Random Passages I Found On My Phone (2021)

When reading I annotate and highlight.  Depending on the book or subject, the end product might be a book where the front and back cover are completely worn off and most pages have been read and annotated on numerous occasions.

Irrespective of the book or article, I find it useful to have a writing utensil on hand in case I find something of interest. However, there are times when, for some unknown reason, I have found myself without a means of taking notes.  In those times of trouble I have (apparently) resorted to using my phone to take an image of a passage.  At times I have referred back to those passages for purposes of a presentation or an economic update I was preparing, but more often than not, those images have just been lost to time, buried in the depths of the Photos app, beneath pictures of things that are actually important.  Nevertheless, while without Wi-Fi one evening I was digging through these photo's of passages going back to the pandemic and here is what I found (in chronological order and with my commentary in red):  "Aside from movies, examples of positive-Black Swan businesses are: some segments of publishing, scientific research, and venture capital.  In these businesses, you lose small to make big.....In these businesses you are lucky if you don't know anything- particularly if others don't know anything either, but aren't aware of it.  And you fare best if your ignorance lies, if you are the only one looking at unread books, so to speak.  This dovetails into the "barbell" strategy of taking maximum exposure to the positive Black Swans while remaining paranoid about the negative ones.  For your exposure to the positive Black Swan, you do not need any precise understanding of the structure of uncertainty.  I find it hard to explain that when you have a very limited loss you need to get as aggressive, as speculative, and sometimes as "unreasonable" as you can be."  - Morgan Housel Morgan discusses the barbell strategy as saving like a pessimist while investing like an optimist.  Things will work out in the long run, but you have to be able survive the interim period that is chaos, setbacks, recession for your long term optimism to succeed.  Learn the skills to endure risk, rather than completely avoiding risk.  "It was Strong more than anyone else who invented the modern central banker....how they are seeking to strike the right balance between economic growth and price stability, it is the ghost of Benjamin Strong who hovers above him."  - Lords of Finance Learn more about Ben Strong here   "At some level the markets don't make sense anymore. You are playing poker against the man who can make his own chips. It is a very bad idea."  - Unknown I think the moral of the above quote is that the official sector (government and central banks) can have a major impact on markets. "Obviously not all crises escalate to the extreme outcome of a sovereign default.  Yet advanced economies have not been exempt from their share of currency crashes, bouts of inflation, severe banking crises, and, in an earlier era, even sovereign default." "As Diaz-Alejandro narrates in his classic paper about the Chilean experience of the 1970s and early 1980s, "Goodbye Financial Repression, Hello Financial Crash", financial liberalization simultaneously facilities banks' access to external credit and more risky lending practices at home. After a while, following a boom in lending and asset prices, weaknesses in bank balance sheets become manifest and problems in the banking sector begin.  Often these problems are more advanced in the shakier institutions (such as finance companies) than in the major banks.  The next stage of the crisis unfolds when the central bank begins to provide support for these institutions by extending credit to them. If the exchange rate is heavily managed, a policy inconsistency arises between supporting the exchange rate and acting as lender of last resort to the troubled institution...the central bank may be more reluctant to engage in an "interest rate defense" policy to defend the currency than would be the case if the financial sector was sound....The depreciation or devaluation of the currency as the case may be, complicates the situation in three ways: (1) it exacerbates the problems of the banks that borrowed in foreign currency..(2) it usually worsens inflation...and (3) it increases the odds of external and domestic default if the government has foreign currency denominated debt.  At this stage the banking crisis either peaks..or keeps getting worse as the crisis mounts and the economy marches toward a sovereign default....As regards inflation, the evidence..all points in the direction of a marked deterioration in inflation performance after a default" - This Time is Different Not sure if the above is directly applicable to today, but certainly there are some similarities.  Perhaps this is apropos of the Minsky quote "stability breeds instability" and a reminder that cycles can turn. "How is bitcoin different from other pyramid schemes, say those run in penny-stock boiler rooms?  The only distinguishing characteristics are the record-keeping method - a "proof of work" blockchain - and a large marketing effort that uses the media instead of the telephone." - Unknown This one seems to have aged well.  "If the banking system is content at creating checkable deposits for the government, it's not inflationary, either, because banks must not be interested in the rest of the zoo, shunning rebalancing into risky activities like credit, lending, or replacing lost shadow money globally." - Unkown  There is a distinction between "inside" and "outside" money, a topic most people don't spend any time thinking about.  The term "outside" refers to money that comes from outside the private sector, it is unbacked or fiat.  The term "inside" money exist inside the private sector, like a checking account where your deposit asset is the bank's liability.   In monetarist economic stories both inside and outside money are inflationary, in other theories only outside money matters. "Initially, the problem right now is deflation and not inflation, but deflation. There is too much debt. Growth is too slow and the psychology is wrong because people are saving and not spending." - Jim Rickards Looks like the psychology has flipped on this one over time. "The monetary inflation comes from government spending of the funds raised...QE is increasingly deployed as a means of financing government spending instead of it being directed to stimulate asset prices....the prospect of flooding bond markets with more government debt at an unprecedented scale as dollar bond yields rising they will continue to do so." - Zerohedge article sometime January 2021 This one seemed fairly accurate. "The classic definition of an asset bubble was coined by economist Robert Shiller, who called it an unsustainable condition in which "price increases beget further price increases.  I preferred Warren Buffet's definition: "It's like most trends at the beginning it's driven by fundamentals; in the end, by speculation. It's just like the old adage: 'What the wise man does int he beginning the fool does in the end". - Fed Up by Danielle DiMartino Booth There is a lot of debate whether or not anything is actually a "bubble" ever, but the bottom line is sometimes the benefits of whatever new technology was a "bubble" may come around and payoff to the economy down the line. "..the Federal Reserve exists so the American public can maintain faith in its monetary system" "...the Fed was helping too much. Its insistence of the wealth effect fueled the formation of bubbles...Less intrusive Fed policy would have allowed for the price discovery so essential to market functionality and the prevention of the boom-and-bust cycle that worried von Mises in his day" "Animal spirits, a term famously coined by Keynes in 1936, are catnip to central bankers...In other words, the instinct to do something, anything, is powerful. You could see that being played out by the FOMC." See Bernanke, Ben and "The Courage To Act"  "And they do one big but destructive thing: Namely, they are used to justify endless manipulation and falsification of the of the single most important set of prices in all of capitalism - the price of money and financial assets." - quote attributed to David Stockman in Fed Up Borio and White at the BIS had repeatedly warned that ultra-low rates ultimately lead to misallocation of real resources with consequences for the real economy. One area that economists such as Borio and White cite as a source of concern during period of low interest rates is excessive capital allocation to ‟low-productivity” sectors. "...ownership of stocks is very much a "positive-sum" game.  Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S&P 500, will - over time - enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original "selections."  "...business ownership produce wealth - lots of it...All that's required is the passage of time, an inner calm, ample diversification and a minimization of transactions and fees.  Still, investors must never forget that their expenses are Wall Street's income.  And, unlike my monkey.  Wall Streeters do not work for peanuts." - Berkshire Hathaway Annual Report published in 2021 Two simple messages that are often so hard to implement: (1) over a long period of time businesses will be productive and generate wealth, but that picking winners and losers ex-ante is very difficult, so own the index (2) never interrupt compounding unnecessarily "In order to put industry into motion, three things are requisite: materials to work upon, tools to work with, and the wages or recompence for the sake of which the work is done. Money is neither a material to work upon, nor a tool to work with, and though wages of the workman are commonly paid to him in money, his real revenue, like that of other men, consists, not in the money, but in the money's worth; not in the metal pieces, but in what can be got for them." - Adam Smith, Wealth of Nations "Goods can serve many other purposes besides purchasing money, but money can serve no other purpose besides purchasing goods.  Money therefore, necessarily runs after goods, but goods do not always or necessarily run after money.  The man who buys, does not always mean to sell again, but frequently to use or to consume whereas he who sells always means to buy again...It is not for its own sake that men desire money, but for the sake of what we can purchase with it." - Adam Smith, Wealth of Nations A good reminder as to what money is worth given the rise of inflation. "Based both on how things have worked historically and what is happening now. I am confident that tax changes will also play an important role in driving capital flows to different investment assets and different locations and those movements will influence market movements. If history and logic are a guide, policy makers who are short of money will raise taxes and won't like these capital movements out of debt assets and into other storeholds of wealth assets and other tax domains..these tax changes could be more shocking than expected." - Ray Dalio Remember the calls for wealth taxes?  Given the Fitch downgrade and the level of deficits will we see tax increases in the future, or is the government so divided that nothing will ever get done? "They dispense culture the better to rule.  Beauty? They promote the beauty which enslaves. They create a literate ignorance - easiest thing of all. They leave nothing to chance. Chains! Everything they do forges chains, enslaves. But slaves always revolt." -Frank Herbert, Dune Messiah "At the center of each island is a man. Men learn how to gain and hold personal power. Men are jealous." - Frank Herbert, Dune Messiah "Between depriving a man of one hour from his life and depriving him of his life there exists only a difference of a degree.  You have done violence to him, consumed his energy. Elaborate euphemisms may conceal your intent to kill, but behind any use of power over another the ultimate assumption remains: "I feed on your energy." - Frank Herbert, Dune Messiah "People aren't concerned with love, it's too disordered.  They prefer despotism. Too much freedom breeds chaos...how do you make a despot loveable? ...Ahh, laws.  Law filters chaos...Law- our highest ideal and our basest nature.  Don't look too closely at the law. - Frank Herbert, Dune Messiah Who is feeding on your energy? What are the power structures that keep you from being truly free? What exactly is freedom? "The trouble with massive debt levels is that for every one auction which goes well, there is always another one just around the corner that risks going badly and repricing the entire asset class." - Matt King, Citi A now timely reminder. "...spending beyond a pretty low level of materialism is merely a reflection of ego approaching income, a way to spend money to show people that you have (or had) money....People with enduring personal finance success - not necessarily those with high incomes - tend to have a propensity to not give a damn what others think about them."  "Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself."  - Morgan Housel, The Psychology of Money The rise of social media certainly makes it hard for people to resist the need to "keep up with the Jones" at the expense of building wealth.  Housel likes to remind people that the ability to save money gives you options that include the flexibility and control over your time. "Man and his machine intelligences. Which is a parasite on the other? Neither part of the symbiote can now tell. But it is an evil thing, a work of the Anti-Nation. Worse than that that, it is an evolutionary dead end"  "Safety in stagnation. Where are the revolutions in human thought and culture and action.." -  Dan Simmons, Hyperion With the rise of AI and quantum-computing the Hyperion books are worth a read. "The idea that delayed gratification confers some socio-economic advantage to those defer was eventually debunked. The real world is a bit different. Under uncertainty, you must consider taking what you can now, since the person offering you two dollars in one year versus one today might be bankrupt."  So what this idea is about isn't delayed gratification, but the ability to operate without external gratification - or rather, with random gratification.  Have the fortitude to live without promises." - Taleb  Alternatively this might lead one to question whether you are applying the correct discount factor to future promises. "Rhetoric is the art of the incomplete argument, a 'heuristic' device, or story, to point the mind in the right direction.  In a sense all the social sciences are rhetorical. This simply means that he conditions required to make them universally true do not hold, or only hold under special conditions.  They are only partially true." "From this perspective, economic modeling is a persuasive undertaking: it does not aim to discover truth, it tries to persuade people of the truth of its own 'text'.  All reality is 'socially constructed'"  ...There are three valuable implications of this approach.  First, it emphasizes that stories or narratives are the ways in which people try to make sense of complex situations....Second, it points out that belief in the story rests on confidence in the story-teller...Third, whiles stories are not the engines of prediction..they illuminate problems which escape formal modelling.  The question, then, is, whether economic modeling can improve significantly on story-telling or whether it is part of the story-telling."  "Economist should spend less time working out the consequences of rational behaviour under conditions of certainty, and more trying to understand what is reasonable to do in conditions of uncertainty.  This would bring out the rationality and indeed moral worth of forms of behaviour they are now bound to condemn as irrational.  They should also take more care to distinguish situations of imperfect information in which information is contingently incomplete, from situations of uncertainty, in which no complete information is obtainable under any circumstances" - What's Wrong With Economics?, Skidelsky In a paradigm where central bankers are outright telling you that they don't know if their models work or where variables central to their models, such as r-star, are valued at present, it's a good reminder that there are some valid questions and critiques around economics as a field.  It's also an important reminder of the power of parables and story-telling and perhaps in economics the role of expectations. "The ideology of homo economicus together with digital technology suck people out of local communities, and even nations into a 'global village'.  The student of economics needs to balance the economist's enthusiasm for ever-widening markets against the sociological insight that this can be highly disruptive to settled ways of life." "the attempt to create a 'market society' produced a reaction, as society resisted incorporation into the market economy...increasing regulation to contain its disruptive effects....state intervention is not a disruption of the natural order of the market..it is an attempt to prevent markets from destroying the very societies in which they are embedded....Polanyi's critique of market society rests on his belief in the dominance of the social over the economic....specialisation alienates people from society and each other...more of our lives are 'commodified', crowding-out the non-economic values and relations...but human beings are social animals..so while accepting the gains market exchange brings, they devise non-market strategies for protecting society. - What's Wrong With Economics?, Skidelsky Fast forward to 2023 and reading Slouching Towards Utopia by Brad DeLong where a central theme of the book is the contrasting of ideas of Hayek and Polanyi.  Where Hayek's general message was the market giveth and the market taketh away, Polanyi was a believer that the market economy was extremely good at economizing production, but made all other societal rights subservient to property rights, upending the very society the market is made to work for. "Moses Finlay..argues the rapacity of the upper classes was dictated by conventional expenditures for political and military careers, not by a 'maximizing' logic.  Finlay's work brings out the fact that human societies are to a large extent constituted by their 'social imagination'.  This means that they cannot be understood in terms radically alien from those in which they understand themselves. If Ancient Greek craftsman didn't think of themselves as maximizing profit, who are we to say that was what they were 'really' doing?"  "..history should not surrender the uniqueness of its own vision to the econometricians. As Solow writes, in the new economic history you find 'the same integrals, the same regressions, the same substitution of t-values for thought' as you do in economics proper, but with worse data...so we reach a point where 'economics has nothing to learn from economic history but the bad habits it has taught to economic history."  - What's Wrong With Economics?, Skidelsky An interesting conjecture.  "Technological progress is exogeneous and unpredictable...no clear pattern of improvement..swings backwards and forwards along familiar pathways..does not repeat itself exactly, but it rhymes...like pendulums between alternating phases of vigour and decay..each outward movement produces a crisis which leads to a reaction..equilibrium is hard to achieve and unstable...history cannot be used to predict the future, but it can indicate the trends and inevitable reactions against them. Arthur Schlesinger Jr. defined a 'political economy cycle' as a 'continuing shift in national involvement between public purpose and private interest'...Liberal periods when private interest determine policy succumb to the corruption of money; collectivist periods dedicated to public purpose succumb to the corruption of power."   -What's Wrong With Economics?, Skidelsky This sounds very "Fourth Turning" and familiar with today's political economy. "As Keynes well put it, the error of economics lies not in its logical inconsistency, but in the 'lack of...generality in its premises.'  There is a large gap between the account economics gives of human behavior and behavior as it is actually exhibited... Mainstream economists have not looked deeply enough into the 'mind of the horse'. risk refers to all outcomes that can be insured against, uncertainty to those which cannot. Mainstream economics do not recognize this distinction. They believe individuals can accurately calculate the odds of any action turning out one way or the other.  This is because they treat the economy like a closed system. Keynes, to, looked into the 'mind of the horse', but he didn't see maximization, rather an attempt to behave reasonably under different degrees of uncertainty.  His key move was to distinguish rational belief (or expectation) from true belief. Standard rational expectation theory identifies the two, because to have rational expectation of an event is to have accurate knowledge of its probability. ..uncertainty as both Keynes and Knight define it, but which the mainstream denies: a situation where we have no scientific basis for calculating a ratio (probability)."    -What's Wrong With Economics?, Skidelsky So much to ponder as it relates to the assumption of 'rationality' and expectations in economics.  i would venture to guess most people don't think about differences in rational vs. adapative expectations, but some economists do think about differences in rational expectation modeling.

 "an improved ontology - the study of what exists and of the basic constitution and nature of social phenomena - should be the second pillar of reformed economics"

"This methodological invidualistic approach cuts economics off from understanding a large part of human behavior, as a consequence of which it often gives faulty advice."

"It fails to understand the hold of religious national and group loyalties, attachments, identities - all of which Weber calls 'communal' associations - and the extent to which these modify its picture of the maximizing individual; it fails to understand the power of self-understanding and the way social positions shape self-understanding; it fails to under the role of ideas, power, technology in shaping choices, including its own; it fairs to understand the historical contingency of some universal doctrines; and it is indifferent to its own history."

A pretty stunning critique, but likely resonates with anyone who has ever made a choice that didn't necessarily align with what appeared to be their own best economic interest, or to anyone who has ever bought a product because of marketing or a social affiliation.  

"As long as people want more than they've got, economics has no purpose other than to show them how to get the cake to grow more efficiently.  This is its only religion.  Beyond this it has no gospel to preach."

"We can identify three answers to the 'growth of the cake' question.  The first is that the cake just needs to grow without end, since people are permanently dissatisfied with what they have."

"The second, left-wing, position holds the argument that with greater income equality the cake needs to grow less fast.  People are dissastified with their share of the cake they are getting....This introduces an explicit moral argument.  It roots the feeling of dissatification not in individual psychology (envy) but in the social demand for fairness."

"A third, more recent argument emphasizing the long-term cost to the planet, and therefore to future generations, of our relentless pursuit of 'more and more', has led to demands for 'degrowth'"

Perhaps a bit left-wing, but some level of truth to these quotes.  If you don't believe the cake needs to grow without end, then you must believe that either there is some sufficient level of wealth upon which happiness is satisfied, or you must believe in one of his other two answers.

"is economics descriptive or prescriptive? This book suggest that it is intended to be both. Insofar as it is descriptive it is plainly inadequate; but is it not possible that description, may, over time, come to resemble prescription?  That people may actually behave more and more as economists tell them they do behave?"

"To transform human nature, not just describe it, has always been the dream of social engineers, as today it is that of the techno-utopians.  It is the foundation of the doctrine of progress. But how far can it, or should it, be pressed, before humans cease to exist in a recognizable form? And is there something irreducibly human which will resist the ambitions of the engineers of the soul?

Heady to think about the influence economics might have on behavior, but the second quote appears to offer a number of timely questions in the age of AI.

"If economics is to be useful today it will need to modify its belief in the self-regulating market. That free markets contain a principle of order was a huge discovery.  It meant that economic life could be set free from state, municipal, communal and customary direction. But to maintain that market competition in a self-sufficient ordering principle is wrong. Markets are embedded in political institutions and moral beliefs.  In today's world they are inescapably accountable to voters as well as to the market transactors  Market integration across borders is not unworthy goal.  But it should be pressed only as far as, and by means which, the condition of political consent allow.  This is a matter of judgment, not of demonstrative proof.  The only test of good policy should be the Polanyi test: how much disruption and inequality will societies tolerate for the sake of progress?

Political economy questions are extremely interesting.

"we cannot help to remain conscious that for every buyer there is a seller; it is only leveraging, or borrowing, which actually creates new money....in empirical terms we find it striking just how closely asset prices mirror credit creation numbers.  Strangest of all, it really seems to be the flow of borrowing which correlates with the level of asset prices"

-Matt King, Citi

See above for "inside" vs. "outside" money.  

"The conception of homo economicus underpins their picture of human motives is incomplete.  Quite simply it leaves out all the motives for choice and action which fall outside the calculus of human behavior they have set up. As a consequence it fails to predict many outcomes accurately."

"The main target of my attack is 'neoclassical'..or 'mainstream' economics....I distinguish it from 'classical' economics which was a much broader church than its neoclassical successor, both in its view of what social matter consists of and its view of how knowledge is attained. Neoclassical economics narrowed the discipline considerably by claiming that only individuals really exist - organizations are simply constructions of individuals - and their rationality makes their behavior predictable."

"Keynes, one of the greatest economist of all time pointed out the inescapable fact of uncertainty:

    'It is as though the fall of the apple to the ground depended on the apple's motives, on whether it was worthwhile falling to the ground, and whether the ground wanted the apple to fall, and on mistaken calculations on the part of the apple as to how far it was from the center of the earth'

The implications of this are profound. Keynes is saying that humans are not 'programmed' to behave like apples.  Humans are part of complex systems, whose motions cannot be explained by causal laws on which natural science is built."

"My own view is that physics envy drove economists to think of the social world as a potentially perfect machine."

-What's Wrong with Economics, Skidelsky

Some economists have been advocating that there needs to be more of a realization that the economy is a "complex, adaptive, system" that has non-linearities and interconnections whose interactions leads to emergent properties.  Skidelsky goes on to point to non-economic motives for actions such as love, devotion, honor, public service as evidence that not all interactions can be boiled down to subjective calculations and price.

"But people never take the trouble to ask questions, leave alone seeking answers. The average American is from Missouri everywhere and at all times except when he goes to the brokers' offices and looks at the tape, whether it is stocks or commodities. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection that he devotes to the selection of a medium-priced automobile." - Reminiscences of a Stock Operator, Lefevre

Seemingly like much of the above, the assumption of rationality is called into question.

"Life is short, and you don't have time to figure out everything on your own.  The wisdom of the past was hard-earned and your dead ancestors may have something useful to tell you."

If you enjoyed this post, leave a note in the comments and maybe the next time I lose power I'll see what words of wisdom I saved on my phone from 2022.

Daily Economic Update: September 15, 2023

Friday starts off with the UAW on strike. Stocks don't care and look to continue their rally following solid U.S. data yesterday.  Yields are higher by ~3bps, the 2Y yield is ~5.04% is and the 10Y is ~4.33%.   Plenty of news to start the day including the UAW strike front and center, the IRS halting the Employee Retention Credit (ERC),  Hunter Biden getting indicted on a gun charge and some better than expected industrial production in China.  Late yesterday GS research cut their odds that the U.S. will fall into recession in the next 12 months to 15%, while this sounds great, the cynical view is that GS must have some positions they still want to dump on investors ☺.  On the day ahead it's empire manufacturing data, industrial production and surveying consumers about gas prices (aka UofM consumer sentiment survey - which seems to have a highly negative correlation with gas prices).

ECB somewhat surprised markets raising rates to their highest level since the ECB has existed. Overall it was considered a "dovish" hike as Lagarde indicated this is likely the peak in rates, having reached significantly restrictive levels. I thought some of Lagarde's comments on the fiscal situation were perhaps of most interest as they fit a theme I've been seeing really since Jackson Hole.  If you go back to J-Hole, many of the papers and discussions really focused more fiscal topics, so here is what Lagarde said: "As the energy crisis fades, governments should continue to roll back the related support measures. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for an even stronger monetary policy response. Fiscal policies should be designed to make our economy more productive and to gradually bring down high public debt."  This seems like a tacit admission that central banks are struggling to combat the side effects of fiscal policy.  

XTOD: Nobody seems to know how to treat Fridays these days. Are they workdays or part of the weekend?

XTOD: Big deal:  The idea of the Employee Retention Credit was to get money into the hands of employers during the pandemic. Now, worried that it's become a money grab, the IRS has announced an immediate moratorium on processing new ERC claims.

XTOD: What does the ERC have to do with international travel after today? I'd have to say a WHOLE LOT LESS...

XTOD: last week longtime Amazon #2 Dave Clark was publicly fired from his new job. Clark is 1 of the great sociopaths of postmodern commerce, a  productivity algorithm in human form As big an asshole as Jack Welch, minus the charm.

XTOD: Colombian cocaine exports are surging, and the drug is set to surpass oil as the country's top export, according to Bloomberg Economics.  Also note that US and European cocaine consumers are seeing rising prices, despite flat wholesale prices. Seller's inflation strikes again.

XTOD: So apparently the rapidly rising premiums being paid for Gold in China is the latest convoluted 4D chess move to propel China to victory in their economic war with the west.  It has nothing to do with the fact that there is Chinese demand for gold bc their currency is the Yuan.

XTOD: There is an infinite number of things in finite supply.

XTOD: Defiance 0DTE put selling Ticker QQQY:  >"Current income with indirect exposure to Index" >Each day sell 0 - 5 DTE options from ATM to 5% ITM puts  >Targeting 25 bps of daily income, and adjust positions around that >"Invest up to 80% of assets" >Naked short puts - no indication of put spreads or hedging and acknowledge full downside exposure to index >Rebalance at the end of the day >0.99% fee  BBG article: https://bnnbloomberg.ca/zero-day-options-boom-is-spilling-into-7-4-trillion-etf-market-1.1971370 

XTOD: Tired of my 13u team getting banned from tournaments. Yes my players drink Coors Light after winning the championship game. The big leaguers do it every postseason. Let the kids play. Prohibition ended in 1933. #BeElite

XTOD: If you are feeling down for any reason, just think that some people became Softbank’s exit liquidity today.  See? Made you feel better already   Bless 🥹

XTOD: can someone order me a copy of every newspaper in the country tomorrow? thanks

Daily Economic Update: September 14, 2023

Ahead of ECB decision and the U.S. data today (jobless claims, PPI and retail sales), the 2Y is 4.98% the 10Y is 4.26% both down ~5bps from yesterday morning. Yesterday's CPI was largely in line with market expectations, all but cementing the Fed holding rates steady next week.  On the heels of CPI, this post from the BLS hit my feed, "There were 236 work-related suicides in 2021, down from 259 in 2020. Work-related suicides in these years were down from 307 in 2019, which was the highest number since the data series began in 2011. There were 229 work-related suicides in 2015, the lowest number over this 11-year period."  It probably says something about the plight of workers when the government decided to start tracking this statistic (I feel like Karl Marx in writing that sentence).  Speaking of labor the UAW appears "likely" to strike at midnight tonight with UAW President Fain saying: "It’s a battle of the working class against the rich; the haves versus the have-nots; the billionaire class against everybody else.” 

ECB decision day. At Jackson Hole, Lagarde focused on some of the uncertainties around supply-side factors (geopolitics, near-shoring) and technology shocks that under certain labor condition could lead to sustained "tit for tat" inflation.  My favorite quote of hers from J-Hole was that "we should also be clear about the limits of what we currently know and what our policy can achieve. If we are to maintain our credibility with the public, we will need to talk about the future in a way that better captures the uncertainty we face."   (because you wanted to know - my favorite Lagarde quote of all time is "If inflation is the genie, then deflation is the ogre that must be fought decisively.")

Uncertainty is an interesting word and one that is often conflated with "risk" in the financial setting and perhaps is a little confusing. I've found the following to be a helpful guide: "risk refers to all outcomes that can be insured against, uncertainty to those which cannot." And "..uncertainty as both Keynes and Knight define it, but which the mainstream denies: a situation where we have no scientific basis for calculating a ratio (probability)."  To further illustrate: "For example, if one smoker out of ten died of lung cancer, the probability of smokers dying of lung cancer is 10 percent. This set of numerical probabilities [cardinal probabilities] is the standard domain of risk as recognized by actuaries...At the opposite extreme is uncertainty...where we have no scientific basis for calculating a ratio."  Keynes (as reported by Skidelsky) sums this up as "The magnitudes of some pairs of probabilities we shall be able to compare numerically [cardinal probabilities], others in respect of more or less only (i.e. 'more or less likely', "ordinal probabilities), and others not at all [uncertainty]."  If you're ever interested in reading more about risk and uncertainty (and Keynes views on uncertainty), author Peter Bernstein's classic "Against The Gods" is worth a read.   

While uncertainty might be scary, Bernstein laments:

 "A tremendous idea lies buried in the notion that we simply do not know.  Rather than frightening us, Keyne's words bring great news: we are not prisoners of an inevitable future. Uncertainty makes us free."

Or as Frank Herbert said in the Dune series:

 “to know the future absolutely! All of it! What fortunes could be made — and lost on such absolute knowledge, eh?” but “what a hellish gift that’d be. What utter boredom! Every living instant he’d be replaying what he knew absolutely … Ignorance has its advantages.”

Back to the ECB, faced with slowing output in parts of the EU, the betting line is for the ECB to hold their key policy rates with the main refinancing rate at 4.25% and stress data dependence. 

We also still have casino hacks, the first day of Arm trading in the public markets and China with another rate cut

XTOD: Under the Master Plan the pressure on the Fed to "do something" wont start until the banks have offloaded their CMBS and LL exposures to the non-bank tapeworms via "credit risk transfers." That will be 2025 at the earliest.

XTOD: From Goldman, potentially three big hits coming to economic activity. Student loan resumption, UAW strike, and government shutdown

XTOD: An economist looks at this and says hey, grocery prices aren't adding to inflation any longer. A normie looks at this and says hey groceries still are 17% more expensive than 2 years ago. Why aren't they going down?

XTOD: Overall I still feel better than I did a few months ago about the possibility of a soft landing. But I feel a bit worse than I did yesterday.  And if you over-updated based on the noisy June and July data you should probably be over-updating back again based on the August data.

XTOD: Whilst I am not a fan of a 0 deficit policy: there is a limit. The fed government was right to spend more during Covid. But that should never have been more than a temporary response to help out those who sacrificed for the rest of us. Making that spending permanent is reckless.
We are creating new dollar valued assets equal to 10% of GDP every year. The Fed has an inflation target of 2% and, to hit that target, it will need to continue raising rates. As interest rates go up, the deficit will explode further to finance the existing debt.
The likely outcome will be a resurgence of inflation that will act as a stealth tax to help finance the shortfall. This will not end well.

XTOD: Many people will look at this trend and think "it's not sustainable b/c debt service becomes impossible." Nope (not for U.S., at least). It's unsustainable b/c inflation will reverse trend (by making NGDP grow ever more rapidly)...Yes. But when push comes to shove, does monetary or fiscal policy capitulate? Fed is obliged to support Treasury at auction, so unless one is expecting Volcker II...

XTOD: I have yet to find a system that's a good way to track:
- media recs to come back to later
- random ideas I want to spend more time noodling on
- future tasks I have to do
- daily/weekly activities i want to track
i want all of this together, organized, and easy to add to

XTOD (reply): this does not and will never exist. let it go <3

XTOD: Possible Sign Of Life Found On A Planet 120 Light-Years Away https://trib.al/ieel60f

Daily Economic Update: September 13, 2023

$29 dongles, an attempt to impeach Biden, MGM casino cyber attack, covid, UK GDP contracting, but it's CPI that is in focus today. At the last FOMC meeting, the Fed had identified five pieces of economic data that would inform their upcoming decision, those were: the Employment Cost Index back on July 28, the two Jobs reports (8/4 and 9/1) and the two CPI reports (8/10 and today's upcoming report), most commentators and the market believe those reports, which have shown some slowing in labor data and cooling inflation, will likely leave the Fed on pause next week (CME FedWatch has probability of a pause at 93%), but we'll see what happens with today's CPI.   To start the day, the 2Y is up 3bps to 5.03% and the 10Y is higher by 3-4bps to 4.31%.   On the cap we get CPI and the 30Y Bond Auction.  If you're looking for bank forecast for the inflation read you can find them here.

If you missed it yesterday, Howard Mark's put out his most recent memo. As is typical of Howard's memo's, it's worth a read.  He spends some time using tennis as an analogy, harkening back to Charlie Ellis' classic "The Loser's Game" in which Ellis argues that argues that lay investors have the best chance of success in investing in the stock market by avoiding costly mistakes, minimizing cost and focusing on asset allocation and passive investing.  Mark's states: "The amateur doesn’t have to hit winners to win, and that’s a good thing, because he or she generally is incapable of doing so dependably."

As we look ahead today's inflation reading, it's always "fun" to reflect on inflation, so here's a few gem's from Irving Fisher's classic "The Money Illusion":

• "Money Illusion"; that is the failure to perceive that the dollar, or any other unit of money, expands or shrinks in value.
• "As long as a dollar is not safe, any agreement to pay a dollar is not safe. However certain it may be that you are going to get the promised dollar, it is not at all sure what the dollar is going to be worth when you get it."
  
• "In short if more money pays for the same goods their price must rise, just as if more butter is spread over the same slice of bread it must be spread thicker, the thickness represents the price level, the bread the quantity of goods."
• "..the only important fact, in so far as the price level is concerned, is the relation between these two circulations [money and goods]...if the circulation of money increases relatively to the circulation of goods, the price level will rise. If, on the contrary, it decreases relatively, the price level will fall; that is, whether the butter is thick or thin depends on whether there is much or little butter relative to the bread."
• "War has always been by far the greatest expander of paper money and credit, and therefore the cause of the greatest price upheavals in history."
• "[Inflation] It would, indeed, be of no importance if everybody's income were adjusted to the change in prices. But this is not and cannot be the case...a change in the money yardstick, the dollar, is far more serious, and for three reasons:
• it affects all sales
• it is used for long-term contracts...we are constantly contracting to pay present dollars for future dollars...it makes tremendous difference, for instance, to a bond holder.
• these disasterous effects are not perceived because of money illusion
• "when your house is burglarized, society is none the poorer..that would be cold comfort to you..in somewhat the same sense this burglarizing dollar is defrauding people...it is social injustice."
• "while inflation is going on, the general public finds it hard to admit that there can be too much money....After rapid inflation once starts, the clamor for more money often grows louder and louder."
• "When prices are rising wages and salaries are, as it were, running after a lost train."
• "Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."
  
• "As inflation goes on, the workers continually grow more dissatisfied and attribute their plight to an intentional plundering by a social system of exploitation." "Out of such discontent, therefore came Bolshevism and other radical theories."
  
• "worst examples of inflation have come from unbalanced government budgets. As we have seen, when a government cannot make both ends meet, it pays its bills by manufacturing the money needed."

XTOD: A picture of inflation as a tax on the average family: https://bloomberg.com/news/articles/2023-09-12/us-inflation-adjusted-incomes-fell-2-3-in-2022-from-prior-year?srnd=undefined#xj4y7vzkg

XTOD: Every Twitter economist is saying the same brain dead, out of touch thing…“Why are the American people so negative on the economy? GDP is up!”  Maybe because they just watched their purchasing power be annihilated by generational inflation, real household incomes have fallen for 3 years in a row and wealth inequality continues to expand. All while their tax dollars are being wasted and/or sent overseas.  GDP doesn’t come up at the kitchen table for normal Americans you clowns.
“Honey… the credit card bill is due and we don’t have enough to cover it this month. Our groceries have doubled and student loans are restarting soon. There’s also a possibility of layoffs coming at work.”  “Oh don’t worry about that. GDP is trending stronger than expected!”

XTOD: Today we broke the record for the longest streak of trading days (210) with an inverted 10yr/3mth yield curve.  What that means, you be the judge...

XTOD: "We don't have enough Americans to afford what is going on out there right now."  Housing Market Set For A "Cat 5" Storm, Worse Than The Great Financial Crisis.

XTOD: Let me make one thing clear on  @IRSnews  ERC.  Small business owners who qualified rightly claimed this. GOOD. Law was designed FOR THEM.  Years later, most new claimants are being SOLD the ERC for 25-30% commission. Most new claims are fraud.  Danny Werfel knows it. Good for him!

XTOD: Don't believe me? Since 1983, whenever entitlement spending pushed deficits too high, Congress responded by cutting defense and social spending (education, veterans, kids), and raising middle-class taxes. And it will get much worse.

XTOD: A CDC advisory panel met to come up with a recommendation on whether updated COVID shots approved by the government should be used broadly or targeted to specific at-risk populations, setting the stage for the launch of a re-vaccination campaign

XTOD: Government: "OK so there's a pandemic, but don't worry we're going to let you not make payments for 3 years." 
Borrowers: "OK cool, I'm going to buy a house with that money." 
G: "Wait no, that's not what we said..."
B: "OK I also bought a new car"
G: "Wait stop, that's not how this works."
B: "We're in Europe on vacation, AirBnB does Klarna now."
G: "......"

Daily Economic Update: September 12, 2023

Today starts with yields pretty flat the 2Y is at ~5.00% and the 10Y is 4.28% .  Big day for Tesla yesterday as Morgan Stanley suddenly uncovers a supercomputer known as "Dojo" that is being used to train Tesla's self-driving feature.   “The same forces that have driven AWS [Amazon Web Services] to reach 70% of Amazon total EBIT can work at Tesla, in our view, opening up new addressable markets that extend well beyond selling vehicles at a fixed price. The catalyst? Dojo, Tesla’s customer supercomputing effort in the works for the past 5 years,” Jonas wrote.  You should see the AI super-computer that powers this blog and also mines crypto while I sleep....blog market cap now infinity.

This morning, the NFIB Small Business Optimism survey was lighter than estimated and remains below average with their Chief Economist citing inflation and a shortage of workers as being "the biggest obstacles for Main Street".  Across the pond in the UK, 'regular pay' which excludes bonus was up 7.8% YoY and is at the highest on record with pay increases in financial services leading the way, this despite data this morning showing the UK economy shed jobs.

In non-market news, Aaron Rodgers might be done for the year, new iPhones, Putin meeting with Kim Jong Un.

The 10Y auction will be the big fixed income item of the day as markets await tomorrow's CPI. 

XTOD: DIMON: “.. I would not be a buyer of Treasuries at 4.2%, nor would I be a buyer of credit spreads at these spread levels.”  [He wouldn’t be surprised to see 10yr Treasury yields at 5.5% or oil at $120-150.] 

XTOD: Colombian cocaine output surged to a record last year, with the drug flooding into new markets and fueling violence across the world

XTOD: If you had bough $1000 worth of Bed Bath & Beyond stock one year ago, it would be now worth $26   With AMC, you would have $96 left   If you had bought $1,000 worth of Budweiser (the beer, not the stock) 1 year ago, drank all the beer, then turned in the cans for the 10 cent deposit, you would have $214 
Based on the above, my current investment advice is to drink heavily and recycle

XTOD: Note this morning from Apollo's Torsten Slok about why the Fed's measure of "supercore" inflation remains high. He sees it as a reason monetary policy must remain tight. I see it as a reason to stop focusing on a deeply flawed measure

XTOD: To date still one of my favorite learning materials. (Lehman Foreign Exchange Training Manual)

XTOD: "The money needed to sustain this giant prosperity-generating machine comes from the government running deficits and from banks extending credit, with the Fed’s activities linking the two." 8/10

XTOD: The share of U.S. households reporting that it's harder to obtain credit than one year ago hit a new high in the New York Fed's consumer survey, which is around 10 years old

XTOD: The mechanics of negative convexity and how it can impact bondholders.   https://vgi.vg/488hoKh

XTOD: Kyle Bass Says US Banks to Lose $250 Billion in Office Holdings  @business  Banks in the US will lose $200, $250 billion in office over time here, Bass said. And there’s about $2 trillion of equity in the banks so it’s like a 10% hit to US banking equity. #CMBS

XTOD: Youth is definitely a virtue for many tasks, such as moving furniture, carrying water up a mountain (in the absence of mules), skiing at very high speed in a rocky steep terrain, but it won't help much in challenging age old investment wisdom.

XTOD: Yo if your name is Omar and you’re from San Rafael, your girl Jessica who works at Starbucks is cheating on you.   I’m waiting for my food and she’s talking about it with her coworkers behind the counter.

XTOD: MGM casino hack:  “The system is still down,” receptionist at Borgata casino in New Jersey tells me, adding slot machines are only taking cash as a result.   She said most guests were understanding but that “a couple are angry.” 

XTOD: Orangutan launches possum out of enclosure at zoo — as horrified visitors scream https://trib.al/04HoK8I

Daily Economic Update: September 11, 2023

 

September 11th starts with yields up and steeper the 2Y is 4.99% and 10Y is up ~4bps to 4.294%.  The Yen is stronger against the USD as over the weekend Ueda said Japan may eventually end NIRP (negative interest rate policy) with the 2% inflation target in sight.   It will be an important week in economic data heading into next week's FOMC decision as we get CPI on Wednesday, Retail Sales on Thursday, and another look at consumer expectations for inflation with UofM survey on Friday.  Speaking of central banks, the ECB decision on Thursday will likely be of some interest given the continued inflationary pressures against continued weakness in areas like German manufacturing, as the European Commission cut the Euro Area growth forecast for remainder of 2023 and 2024 with contraction in Germany.

Staying in the states, there are some pretty big disconnects in GDP forecasting amongst Federal Reserve regional bank forecasters as Atlanta Fed's GDPNow is estimating real GDP at 5.6% for 3Q2023 and the newly reinstated NY Fed GDP nowcast at only 2.25%.  The considerably better growth forecast have caused some commercial bank researchers to up their year end yield targets, with JPM now seeing 10Y yields ending the year at 4.20% up from 3.85% in their last forecast.  Morgan Stanley on the other hand stated "We stand alone, with conviction, telling investors to buy government bonds, despite incessant selling, weak price action, driven by backward looking - and in our view - questionable narratives." Guess time will tell who is correct.  Lots of talk of the Arm IPO this week, around the $55bln valuation threshold.

No major data today with a 3Y Note Auction the highlight of the day.
Tue: 10Y Note Auction
Wed:  CPI, 30Y Bond Auction
Thu: ECB Decision, Jobless Claims, PPI, Retail Sales
Fri: Empire Mfg, Industrial Production and UofM

XTOD: NY Fed Q3 GDP Nowcast: +2.2%  Atl Fed Q3 GDPNow: +5.6%  Really smart move by Central Bankers here. You want to diversify your views in case one of these is way off the mark.

XTOD: Chicago Fed research: Fed rate increases have already taken substantial effect on output but the majority of effects have yet to occur for labor market  The model says the Fed has done enough to bring inflation to target by 2024 while avoiding a recession  https://chicagofed.org/publications/chicago-fed-letter/2023/483

XTOD: The only three variables that are too low in this late cycle are the only three that actually matter:  - spreads   - vol  - ERP  Everything else is levitating, rates, equities, house prices,…  Usually liquidity ties it all together, not now

XTOD: @INArteCarloDoss  has a great list of the reasons to be in cash.  But the big kahuna which ties them all together is missing.   Bond Term Premium is negative.   All four need to go higher or the economy will continue to surprise on the upside.  We think all four will go higher.

XTOD: New Fed Z.1 (which gives us early household wealth data) is out for the three months through June 2023.   A big pop driven by stocks and real estate has pushed household (+nonprofit) net worth back above where it was before rate hikes started in 2022.  https://federalreserve.gov/releases/z1/dataviz/z1/changes_in_net_worth/chart/

XTOD: Yes I agree, owning the index guarantees you own the winners, whoever that ends up being

XTOD: India is studying possible responses to a potential Chinese invasion of Taiwan after the US made discreet inquiries on how the nation could contribute in the event of a war, according to senior Indian government officials. The study, commissioned by India’s top military commander, will assess various war scenarios and provide options for the giant Asian country in case a conflict breaks out. Some Indian military commanders believe that strong statements may suffice as a response in case the war is short, but ultimately that will not be enough if the conflict drags on like Russia’s war in Ukraine, the officials said. Under Prime Minister Narendra Modi, India has developed a policy of “multi-alignment,” effectively hedging its bets by fostering close ties to the US while refusing to join international sanctions on Russia. That policy will be tested in the event of a drastic deterioration of US-China ties. via Bloomberg

XTOD: If markets are efficient, why are people still holding huge sums in bank accounts that yield 0.63% when money market funds pay 5.08%?

XTOD: Wow, there’s something that Lenin, Keynes, and Austrian economists all agree on:  The best way to destroy society is to debase the currency.  I'm genuinely curious what a Keynesian today thinks of these statements from Keynes in 1919.....haha imagine being an MMTer and knowing that Lenin, Keynes, and Austrians are all able to see/admit that debasing the currency destroys society.  they prob spin this as motivation... "everyone is wrong except MMTers!!"

XTOD: Citigroup is tanking the way Credit Suisse did near the end.

XTOD: Crypto exchange FTX will likely get approval to liquidate its assets 13th of September.  They had $3.4b worth of crypto in April.  Current proposed plan is to sell up to $200m worth of crypto every week.

XTOD: Everything seems coordinated to hit in October 🤫  1) Student loan payments resume 2) Government budget shutdown October 2nd 3) Virus lockdowns 4) Bank failures 5) FEMA & FCC Nationwide Emergency Alert Test for October 4th

Daily Economic Update: September 8, 2023

Despite strong ISM Services and jobless claims to start yesterday, yields ended lower as markets focused on news like that out of Walmart, which is cutting starting pay for some new hourly workers. To start the day, yields are relatively flat with 10Y at  4.24% and 2Y at 4.94%.  As we head into Fed's blackout period, NY Fed President Williams yesterday seemed to join the chorus of Fed officials who seem to generally be promoting a "pause" at the upcoming meeting.  With the yield curve still in deep inversion, there was a good St. Louis Fed post yesterday on the yield curve inversion and recession probabilities.  In it the author derives a lower recession probability if you look at the inversion of the yield curve in "real" (inflation-adjusted) terms.

As an aside, probably one of the worst takes I hear seemingly daily in the financial media goes something like: 'the U.S. economy is so much less interest rate sensitive because people have used fixed rate debt'. From there the pundit will typically follow that with a statement to a seemingly logical conclusion that goes something like 'therefore the Fed's rate hikes are less impactful...or therefore 'long and variable lags'.  That all seems reasonable.  So why do I think this is a bad take? The reason I think this is a bad take is that it fails to recognize that fixed-rate liabilities are someone else's fixed-rate asset.  What is therefore great for someone who borrowed at a low fixed rate is equally bad for someone who holds that loan/security as an asset.  These same pundits often talk about Fed policy working through financial conditions and wealth effects, but then seem to skip the step where they account for the mark-to-market losses that anyone who holds a fixed rate asset with a low interest rate are experiencing.  It's only been 6 months since SVB and concerns about banks mismanaging duration risk were all the headlines and I guess now we only account for the gains from holding fixed rate liabilities on the books of homeowners and corporations.
Now if you want to get into a discussion around the structure of the U.S. economy and how it's shifted to a more technological based and services oriented economy, or how certain industries have lower leverage than the past,  then I can probably buy into the narrative that the economy as a whole might be less interest rate sensitive, but that's not the sound bite narrative I hear on TV.   

On the day it's Wholesale Inventories and Consumer Credit

XTOD: SBF has no friends left.

XTOD: Scoop: TikTok's Shop marketplace is live for some US users. It looks like an Amazon copycat and is full of cheap Chinese goods.

XTOD: Is there any research or empirical support to the notion that the last mile on inflation is the hardest? (serious question)

XTOD: The authors' findings show the significant uncertainty surrounding the measurement of inflation in real-time, which adds to the challenges faced by policymakers, analysts, and the general public in analyzing inflation.

XTOD: They are not  pouring money into “alternative” assets. They are pouring money into over-priced (and over-fee’d) under-expected returned beta (plus some vol laundering). Overpriced beta ain’t “alternative.”

XTOD: US investment-grade bond supply over the first two days after Labor Day has totaled $52.6 billion, the third largest over the same period since 2010: Bank of America research.

XTOD: Seems like everyone has forgotten about the banks just as they are flashing warning signs again

Daily Economic Update: September 7, 2023

After another day of rising, U.S. yields open the day a little lower with the 2Y right around 5% after crossing 5% yesterday following better than expected ISM services data.  The 10Y is 4.27% also down slightly 2bps from yesterday's close.  Yesterday's Fed Beige Book showed some signs of slowing in the job market and some squeeze in profit margins as businesses struggled to pass on higher input cost to consumers, perhaps another sign the consumer is rolling over and exhausting excess savings.  Fedspeak continues to skew towards inaction at the upcoming FOMC meeting.  Atlanta Fed GDPNow is still up at 5.6%.  China data continues to show weak trade, oil continues to stay high (see airline profit warnings), Covid cases out there, and path of rates remain a question mark. 
On the day ahead we have a decline in Apple in the pre-market due to reports that China looks to expand the ban on iPhone sales to state firms and agencies.   On the day ahead: Jobless claims, Productivity and Cost, Fed Williams speaking 330pm, Bowman.

XTOD: Out of 28,114 publicly-listed U.S. companies analyzed over past century, 25 best stocks have created nearly 1/3 of all shareholder wealth; put another way, just 0.1% of stocks have added over $17.6 trillion to investors’ wallets;  @VisualCap  graphic from Henrik Bessembinder of  @ASU  shows best stocks of past century [Past performance is no guarantee of future results]

XTOD: Point 10 in Tom Sargent's 2007 Berkeley graduation speech:  "When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation." 

XTOD: Supply continues to do its thing: For the first time in many decades, apartment rents are rapidly flattening (and could soon go negative) at the same time demand remains healthy.  Why? Apartment construction is at 40+ year highs-- shifting the balance of power to renters.  YoY, effective asking rents for new leases (same-store) inched up just 0.28% and could turn negative by September.  Compare 2023 to the last two times (excluding 2020 pandemic year): early 2000s and 2009. In those prior two periods, rents fell as recessions hit, jobs were lost, demand evaporated and vacancy hit 7-8%. By comparison, in 2023, vacancy has been fairly stable since January in the mid 5% range.  Demand is solid, but operators are giving on price in order to compete and to protect occupancy / cashflow.  That'll likely continue through 2024 as supply peaks, before 2025-26 as supply by then will be significantly less.  The rent slowdown won't show up in CPI until early-ish 2024. But it'll happen. CPI rents won't go negative by then, but they'll look pedestrian at that point.

XTOD: AIR B&B to lead real estate market crash.  If you want a new home your happy days are around the corner. Same for rental property. The best time to get rich is in a crash. Good luck.

XTOD: Here's the big story in childcare: There's been mass closures of "in home daycares" (the most affordable option)  More than 97,000 have closed since the early 2000s, cutting the overall industry by ~half.  As pandemic aid ends, expect even more closures.  https://washingtonpost.com/business/2023/09/05/child-care-cliff-day-care/

XTOD: There's a great line in Walter Bagehot's "Lombard Street" (1873!!), where he essentially says this is the most efficient role of banks.  "Busy bankers" don't have time to become specialized, and thus should just be the senior lenders to those who are

XTOD: “being able to pass on an investment and then get in after it’s gone up 100% is a superpower”.

XTOD: Our US members' confidence in finding or holding a job (grey line) matched its highest level since March.  Y/Y declines in this metric are moderating.

XTOD: What bear steepening? (This one)  From August 1 pre QRA supply to today 

2s : + 14bp

10s : + 28bp

30s: + 28bp 

I keep hearing this because the curve did bear steepen. Twitter warned us of a supply driven bear steepening

XTOD: Want to handle pressure better? Learn to compete against “nameless, faceless opponents.” In other words, focus on competing against the game itself, which is what you have trained to do (personally and as a team).