Daily Economic Update: September 26, 2023

Yield curve bear steepening continues as the 2's10's curve is down to 60bps inverted with the 2Y at 5.12% and the 10Y at 4.51%. The dollar bull run continues as Yen hits YTD weakness against he dollar.  Yields continue to weigh on stocks. Jamie Dimon warning that the U.S. economy can't handle 7% yields and that any move higher in yields from here is going to be more painful then moving from 3% to 5%.
Fed officials give no signs of capitulating as Kashkari and Goolsbee both cited inflation being the biggest risk the Fed currently faces. The Government shutdown watch continues as Moody's warns a shutdown could lead to a loss of their Aaa rating (Fitch and S&P both have previously downgraded U.S. debt).  We'll see how markets digest the 2Y note auction today.  Also on the slate are consumer confidence data, sales of new homes and Richmond Fed business activity.

If shutdowns, strikes and student loan payments aren’t enough, add the “child care cliff” to the list.

XTOD: from Deutsche Bank --  10-year Treasury yields have averaged 4.5% in 233 years of data we're back to normal baybee

XTOD: "What's common throughout crises is that systemic crises are crises of 'money'—a breakdown in something functioning as money."

XTOD: As a curve trader (mostly), I tend to view UST price action through that prism, but this isn't about leveraged curve guys.   This is real money dumping duration.  Duration risk is BACK

XTOD: Spent some time thinking about bonds today.

* Price action is miserable. 1 out of 10.

* Blew through all technical levels.

* Impervious to bullish data.

* Have not yet reached climactic selling.

* Fundamentals of issuance and inflation persist

Probably what is need is a "shock" payroll or CPI number.  Or else sentiment becomes so one-sided that there is no one left to sell.  Either way, probably a bit more downside.

XTOD: As of Sept. 22, the daily trade-weighted U.S. dollar index was measuring 117.2, the highest level since mid-March (January 2006=100). Track the trend using FRED

XTOD: Sen. Menendez says at press conference implies cash  seized at his home was withdrawn over 30 years "from my personal savings account, which I have kept for emergencies and because of the history of my family facing confiscation in Cuba."

XTOD: Bob Menendez had $480,000 of cash in his closet. He could have been earning $26,400 per year risk free with T-Bills at 5.5%.   Lesson: Bob needs to fire his financial advisor.

XTOD: Four engineers get into a car. The car won’t start.    

Mechanical engineer: it’s a broken starter.   

Electrical engineer: dead battery.  

Chemical engineer: impurities in the gasoline.   

IT engineer: hey guys, I have an idea how about we all get out of the car and get back in.

XTOD: It’s been over a year since Kim Kardashian announced her private equity firm through a massive PR campaign and there are still zero deal announcements

Daily Economic Update: September 25, 2023

With major central bank decisions in the rearview, markets can shift their focus to the impending government shutdown and ramifications of the ongoing UAW strike.  Speaking of strikes, the Hollywood writers appear to reach a deal with studios, while actors remain on the sidelines. 

Friday's Fedspeak seemed hawkish to me, with Governor Bowman stating: "inflation is still too high, and I expect it will likely be appropriate for the Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2 percent goal in a timely way."  We'll get plenty of Fedspeak this week as well.

The 2Y is 5.12%  the 10Y is 4.50% to start the week and stocks will look to try to come back following losses not seen since March.

Probably the biggest item this week is GDP as well as the BEA's revisions to the National Economic Accounts, some of the revisions will go back to 2013 and will include some new PCE metrics.
In China news, more issues in the property sector, which at this stage just seem like recycled headlines.

On the week ahead:

Today: Dallas Fed Mfg Index, Fedspeak
Tue: Home price data, consumer confidence, new home sales, 2Y note auction, more Fedspeak
Wed:  Durable goods, 3Y note auction
Thur: Final look at 2Q GDP, jobless claims and pending home sales, 7Y auction,more Fedspeak, including Powell at 4pm
Fri: PCE and spending data, UofM survey of consumers

XTOD: Concert tickets are hard enough to get, you shouldn’t have to pay surprise service fees on top of that.  My Administration is working to crack down on those junk fees, so you know what you are paying for up front.

XTOD: Good luck getting your car repaired:  Auto worker strikes now expanding to *38* parts and distribution locations across 20 states.  This feels like a movie.

XTOD: This research dovetails with other research that ultralow rates in wake of global financial crisis benefited largest firms, which invested and got so far ahead of small & midsized firms they became in author’s words lazy monopsonies.
Problem. The reverse of QE with current reductions in Federal Reserve’s balance sheet and increased volatility in the Treasury bond market does not mean we stop crowding out other investment. Could very well see the more crowding out due to fiscal situation and political brinkmanship. Dumpster fire.

XTOD (side note if their track record is like the Fed's economist, you might see this as a sign to short Amazon): "Amazon has hired more than 150 PhD economists, making it the largest employer in the field behind the Federal Reserve...according to...Amazon itself, integrating economists has been critical to the company’s phenomenal growth in e-commerce."

XTOD: JPMorgan’s estimates for what’s driven the Treasury selloff: overwhelmingly, the improving growth outlook and a reassessment of the long term interest rate outlook.

XTOD: What cannot be overlooked is that when you are speaking Portuguese ala 2013-16, you should expect a weak growth->no growth->negative growth environment in real terms, but hot positive nominal growth (like Brazil cycling 8% nominal GDP with 12% inflation)……and yet the screwy part is that real rates on govt debt blow out anyway *across the curve* … this is the market’s natural way of pushing back on Fiscal Dominance… it’s a primary defense mechanism.....then you should consider that maybe instead of “bonds are a no-brainer, just look at all that premium,” you should think of it as the bond market’s Lorena Bobbitt reaction moment to persistent abuse, and the beginning of a bigger pushback against Fiscal Dominance....Markets stop panicking when politicians start panicking. I think the bond market is about to send a very loud, panicky message to DC that fiscal incontinence has consequences that don’t need to be dressed up in fancy arcana like “R*” and “expectations.”

XTOD: Almost all fiscal rules are silly.  Governments can't bind themselves and historically have struggled to when they tried.  Part of the reason is that it's too tempting to break them.  Part of the reason it's too tempting is that at some point they become a bad policy.  Some exceptions are:  don't try to finance government expenditure to any significant degree with seigniorage.  The consequences of wildly disregarding that are so bad that we managed to encode that in laws, even constitutions, and stick to it.

Daily Economic Update: September 22, 2023

Officially the last Friday of summer. Yields in the U.S. are down slightly after rising solidly all week, the 2Y is down a bp to 5.14% and the 10Y is relatively unchanged at 4.48% (after touching 4.50%). Overnight, the BoJ held their benchmark rate at -0.10%, leaving their 10Y yield band unchanged at 0.0% with a cap of 1.0%.  The Yen is weaker, with USD-JPY at 148.20, near one year weakness for the Yen.  Yesterday the BoE paused in a split vote and UK yields have trended lower across their curve as investors bet they've seen a peak in UK rates.  The dollar continues to be king, especially against the Euro where data has skewed weaker than expected. Overall yields continued to march higher, hitting new cycle highs and weighing on stocks, especially the Nasdaq.  I guess market participants realized you do have to discount future cash flows (even if some of those cash flows might be make believe) back to present value at higher rates.  When I see rates hitting the highest since 2007, I can't help but think of the events that transpired that year and into 2008 as the GFC took hold.  It's light on the data front with only S&P PMI's today and of course the slew of Fed speak will begin. We also have a noon deadline for the UAW to expand their strikes.

JPM research note by Joyce Chang had some interesting bullet points in their update to their 10 strategic investment themes, here are a few highlights:

• The 10Y real UST yield just crossed 2%, moving rapidly to our medium-term target of 2.5%, but can easily overshoot as markets are becoming quite worried about an inappropriately large US deficit. The US is starting to lose its exceptional funding ability as it is now having to pay a significant term premium. The fixed income asset class has in turn again become competitive versus stocks, with the US Agg indicating a 5%+ return this coming decade, against 7.0% on US equities.
• The Great Moderation is no longer. We retain the view that central banks will not change their official inflation targets but will over time be challenged by competing demands to keep economies at full employment and protect their governments from the growing power of bond vigilantes.
• There will be no abrupt de-globalization, de-dollarization, or US-China rupture, but instead there will be a slow diversification of financial and economic exposures, particularly in sectors crucial to national security. This is currently showing up most vividly in foreign outflows from China, helped by growing pessimism about long-term growth in China.

XTOD: Kendall Roy to take over News Corp

XTOD: The revival of the multibillion-dollar spy network, known as the Integrated Undersea Surveillance System, includes upgrading and expanding a network of underwater acoustic spy cables which are hidden in secret locations on the ocean floor

XTOD: To say that wages can't go up because productivity isn't rising may have the causality backwards. Productivity rose most quickly in the US when its wages were the highest in the world and its manufacturers were protected, either by very high tariffs (before WW2) or by the need of the world to import US capital (between WW2 and the 1970s). That is why American businesses during this time benefitted from surging domestic demand and invested so heavily in improving productivity. Wages during this time surged.  Since the 1970s, however, rather than lower unit labor costs by investing in productivity-enhancing technology, US businesses could do so much more easily and effectively by relocating production into a country that wanted to turbocharge growth by subsidizing manufacturing and logistics at the expense of households. This might have been acceptable had It just been small developing countries that did so, but with the participation of countries like Japan, South Korea, China, Germany and other Europeans, the cost has become too high.

XTOD: #Bonds are getting killed and the bloodbath is just getting started. The 10-year Treasury yield is 4.48%, the highest since Oct. of 2007. The 30-year, fixed-rate #mortgage should hit 8% next week. Next year the 10-year Treasury should yield over 6%, with mortgage rates near 10%.

XTOD: too long to repost, but feel free to read Bill Ackman's views on why yields should be higher here https://x.com/BillAckman/status/1705056634072863102?s=20

XTOD: By giving up industrial production, the West has given up industrial innovation.

XTOD: The first human patient will soon receive a Neuralink device. This ultimately has the potential to restore full body movement.   In the long term, Neuralink hopes to play a role in AI risk civilizational risk reduction by improving human to AI (and human to human) bandwidth by several orders of magnitude.  Imagine if Stephen Hawking had had this.

XTOD: Hundreds of humans who identify as dogs gather at a Berlin train station to advocate for the rights of people who identify as dogs.  The event was organized by a group called "Canine Beings."

Daily Economic Update: September 21, 2023

If you missed the FOMC yesterday, see here.  Post FOMC yields are back to cycle highs and stocks continue to be under pressure.  The 10Y is up 9bps to 4.43% and the 2Y is at 5.15% (touched 5.20%).  It has been surprising how well equities and credit markets have largely held up despite all of the hikes.  We get the BoE at 7am where it is thought to be a split on hold or hike.  We've already had the Swiss National bank hold rates this morning while the Swedish and Nowegian central banks announced hikes. A slew of data stateside including jobless claims, Philly Fed, Existing home sales and leading indicators.  Still have UAW, China issues, the growing rift between Canada and India, etc.

XTOD: Every member of the FOMC thinks that at least some of the recent favorable inflation news was transitorily transitory.  Specifically, hitting their forecasts for core PCE inflation in 2023 (which range from 3.5% to 4.2%) would require a step-up in inflation over the next months.

XTOD: H4L island is rocking!

XTOD: Same institution that brought us “no tech bubble” in 2000, “subprime contained” in 2007, “green shoots” in 2009, “funds rate through neutral” in 2018, “transitory” in 2021, is now peddling “higher for longer” in 2023.  Fade the Fed.

XTOD: Goldman Sachs Changes Forecast For Fed's First Rate Cut To Q4 2024 From Q2 2024 Expected Previously

XTOD: Retired boomers being given a golden opportunity to take risk off, 2% real rates across the tips curve...buy the ladder, and ignore the market for the next 30 years

FOMC Recap: What a long strange trip it's been

 

“He looked down and saw his friend, the man with the big yellow orange hat! George was very happy. The man was happy too.”

• Fed pauses as expected, leaving the Fed Funds target range at 5.25% to 5.50% and leaving QT unchanged
• FOMC members median Fed funds projections continues to show another 25bp hike in 2023, while the projected 2024 median Fed funds rate was increased 50bps to 5.1%, effectively removing two rate cuts from their previous 2024 projections
• Powell reiterates the need to stabilize inflation and that there is a "long way to go" to get there
• Indicates data dependence, "need to see more progress before concluding" policy is sufficiently restrictive, "we want to see more than just three months" that inflation and job data support a conclusion one way or the other
  
• Powell acknowledges that the short-run neutral rate may be higher than forecast

Like a monkey named George, I am also curious, curious as to how monetary policy lowers inflation with long and variable lags, whether we can get a soft-landing, or whether, as Bernanke once quipped, expansion don’t die of old age, they get murdered.  Since Jackson Hole much ink has been spilled (Claudia Sahm has had a few good articles recently) over why Americans appear to find themselves unhappy with an economy where the data shows rising growth and cooling inflation.  There is unhappiness with the rise of prices at the pump and in the grocery aisles.  Unhappiness with the state of pay and working conditions; unions feeling like they missed out on the gains after sacrificing during the pandemic, white collar office workers seemingly dissatisfied with commutes to back to the office.  And there is unhappiness with rising borrowing cost.

Over the summer, much was made of the man in the orange hat, Fed Chair, Jerome Powell being spotted at a Dead & Company show in Virginia. In a response to a question posed by representative Wiley Nickel at House Financial Services Committee hearing,  Powell replied “I’ve been a Grateful Dead fan for 50 years.”

As a self-professed Dead fan, I am certain that Powell can appreciate some of the wisdom inherent in the Dead's lyrics about the current state of the economy.  Here are some examples:

“Took my twenty-dollar bill and it vanished in the air…a friend of the devil is a friend of mine”

Many American's are still feeling the sting of inflation when they conduct their everyday affairs, feeling like their money is vanishing in the air.  Others wonder about the politicization of the Fed and "fiscal dominance", worried that the Fed will be forced to engage in financial repression to fund the fiscal agenda.

“I know the rent is in arrears the dog has not been fed in years / It’s even worse than it appears but its alright”

The cost of housing, whether it be the increase in rents or rising mortgage borrowing cost have been a source of pain for many Americans.

“’Cause when life looks like easy street, there is danger at your door”

On a recent episode of Bloomberg's Odd Lots podcast, Bill Gross stated: "We have an economy that's based on asset prices going up," "If they don't go up, there are problems".  I don't envy the Fed's challenge in gauging the impact on financial stability from monetary policy decisions, especially in a world where nonbank financial intermediaries play increasing important roles in the intermediation of credit.  As a reminder, it was only back in March when it seemed we were on the precipice of a larger banking collapse.

“Lately it occurs to me what a long, strange trip it’s been”

And lastly, structural changes in the economy may have been accelerated by the pandemic, with the last 3+ years certainly being "strange".

The standard story is the Fed raises interest rates which feeds through to asset prices, expectations, exchange rates and ultimately drives down demand as households and businesses change their investment and spending decisions. Inherent in the implementation of monetary policy are estimates of the "output gap", the difference between estimated potential output of the economy and the actual output, as well as estimates neutral rate (r-star), and the relationship between the level of unemployment and inflation (NAIRU).  To complicate all of this, the economy can face unanticipated shocks that can impact supply and demand.  A pandemic, a war in Ukraine, unanticipated cuts in oil production, labor strikes, a government shutdown, changes in technology, you get the picture. On top of all of that the Fed also needs to consider the impact of fiscal policy.  Clearly the size of deficits have grown and at present there is no sign that consumers are concerned about future taxation or so called "Ricardian Equivalence".  This makes it hard to see fiscal policy doing much to help reduce demand to cool inflation.  Measuring potential output and therefore the output gap in a dynamic economy seems to be a difficult science.

As Powell ponders heeding advice from the Dead, he might want to consider advice from a dead economist who some consider to be the greatest economist America ever produced, Irving Fisher. In Fisher's classic, 'The Money Illusion', he goes to great lengths to discuss the harms of unstable money, boiling it down to three evils: social injustice, social discontent and social inefficiency.  Fisher didn't believe the responsibility to stabilize money was solely the purview of the Fed rather it was shared responsibility between the Federal Government and it's independent central bank.  As it relates to deficits, he noted that “when a government cannot make both ends meet, it pays its bills by manufacturing the money needed” and further that “The government has an added responsibility when its own debts are involved. To borrow billions of dollars and then to depreciate the dollar is not even fair gambling. It is stacking the cards.”  Fisher didn’t absolve the banks or central banks from playing a role in the stability of purchasing power, noting that central banks are “properly expected to provide an “elastic currency” to expand or shrink with the expansion or shrinkage of the business to be done by it.”  While further providing that central banks “can make the money we all use easy or hard to get, and thereby prevent inflation or deflation.” 

It seems the Fed is currently trying to make the money we all use hard to get, so how might this all end? There are three main endings I see espoused by economic pundits (I can't or won't assess the probability of any of these outcomes):

1. "Soft Landing":  which would likely mean we remain with low levels of unemployment while continuing with real growth and low inflation.  The argument for this outcome are best summed up in a recent post by Marcus Nunes as follows: "The difference between now and past occasions, is that the Fed is “adjusting from above”. In other words, monetary policy is tightening, not to take NGDP growth down below its “normal” or stable value, but to bring it down to the stable level!"
   
   
2. "Financial Repression and the Age of Scarcity": the positive supply side forces of global cooperation, favorable demographics and technological productivity gains are reversing while economies will need to invest in areas like their militaries, climate, etc. while facing already high debt burdens.  Rising real rates and higher inflation might be here to stay. While not the only way out, as stated by William White in a recent article "The Case for Pessimism", governments might "try to limit the feedback effects on interest rates and debt service through administrative procedures and capital controls. So called “financial repression,” in which inflation is allowed to rise but interest rates are held down, was used successfully to reduce debt overhang after World War ll."  White isn't alone in this thinking, feel free to take a look at the work of Arslanalp and Eichengreen presented a Jackson Hole.  Both White and Eichengreen point out that financial liberalization and nonbank financial intermediation make carrying out financial repression policies more difficult, but a recent paper by Charles Calomiris discusses how financial repression could be pushed through the banking system by imposing a "high reserve requirements for zero-interest paying reserves".  
   
   
3. "Hard Landing - we've already gone to far - the Fed once again murders an expansion": Look no further than rising bankruptcies, falling commercial real estate prices, slowing of bank credit creation, a slow down in leading indicators, a slowing China, etc.  The U.S. money supply is falling for the first time since 1933.  Holding other variables constant the basic equation of monetarism would say a falling money supply will lead to falling prices, eventually deflation.  The concern for some in a levered economy are that, falling asset prices can lead to unexpected deleveraging which can spiral into a financial crisis.  Related to this concern is that as the increases in interest rates continue to filter through to the economy through rising borrowing cost, this could lead to potential defaults, falling asset prices, and again a spiral as the wealth effect leads to decreased spending, leading to job losses, leading to recession.

I'm certain there are other scenarios or ways to describe these scenarios, but I'm just as certain that I don't know how this plays out or what other shocks to the system will occur in the meantime. In the meantime, some parting thoughts for Powell from the Dead:

 “There is a road, no simple highway / Between the dawn and the dark of night / And if you go, no one may follow / That path is for your steps alone”

Daily Economic Update: September 20, 2023

FOMC day is upon us, come back to this page in the 3pm hour for a recap.  After rising to new cycle highs (highest levels since 2007), U.S. yields are down a few bps to start the year, the 2Y is down 4bps to 5.07% and the  10Y is down 2bps to 4.34%.  After Canada's inflation came in hot yesterday, this morning we have a UK inflation slowing to the lowest level in the last year and change, coming in at 6.7% YoY (it's still a 6 handle...but I guess that's better than 7).  We also had German PPI falling 12.6% YoY.   Oil falling some on the data.  Of course the topic of the day is the Fed decision at 2pm and Powell presser at 230pm.  The market is pricing a Fed on pause, so all the focus will be on the tone of the message as participants look for clues as to whether another hike is expected this year and the path forward.

XTOD: "Supply-side constraints exemplified by the autoworkers’ strike & rise in oil prices will cast a hawkish shadow over the FOMC meeting that starts today. Powell is likely to embrace some version of the higher-for-longer policy that is increasingly being priced in:" Citi analysts

XTOD: A recent study of the decline of happiness in the US since the 1990s found that "arithmetically, most of the overall downturn is attributable to the decline in marriage."

XTOD: BIDEN SAYS DEPLETING SPR IS ON TABLE: WSJ  The Strategic Petroleum Reserve (SPR) was created in the 1970s to prevent this from happening again (gas lines that created havoc in the US economy).

XTOD: Another sign of a tight US labor market: Amazon is planning to hire 250,000 holiday workers to pack and store warehouse items, up from 150,000 last year, & is offering more pay. While this reflects a shift to online shopping, it speaks to economic strength

XTOD: We asked investors & economists what is behind the ~50bp rise in real longer-term yields in the past 2m, mostly they attribute it to higher for longer Fed policy, good data and large deficits

XTOD: To the ‘BlackRock and Vanguard own every company and are the secret puppet masters of the universe’ crowd, please Google search the meaning of ‘index funds’ and then never tweet again.   Sincerely,  Everyone else 

XTOD: We all have two lives, and the second begins when we realize we only have one"

Daily Economic Update: September 19, 2023

U.S yields start the day largely mixed with the curve slightly steeper.  The 2Y is down ~1bp to 5.05% and the 10Y, relatively flat around 4.31% .  The OECD was out with their interim economic outlook  in which they provide: "A key risk is that inflation could continue to prove more persistent than expected, which would mean interest rates need to tighten further or remain higher for longer."  Oil remains a focus as markets ponder the feed through of sustained oil price increases into higher energy inputs to power goods and services and therefore into core inflation.  The bizarre flash crash in Treasuries early yesterday morning and the story of the missing F-35 made for fun headlines. Yellen was out yesterday talking about the economy and seemed to describe the job market as cooling some but indicated a higher for longer view.

On the day ahead we have Housing Starts and Building Permits as well as the 20Y Treasury bond auction.

XTOD: Nothing to see here.   We should probably get back to looking for that missing F-35B bomber that flew away without its pilot.

XTOD: Almost every hard landing looks at first like a soft landing  What's standing in the way of a soft landing now:  -The Fed staying too high for too long -A too-hot economy -A rise in oil prices -A financial market rupture
"Planes land. Economies don't."  https://wsj.com/economy/central-banking/why-a-soft-landing-could-prove-elusive-3d17e134?mod=hp_lead_pos1

XTOD: Economists and investors are diverging on how they see future Fed policy. Markets are implying the Fed is done with rate hikes.  But almost half of economists surveyed by the FT think the Fed will raise rates twice or more from where we are now.

XTOD: My favorite FinTwit bio archetype is the “ex- hedge fund CIO.” Because you know there’s a story there…

XTOD: The Pentagon: We lost $2.3 Trillion  The White House: We lost $6.2 Billion  The Marines: We lost an F-35 fighter jet  The IRS: If you venmo your friend $600 we are going to audit the shit out of you

XTOD: The conversation below between Janet Yellen and Hillary Clinton praises the Biden administration for its embrace of what Yellen calls “modern” supply side economics, which calls for expanded government involvement in directing financial investment toward its favored projects. This is the ultimate “trickle-down” approach, substituting bureaucratic dictate for free market innovation. It empowers and funds the growth of government at the expense of private enterprise. And meanwhile, the Fed fights the inflation unleashed by massive deficit funding of such projects by raising the cost of capital. This hurts private individuals who cannot afford higher mortgages, squeezes out small business and penalizes all borrowers (except the government).

XTOD: This idiot Peterson doesn't know that he doesn't know a thing about finance. Vanguard, Blackrock & ALL others (including YOUR own retirement funds) by virtue of INDEXING, will own stuff blindly stocks across market indices. Of course Pfizer, J&J, etc. since they are large caps!

Daily Economic Update: September 18, 2023

A big week for central banks begins with yields up 2-3bps, the 2Y at 5.06% and 10Y at 4.34%, approaching or touching the highs of the year as the continued rise in oil prices and am markets continue to digest last week's inflation data.   On the week ahead we have 3 major central bank decisions, Wednesday's FOMC, Thursday's BoE and Friday's BoJ.  Of most interest stateside is the FOMC meeting. It is a near certainty the Fed will hold policy rates, so markets will focus on clues as to whether another hike is likely in November and how the FOMC revises their Summary of Economic Projections (aka the "dots").  
The UAW strike, possible government shutdown, rise of oil on production cuts, the weakness in Chinese real estate, the ongoing war in Ukraine, etc. all add to economic uncertainty.

Today: NAHB (Housing market index)
Tuesday: Housing Starts & Permits
Wednesday: FOMC
Thursday: BoE, Jobless claims, Philly fed, Existing Home Sales, Leading indicators
Friday: Markit Flash PMIs, BoJ

XTOD: I'm the qualitative guy, not the quantitative guy, and I've been spending the last two months collecting stories and anecdotes on how the economy is croaking.  I have 4,000+ subscribers to TDD, from a range of industries, and they're all saying the same thing: look out below. ....This data is near real-time--I get it before the Fed gets it when it ends up in the Beige Book. And it's all saying the same thing: a recession is coming.  The easiest way to play it is in the front end of the curve.  The Fed will cut in the next 6-9 months. There isn't much danger of short rates going materially higher, so you can easily build a position in 2s, 3s, or 5s and wait for the poison to take effect.  When the Fed cuts, they won't cut 50 or 100bps.  They will cut 300 or more.

XTOD: Why can't we shake the gloom? It's more than inflation or higher prices.  What should be good news for people seems to be falling flat, even relative to prior times with high inflation....In closing. If it's not inflation, where is the extra gloom coming from? The pandemic and its aftermath fit the timing and the severity—to say nothing of the total lack of precedent—that could explain why sentiment is lower than expected. I explain in my piece:... It doesn’t require everyone to still talk about or even think about Covid-19. The pandemic and our responses to it touched all our lives somehow. Concerns about high prices almost always refer back to pre-pandemic. It is a salient touch point, and one that has stuck around.  Supply chains aren’t fully back to normal. Why would you expect people’s views on the economy to be? It is important to understand what ushered in the extra gloom. If you want to play the blame game, blame Covid. 

XTOD: An inflation update: in the past I've focused on a measure that excludes lagging shelter and used cars as well as food and energy. Just to note that it adds to the evidence that inflation has been largely defeated

XTOD:  High gas prices are apparently both the cause of and the cure for inflation. Never reason from a price change.

XTOD: FWIW - I don't think it is at all a coincidence that the worker strikes and unionization movements all seem to arise with non-work-from-home employees.  The sense of powerlessness and uncertainty they experienced was far higher than white collar workers. In their eyes, they experienced stacked vulnerabilities while others gained stacked privileges.  These strikes aren't just about money, they are about regaining confidence and if that has to happen at the expense of the confidence of management and shareholders so be it.

XTOD: I fully agree with Christian Lindner who says: “The capital markets do not distinguish between the noble or less noble motives for which debt is incurred and what it is invested in. They simply judge whether is it sustainable or not sustainable.”  A strong case for the use of DSA

XTOD: There are three primary reasons why the U.S. may be unprepared to win a war against China over Taiwan:  1. Domestic Fragmentation 2. The War in Ukraine 3. Lack of Industrial Readiness

XTOD:  America's bagel chains are complete trash. Einstein's, Noah's, and Dunkin' Donuts produce some of the worst tasting bagels (and coffee) you can buy. Someone needs to build the next great bagel chain and put all of these f*ckers out of business