2Y yield rose 5bps to 3.83% and the 10Y moved slightly lower to 4.40%.  

And despite the continued yield differential offered in the U.S. over the rest of the world the Dollar is not benefiting at present.

While the Fedspeak slate was heavy, it’s fair to say that none of that can take the emphasis off of Trump’s broader calls for Powell’s removal.

Corporate earnings will continue to be a barometer for the tariff impact and we’ll see how flash PMI data looks today.

Why This Blog Swims In A Different Ocean

When writing this blog, I sometimes feel like a fish swimming in a blue ocean that seems to exist between traditional financial media titans like CNBC and Bloomberg and the myriad of pundits that live all over social media and the blogosphere.  This is by no means to say that there isn’t value in those aforementioned mediums, in fact I find solid value in several economic blogs, X posts, podcasts and traditional news flow on financial media platforms. 

Nevertheless to me, this blog needs to stand out from real-time, often prediction heavy, and sometimes overly serious nature of traditional media and financial punditry.  It’s staying in my swim lane that embraces uncertainty with humility, that attempts to filter out the noise to get to a deeper engagement with financial concepts and make them more accessible through humor and satire.

The Daily Madness Of Mr. Market

One of the challenges of following financial markets daily is that it is easy to abstract securities into simple pieces of paper whose values flash on screens, rather than remembering that equities represent ownership of underlying businesses and bonds are promises from underlying businesses.  A daily focus can easily tilt one towards speculation, losing sight of the underlying asset – the business in the case of equities, or the promise in the case of bonds.

To protect against this I often share the Parable of Mr. Market as paraphrased here:

 
“Ben Graham and Warren Buffett have talked about a charming, seductive manic-depressive gentleman named Mr. Market. Every day he shows up on your doorstep offering to do business with you. When he's manic, he'll offer to buy your stocks or sell you his for absurdly inflated prices. When he's depressed, his prices go ridiculously low. The mistake most people make is answering the door just because Mr. Market knocks. You don't have to let him in. Why should you buy just because he's excited? Why should you sell just because he's down in the dumps? A long-term investor shouldn't care about market prices.” Charles D. Ellis

While I’m not in favor of the detachment that often occurs between quotes on the screen and the fundamental nature of securities and their relationship to underlying businesses, I do think we can all learn deeper lessons from the concept of detachment. 

Attachments: The Hidden Threat To Investors

Sticking with wisdom from Jesuits (like Pope Francis), Jesuit priest, psychotherapist and author Anthony de Mello, offers excellent insight on the problems that stem from “attachments”. 

There are various attachments we can find ourselves enslaved to, things that we falsely believe we need to be happy or secure, but because of our emotional investment we continue to cling to these things even when they no longer serve us. 

In behavioral economics we see a similar behavior known as the sunk costs fallacy. We continue to invest time and money into certain investments simply because we’ve already invested a lot, even when it’s clear continuing this investment is irrational and likely to lead to further loss.

For many of these attachments, the world is a constant threat to what we’re holding onto or attached to, so we think the answer is that we can rearrange the world and we otherwise view things in terms of how they threaten what we’re attached to.  We operate out of fear, fear of loss. 

The trouble is this framing doesn’t leave us clear-sighted, it leaves us with clouded vision that impairs our otherwise sound judgment.  

We would be better suited to drop things, to drop illusions, drop errors and overall reduce negative leverage in our lives and investments.

Reality is what it is. What is the wisest action now?

When you’re not attached to your past decisions, your hope, fear, pride, and ego, you can invest in businesses and your career with greater clarity, flexibility and peace.

When Emotional Baggage Costs Real Money
It’s a reminder to review your behavior.

Am I emotionally attached to this investment?

If I had no prior investment in this today, would I still buy it?

What is the real value of this asset based on the present facts, not my hopes?

Is my decision based on rational analysis or emotion?

Losses are part of investing, remember you’re free to change your mind when new information arises.

Detachment: The Investor’s Superpower

In fact if you study investing legends like Munger, Buffett, Marks, Sleep, you will actually find they use “detachment” as an investing philosophy. These are investors who are able to detach themselves from the often bipolar nature of markets, being willing to change their minds and overall being heroically inactive.

Clarity over comfort. Reality over fantasy. Freedom over attachment.

XTODs:  

XTOD: The system is designed to keep you comfortable, not wealthy.  This financial autopsy of a 36-year-old couple earning $350k proves it….You feel rich. But you're just a well-paid tenant of your own life.  Big salary today, nice dining chairs tomorrow, and before you know it...

You need every penny of your paycheck just to maintain your lifestyle…That’s why you need ownership….

XTOD: Nothing says its "Main Street's Turn" like dishing out market moving information early to rich clients and employees at JPM private meetings

XTOD (super long thread by someone on Dollar Milkshake Theory): Let’s briefly review the Dollar Milkshake Theory by Brent Johnson. Since the almighty greenback is the Global Reserve Currency (GRC), it is widely for a variety of purposes, including: https://pbs.twimg.com/media/GpGNXYTa4AE1Bo6?format=jpg&name=900x900  To summarize the DMT, according to @SantiagoAuFund  , the global financial system can be imagined as one giant milkshake made up of liquidity, debt, and capital. The United States holds the largest straw, allowing it to "drink" capital from the rest of the world….Anyways, what’s going on with the DXY? Well, in the last 3 months, we’ve seen a continuation of dollar weakening that is due to the market’s reaction to the trade war that Trump kicked off on Liberation Day back in early April  (Less trade means less short-term demand for dollars). This relatively cheaper dollar will actually enforce the Milkshake- I know that sounds paradoxical, but it’s true. Here goes:....when the DXY is lower - meaning the U.S. dollar is relatively weaker compared to other major currencies - it becomes easier for foreign companies to service their dollar-denominated debts…Not only can they more easily pay off existing dollar liabilities, but they may also feel confident enough to take on even more dollar debt to fund growth, expansion, or speculation…This is where the feedback loop begins. As more companies around the world borrow in dollars during periods of dollar weakness, the overall size of the dollar debt system expands. While dollar bears point to rising U.S. debt or de-dollarization efforts as signs of the dollar’s decline, the reality is that the global hunger for dollar liquidity is still very much alive, and in many ways, it’s growing, not shrinking.

XTOD: For a company that sells a product with zero volatility, Blackstone sure is volatile

XTOD: Pretty tough to have a good swing outcome from a poor swing decision.

https://x.com/Codie_Sanchez/status/1914674185512575407

https://x.com/FriendlyBearSA/status/1914720657331638623

https://x.com/peruvian_bull/status/1914461509360738702

https://x.com/dailydirtnap/status/1914774811429245425

https://x.com/sentdefender/status/1914673747681804457