Daily Economic Update: May 17, 2024

Dow ~40K, risk assets doing well, people apparently ordering $1,000 Beef Cases in Vegas nightclubs, all against a backdrop where Fed officials stress higher for longer and as some people worry about the consumer.  Macro is hard.  

"There are better things to be doing than watching the ticker all day, swinging from bull to bear, obsessing over stuff no ne will remember in five years.  Lester Freeman said it best on The Wire: "A life, Jimmy, you know what that is? It's what happens while you're waiting for moments that never come." - Joshua Brown (Ritholtz Wealth Management)

Speaking of The Wire, remember that last October I started every post with a quote from The Wire?  Those quotes were probably contain more wisdom and value than any commentary on the most recent CPI data. 

In data, which data didn't seem to matter, jobless claims were low and perhaps under-looked was the rise in import prices which seems weird given dollar strength, but I didn't investigate.  Away from the data in Fedspeak Barkin said it will take more time for inflation to come back to target and Mester echoed much of the same citing the fact that the economy is strong and the Fed risk little by keeping rates higher for longer.  Bernanke and Blanchard basically came out and said people need to lose jobs for inflation to come down, kind of what Powell said when he said "there will be pain" in the fight to get inflation back down.

Jamie Dimon believes there are a 'lot of inflationary forces in front of us' but that he believes the markets are failing to properly price risks to a soft landing, including that of higher rates due to higher inflation.

Dimon isn't in the business of predicting rates per se, when he does, he's often wrong, but I do believe he has a track record as a prudent risk manager.  When it comes to risk management, remember, 'The price of long term stock market returns is uncertainty and volatility.' - Morgan Housel.   And I think what you can learn from everyone wiser than me is what the late great Peter Bernstein said: "survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn."

On the day ahead, it's Friday.  Maybe re-read the quotes above.  The leading indicators and Gov. Waller can wait.

XTOD (this doesn't sound fun): 2. As the effects of supply shocks have subsided, tighter labor markets, and the resulting rises in nominal wages, have become relatively more important sources of the remaining inflation in many countries. What happens in labor markets will largely determine the cost of the “last mile”. In several countries, including the United States, curbing wage inflation, and returning price inflation to target may require a period of modestly higher unemployment

XTOD: If you don’t eat, don’t have a home and don’t have a car, inflation is gone  The homeless are seeing deflation here! Time to cut rates  The homeless can jet from tent village to tent village with a pretty decent discount though! Happy days

XTOD: Compounding is great, except when it comes to inflation...

▪ Inflation hasn't fallen in a single month since Jan 2021

▪ YoY inflation hasn't dipped below 3% in 37 consecutive months

▪ Prices are up 19.5% in less than 4 years, wiping out 1/5th of the Dollar's purchasing power 

Welcome to compounding inflation

XTOD: Starwood’s $10bn property fund taps credit line as investors pull money via ⁦ @FT

⁩ #CMBS https://www.ft.com/content/1b0ce791-e387-4ea4-852a-14d59b3ced1f?sharetype=blocked

XTOD: Show me a person who has never failed, and I will show you a failure of a person. What we learn from failure, and what we do with that knowledge, is what matters –– and it's what makes us who we are.

Daily Economic Update: October 2, 2023

October, the month best know for: (a) The Panic of 1907 (also a good book), (b) Black Thursday, October 24, 1929, and (c) Black Monday (also a Showtime comedy), October 19, 1987....Ok, maybe it's best known for Oktoberfest or Halloween or pumpkin flavored lattes, or MLB Playoffs or something else, but here's to October's, lets hope not to make negative history.  September ended with the Atlanta Fed's GDP Now 3Q GDP estimate of 4.9% and the NY Fed GDP  Nowcast at 2.1% further evidencing the divergence in interpretation of the economy's performance.  This October starts with the government shutdown averted, for now at least, UAW still on strike and the prospect of a Kaiser Permanente healthcare strike, and the resumption of student loan payments.  Yields are up ~5-6bps to start the day, the 2Y is 5.10%, the 10Y is 4.62%.

On the day ahead it's ISM manufacturing data, construction spending and a Powell speech. The highlights of the week will likely be on the labor front with the JOLTS report Tuesday and Jobs report Friday.  There is also plenty of Fedspeak.

On the week:

Tues: JOLTS

Wed: ADP Employment, ISM services

Thur: Jobless claims

Fri: Jobs Day

In full disclosure, this author is not an Orioles fan, but any team that goes from 100 losses to 100 wins in a two year span deserves some credit.  In honor of the Orioles making the playoffs for the first time since 2016 and because their now injured closer had one of the best walkouts in all of baseball this year, for the month of October I'll be starting each post with an epigraph (see quote at top of post) from the HBO series The Wire.  There are plenty of business and leadership lessons one can learn from the series.

Speaking of business and leadership, the CNBC appearance by Barry Sternlicht of Starwood Capital Group on Friday is worth a listen.  Barry hits on the tug-of-war between Congressional spending and the Fed's inflation fight, discussing the "deficit out of control".  Maybe Barry believes in the Hamilton Norm? And the risk of fiscal dominance: "he's going to have to [go back to QE]".  If its true that our fiscal largesse is a problem (shh...don't tell Stephanie Kelton), many think it's inevitable that Powell will be forced to lower rates.  But maybe Powell will heed my favorite advice to central banker's courtesy of Peter Stella: “I define central bank independence in one sentence, it's the ability to raise interest rates when the Treasury doesn't want you to. And the Treasury almost never wants you to, because of the cost of the debt.” which might force political leaders to find other solutions.

Friday's PCE seemed to fall into the goldilocks reading camp, but NY Fed's Williams indicated rates should remain high for a long time: "My current assessment is that we are at, or near, the peak level of the target range for the federal funds rate. I expect we will need to maintain a restrictive stance of monetary policy for some time to fully restore balance to demand and supply and bring inflation back to our 2 percent longer-run goal."  He used the analogy of layers of an onion and that the inner layer of inflation, including shelter and services, will continue to be the most challenging.

Economist Brad DeLong had a good substack post discussing both the PCE read as well as the recent expert commentary on the risk of continued rising yields.  He concludes his post as follows: "if either BlackRock or JPMC actually thought that 10-Year Treasuries were going to 7% with any confidence, they would have and would have told customers and clients to take positions and the 10-Year Treasury would already be at 7%. It isn’t.  There may well be more inflationary shocks in our future. But it really looks like the shocks in our past—the reopening-bottleneck shock, the fiscal insurance against a return to secular stagnation shock, and the Putin attack on Ukraine shock—are now in our past. And, right now, the ocean looks remarkably calm again."

XTOD: If someone asks you to define "chutzpah," you no longer need to say "like when a guy who killed his parents asks for clemency because he's an orphan." 

You can say, "like private equity providing loan-shark liquidity to investors in illiquid PE funds."

XTOD: We talk and write a lot about all the bad ways the pandemic hit the economy. We should talk more abt the surge in entrepreneurship it unleashed — reversing a decades-long decline.   It’s not a mirage. 

XTOD: important point here: these systems are much better at doing tasks than jobs.  and giving people better tools to do their work faster often leads to qualitative changes in what they can do.  (of course, over the long run, we expect these systems will be able to do all of some of today's jobs and aren't trying to hide the ball on that. confident we will find new and much better jobs when that happens!)

XTOD: Duane “Keffe D” Davis, the man who admitted to being in the car used to gun down Tupac Shakur in 1996, was arrested and indicted Friday in Las Vegas for the murder of the legendary rapper, according to multiple sources.

Daily Economic Update: April 8, 2025

Almost The Same Industry

Financial news media continued running its favorite genre: sell-off porn. We even got pieces on circuit breakers - always a vibe when CNBC & Bloomberg starts quoting the SEC & FINRA like it’s gospel. You already know the reason: the “t” word.  

Markets opened in freefall, reversed losses after a headline about a 90-day tariff pause, then got whipsawed again when that headline got promptly body-slammed by reality. When the dust settled: Dow down, S&P lower (5,062), Nasdaq somehow green. Volatile and confusing sum it up.

I Thought The Goal Was Tik-Tok, Not Tit-for-Tat?

China pledges to stimulate their economy while slapping 34% tariffs on the U.S.  The Trump administration fired back with threats of another 50% tariff on Chinese exports. At some point, China might just need to ship over consumer goods and include a check for the U.S. shopper. 

Not the Flight To Quality You Ordered

Speaking of China - are they dumping Treasuries? Someone’s selling. The 10-year yield spike by 20bps to 4.22% , which isn’t exactly the behavior you’d expect in a flight to quality. If it’s not China hitting the bid, maybe it’s leveraged players forced to sell what they can, not what they want, to meet margin calls.

We talked about the Treasury conundrum back on Friday - still relevant. File it under second order thinking and don’t get too comfortable.

Leverage In Focus: Echoes of Explosions Of The Past

Whenever volatility picks up and the word "deleveraging" gets tossed around, someone usually ends up face down in the punch bowl. Remember Archegos? That 2021 moment when one firm, running a giant levered book, detonated after banks—plural—forgot to ask how many IOUs they'd handed out. Just ask Credit Suisse. Or whatever’s left of them. (Hi UBS).

Let’s not forget what Howard Marks wrote back on May 9, 2024 when Marks reminded us about ‘The Impact of Debt’: 

 “But levered portfolios face a downside risk to which there isn’t a corresponding upside: the risk of ruin….“never forget the six-foot-tall person who drowned crossing the stream that was five feet deep on average.” To survive, you have to get through the low points, and the more leverage you carry (everything else being equal), the less likely you are to do so.”

So what’s the impact of leverage today? No one knows. But if this ride keeps going, it seems likely we’ll find out who was swimming naked in that stream.

Tariffs: Symptom, Not Cause?

We talked yesterday about the potential for changing the global monetary order - a Bretton Woods III.  Apparently, Ray Dalio was thinking the same thing. (We assume he’s a loyal reader.)

He argues that tariffs are just a surface-level reaction to deeper structural problems: too much debt, not enough trust, and a financial system propped up on increasingly shaky scaffolding. He might be right. Or he might just be angling for another LinkedIn carousel post.

When Everyone's Guessing, Maybe Sit Still

Here’s the thing: chaos is always loud. Long-term investing is mostly quiet. And patience never trends on X.

We’ve said it before, but it’s worth repeating when the VIX spikes and headlines scream—discipline wins over drama. While the crowd fixates on the next 90-day tariff pause or Treasury yield spike, smart money is thinking in decades, not trading sessions.

XTODs:

XTOD: Chinese memes on American re-industrialization rolling in. lol the music. https://x.com/i/status/1909348105675211192

XTOD: Steve Miran’s Hudson Institute speech represents one of the most concise and clearest articulations of the Trump admin’s worldview, which is often either lost or confusing in Trump’s own rendering. As far as I can tell, they think of the Pax Americana global order as a club membership, for which the US has under-charged for the past few decades. Reasonable people can debate whether the US undercharged but important thing is that the current admin thinks so. So much so that the current admin believes the current system has been made unsustainable and made the US economy at a severe competitive disadvantage and sections of its population in dire economic straits. Again, debatable but that’s the claim.  

So to make the system work, as far as I can tell, basically they want to charge a membership fee to pay for the global order system. And the fee is per usage, the more a member country practically uses club’s facilities and the valuable amenities provided by the US, the more they ought to pay the US through tariffs if not directly in wire payments. Again debatable whether tariffs are really the best means of collecting such a membership fee, since tariffs are at least in part borne by American consumers and create frictions in global trade hence making the whole system less efficient.

That is the philosophical rationale behind the tariff table we saw, which honestly may not have been Miran/CEA’s best possible work as much as something that was just a quick hack. Based on this, I suspect a lot of the severe tariff rates on some of the poorest countries in the world were likely indeed mistakes and will likely need to be revised downwards.

This is a massive change to the global order, but if there’s some silver lining it’s that like it sounds like it’s more a radical reform than a total abandonment of Pax Americana and at least as per this speech not a total decoupling either, which I think is more consistent with Trump’s ideology or lack thereof.  https://whitehouse.gov/briefings-statements/2025/04/cea-chairman-steve-miran-hudson-institute-event-remarks/

XTOD: The Foreign Minister of Iran, Abbas Araghchi has confirmed via a post on X that representatives from the United States and Iran will meet in Oman on Saturday for “indirect high-level talks” claiming that the “ball is in America’s court.”

XTOD: Educate yourself. No one is ever going to teach you enough or hand it to you on a platter. Books and articles, and ask questions—an endless amount of them.

https://x.com/gaborgurbacs/status/1909348105675211192

https://x.com/stevehou0/status/1909344035418079455

https://x.com/sentdefender/status/1909393821865029944

https://x.com/RyanHoliday/status/1909228715130884258

Daily Economic Update: May 22, 2025

I have many leather-bound books and my apartment smells of rich mahogany.

I don’t know what the big deal is, I accept all gifts related to this blog.  You should see the helicopter in my library.  Wait, I haven’t received any gifts?? - Why do I keep doing this?

Can I Sell You Some Bonds Instead

After the overwhelming outpouring of support in favor of a monthly subscription fee following yesterday’s post [did you see how many comments I received??? [Checks blog, sees one comment from a guy who only scrolls down the XTOD’s (smart - it’s the best part)].  I have taken the next logical step that any financial blogger would take, going straight to securitization.

How would you like exclusive access to a first loss tranche of TROLL (Tranche of Royalties from Online Literary Labor)? Like any great securitization, it’s high risk, no liquidity, and absolutely zero transparency — but you get yield in the form of XTOD’s and Fedspeak sarcasm.

If Michael Saylor can turn Bitcoin into a perpetual money machine, I see no limits to what my blog can do. 

Speaking of giving money in return for things with returns of questionable value.

Treasury Yields Rose

So much for just flirting with key levels. Yesterday longer term bond yields decided to move from just flirting to second base. The 2Y, at least anchored to Fed policy moved to 4.03%, but the real action was out on the curve and followed a “weak” 20Y Treasury Auction which printed at 5.047%.  The 10Y and 30Y ended at 4.61% and 5.09% respectively.

The talk is that the move in bond yields is due to “bond vigilantes” who are possibly trying to “reverse TARP” the tax bill being negotiated at present.  Reverse TARP meaning, pressure Congress not to pass a bill that will increase deficits, rather than what the market did when TARP deficit spending failed to pass on the first try during the GFC.  Whether this is indeed the driver of higher bond yields is anyone’s guess, but the most recent run-up in yields hasn’t been isolated to the U.S., go see Japan’s 40 year.

Are we overreacting to these moves in yields?  I mean weren’t they higher in 2023?  Click here to read cool posts about 10Y yields near 5% that start with cool epigraphs from HBO’s The Wire.

And You Thought Deficits Didn’t Matter?  MMT?

We probably don’t spend enough time actually thinking about why money has value and why anyone would want to work to trade their hard earned labor for bonds.  The reason might be “to pay taxes”, a reason that dates back to Adam Smith, but MMT seems to diss.  They also diss the idea that there can be bond vigilantes.  A competing argument would be that all government liabilities whether they be issued currencies or notes/bonds (IOU’s for currency) have value to holders because they are “backed” by future tax revenue or other public assets.

Is this germane or fundamental to the discussion around deficits - the market will decide.

Or Are Is All The Market Talk Just A Distraction 

We could talk about the Middle East, rumors Israel might bomb Iran, the situation in Gaza…We could talk about Bitcoin at all-time highs and other headlines…or we could talk about competitive exclusion, frictionless experiences and algorithmic optimization.

As I mentioned in yesterday’s post, a much more successful financial writer, Kyla Scanlon, was writing about The Screwtape Letters. As she tells the story, she was stopped in a bookstore and apparently bought a copy of one of her favorite books, C.S. Lewis’ The Screwtape Letters and it must have struck a cord for her as it relates to today’s economy.  So much so that she decided to write a piece viewing our current economy in the lens of Lewis’s work.  A focus on the dichotomy of an economy where we focus on “what happens to us” vs. “what we do”, a focus on the future vs. the present, and overall how the modern economy of rejection, convenience, and predictability leads to spiritual fatigue.  You can find her full post here.

Summarizing, she provides “These [signs] are emerging from the simple recognition that the frictionless life is ultimately unsatisfying. Even the secular, modern, economic soul hungers for something deeper than convenience!

On this blog, we often highlight how navigating the market's noise and unpredictable events ("what happens to us") requires a focus on what we do – cultivating our own discipline and perspective in the present moment, rather than deferring life for some future outcome or chasing futile forecasts. Just as the relentless push for frictionless convenience and the illusion of certainty can feel ultimately unsatisfying, this blog aims to find deeper meaning, value, and humor beyond the surface-level headlines and cultivating clarity, humility, and a focus on the things that truly matter.

….But you’re going to buy my TROLLs right?

XTOD’s

XTOD: Yields up, dollar down, equities down: Bond vigilantes have arrived.

XTOD: So the largest generation in US history is dying at the fastest rate in history, 70% of which own a home.   Are all trying to sell to the 49% of millennials who don't own, 80% of which can't afford these prices.

XTOD: Could have a reverse TARP moment here where market forces them not to pass the tax bill

XTOD: Did the 2020 framework change cause the Fed to be late in 2021? Jay Powell's former senior adviser, Faust, says no. "When the history of this episode is ultimately settled, 'the framework made them do it' will garner little more than a footnote."   "Blaming the delayed inflation response on a failure to be forward looking actually gets things exactly backwards.  A failure to act on forecasts was not the problem: the problem was taking (erroneous) forecasts too seriously." "The episode is a cautionary tale about forward-looking policy, not an argument for it."

XTOD: Most people don’t design their lives—they react to them.  They wake up and instantly dive into chaos: checking their phones, scanning emails, jumping into meetings, responding to texts.  By the end of the day, they’re exhausted... but despite all the activity, they haven’t moved the needle on what actually matters.  Because here’s the truth: If you don’t decide what your life is about, the world will decide for you.  

And life is far too precious to live on someone else’s terms.

https://x.com/FedGuy12/status/1925243131693351004

https://x.com/VladTheInflator/status/1924890281851420955

https://x.com/Fullcarry/status/1925243729943711778

https://x.com/NickTimiraos/status/1925255708817465445

https://x.com/TonyRobbins/status/1924835983184232665

Daily Economic Update: October 2, 2024

Well, 4Q is off to a great start as Iran's missile attack against Israel weighed on equity markets and caused oil to spike, and bond yields to fall in a classic flight to quality move.  In case you forgot Iran attacked Israel back in mid-April with drones and missiles.  Will we forget this attack just as quickly?  I posted some thoughts on geopolitcs back then in this post.  The 2Y yield fell back to 3.62% and the 10Y back to 3.74%. 

The east coast and gulf port strike is in effect, with a sticking issue being the unions fight against increased automation (in addition to wanting a large pay increase).  I don't know about you but I can't help but associate dockworkers with the HBO classic "The Wire".  In fact the risk of automation was a topic on this episode from circa 2003.

Admittedly I haven't read enough to know anything to have a strong opinion about the port strikes, but it does make me wonder why the issue of automation at the ports has taken this long to become a major  sticking point.

In economic news JOLTS was solid on the surface with openings increasing more than estimated, but under the surface the continued low hiring rate and quit rates is a troublesome sign to some labor economist.  Whether or not low hiring and quits portends a problem or is simply a consequence of above average period of time when both measures were evelated over the past couple of years is something we'll find out over time.   On the ISM front the data was in line with weakening employment but increased production and new orders.

In the fallout from Hurricane Helene there are continued reports that one of the primary quartz plants in NC, a plant that supplies the quartz that is used in the manufacture of silicon wafers used in semiconductors, will likely continued to be shutdown due to flooding, leading some to question the second and third order effects.

A little under the radar is the new PM in Japan, Shigeru Ishiba, calling for elections on October 27th.  Ishiba is viewed as "hawkish" and largely opposed to low rates and low taxes.

On the day ahead ADP, Fedspeak, whatever happens in the Middle East. 

XTOD: Martin Wolf: Have we seen the end of cheap money? https://t.co/fmuagR0989

XTOD: Cerebras is an unprofitable AI company utterly dependent on selling chips to one of its biggest investors, which might not actually be able to take them out of the country.  Naturally it is seeking an IPO with an $8bn valuation.

XTOD: The amount of time young men spent gaming was not exactly low in 2019. Usually when you see dramatic growth it's from a low starting point, but this is dramatic growth from a high starting point.  https://pbs.twimg.com/media/GYy6QOgXUAMxJtl?format=jpg&name=small

XTOD: Another month of weak JOLTS data.  1/ Hiring rate at 3.3%, comparable to where we were with an unemployment rate of over 8% (!!!) last cycle.  It's a really tough time to find a job. The ongoing labor market weakening is intensifying the "Great Stay". Quits rate at 1.9% in August, aside from COVID the lowest since 2015.  Last cycle, we saw this level of quits when the unemployment rate was 5.5%-6.0%. People know it's a not-great labor market.

XTOD: Stanley Druckenmiller at Grant’s conference: “Bipartisan fiscal recklessness is on the horizon.”

He’s short bonds; equivalent of 15-20% of his portfolio.  “George would be embarrassed of me” for not making it a bigger bet.

XTOD: $APO just dropped the Private Equity meme of the decade in their investor presentation Savage

https://pbs.twimg.com/media/GYz79C2WIAI2me1?format=jpg&name=900x900

XTOD: “Your days are numbered. Use them to throw open the windows of your soul to the sun. If you do not, the sun will soon set, and you with it.”        — Marcus Aurelius, Meditations

Daily Economic Update: October 31, 2023

 

The last day of posting quotes from the TV series 'The Wire'.  The inspiration for using these title quotes was stated here.  That post as a whole is probably worth a second read... unfortunately for Orioles fans their playoff run was quite short.  Equities have not been spooked to start Halloween following up on solid gains yesterday.  Even as equities rose, yields were rising yesterday.  Also yesterday, we learned Stanley Druckenmiller has a negative opinion of Janet Yellen and that Janet Yellen will be issuing less Treasuries in the 4Q than the market expected, but still $776 billion.

Today yields start the day lower by 3-5bps with the 2Y ~5.02% and 10Y ~4.82%, spurred in part by lower than anticipated treasury supply, the BOJ's tweak to it's yield curve control being implemented in a 'dovish' way, redefining 1% as a "loose cap" on the 10Y yield.  As expected, BOJ held short term rates as -0.1% as they still aren't confident in inflation sustainably hitting 2% there.  USD-JPY over 150 at 150.666.  EU area inflation came in below estimates this morning at 2.9% yoy.

On the day ahead we get employment cost index data, some housing data and some consumer confidence data.

The month started with strikes front and center, worker strikes that is, and while those seem to be slowly resolving, with UAW closing in on deals, the month concludes with concerns about other strikes, the kind made with missiles and artillery, unfortunately.

On the bright side, unless today is really bad, at least this October did not have a bank panic or stock market crash that rivaled Black Monday or Black Thursday.

If you're not going as Taylor Swift or Travis Kelce for Halloween, you can go as: (via Bloomberg Opinion's Jessica Karl)

XTOD: Have you received an official looking letter in the mail, supposedly from the Federal Reserve Bank of New York – or even the Chairman of the Federal Reserve – saying you’re owed a massive amount of money and all you have to do is call a number to give some vital information and pay a transfer fee before they release it to you? DO NOT call that number! It’s a scam!  If you think your personal information has been compromised, contact your bank and local law enforcement immediately! 

XTOD: Yeah, the Fed takes money through inflation. It never gives it away. Common sense people.

XTOD: Stan Druckenmiller on bonds:  “I am currently short bonds and long the front end”

XTOD: This Gavin Newsom video is something.   Dude thinks he's on the Globetrotters.   Keeps trying to spin a basketball on his finger and then commits an egregious offensive foul on a little Chinese kid and then wrestles him after he knocked him over.

XTOD: "If the SPX closes below 4288 on Tuesday, it will be its third consecutive monthly decline. It hasn’t been down four straight months since 2011 and hasn’t been down four straight months ending in November since 1946:" BTIG's Jonathan Krinsky

XTOD: ”Defeat is a state of mind; No one is defeated until defeat has been accepted as a reality.” -Bruce Lee

XTOD: Charles Schwab is undergoing mass layoffs today per multiple employees - some laid off employees stating they will be on payroll until January 5th before being terminated.   Likely to affect thousands of employees.

XTOD: Given the gap between objective and subjective perceptions of where the US economy stands, a serious question: Can social media amplify only bad news?  Any example of good news amplification?

XTOD: Every $1 you cut IRS funding will lose about $2 of revenue.....So that means this bill would add about $30 billion to the deficit.