Daily Economic Update: October 24, 2023

 

Volatility in bonds continues with a big intraday move in yields yesterday, as the 10Y moved off the 5% level and fell 15bps. The move was largely attributed to be market reaction to tweets by Bill Ackman and a lesser extent Bill Gross (see XTODs below).  Today yields are moving slightly higher with the 10Y up to 4.86% and the 2Y at 5.08%.  In data it will be S&P PMI's (EU PMI's were weak this morning) and Richmond Fed Manufacturing.  The Treasury will auction 2Y notes and in equities, the start of big tech earnings today with MSFT and GOOG after the close will be the highlight.  

XTOD: We covered our bond short. There is too much risk in the world to remain short bonds at current long-term rates.  The economy is slowing faster than recent data suggests.

XTOD: Bill Ackman, once a vocal proponent for higher rates and shorting Treasuries, just covered his profitable bearish bet and stated that “the economy is slowing faster than the data suggests”.  Hence this Treasury turnaround.

XTOD: This is incredible: At 9:45 AM ET today, Bill Ackman posted that he covered his bond shorts. 4 hours later, the 10-year note yield is down 15 basis points, on track for its biggest daily drop in 2 weeks. This comes nearly 2 months after he publicly took a large bond short position. Ackman said there is too much risk in the world to continue shorting bonds. He also said that the economy is slowing faster than recent data suggests. Bond markets continue to make history.

XTOD: Something's going on with NFL passing offenses.  - Lowest passing TD% since 1993 - Most sacks per game since 1997 - Fewest yards per reception .... EVER???  All 33 NFL seasons with the fewest yards per reception in the history of the sport happened after Taylor Swift was born.  These are just the facts okay.

XTOD: We made it through Black Monday

XTOD: “Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and an ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.”  -Jens Parson

XTOD: Parents of young athletes: You're being sold a bill of goods…  Early specialization…It's a fear campaign…Its a billion dollar dumpster fire saying: To become a great athlete you must: Specialize early…Train year-round…Compete often…If you don’t your child is going to miss out and fall behind  ..And for the most part:  It’s complete bullshit…What it really is: Early Development of sport-specific skills. Early success in sport..Little to no development of fundamental movement skills ...Poor performances later in the sport..Higher chance of injury..Higher Chance of Burnout from Sport - Early start…Early finish!  It's a complete lack of understanding of how humans develop…

Daily Economic Update: October 23, 2023

 

This week starts with the 10Y yield already up ~9bps and back over 5% at 5.01%  and the 2Y climbing around 5bps to 5.12%. The catalyst cited is the unwinding of "flight to quality" positions as we headed into the weekend with unknowns in the war between Israel and Hamas.  The last time yields were above 5% "the number one song on the Billboard Hot 100 chart was "Crank That (Soulja Boy)" by Soulja Boy Tell'em (according to ChatGPT at least, I didn't verify the result). This song held the top spot for several weeks in 2007.. .  

Equities are currently looking weaker ahead of tech earnings. I'm uncertain as to whether Chevron buying Hess will increase the value of Hess toys collections.

Markets continue to wrestle with "higher for longer" as solid economic data has led Fed officials to talk up the prospect of rates not returning to lower levels for some time.  The curve has continued to un-invert via a bear steepening as opposed to the consensus view of earlier in the year that the dis-inversion would come from lower yields in the front end of the yield curve, via Fed rate cuts.  The "there is no way 10Y yields will get over 3% crowd, turned into the there is no way the 10Y yield will get over 4% crowd and is now the there is no way rates will stay over 5% crowd".  On the fringes you continue to hear some talk from the fiscal dominance camp or the treasury market instability camp around how the Fed will be forced into Yield Curve Control, but overall, the talk is about term premiums and the lags of monetary policy as the areas for markets to focus.  

Talks of strikes have fallen out of the media cycle but UAW strike is still out there and there's still no Speaker of the House.  Sunday's 60 Minutes reminding viewers that Chinese espionage is a threat to American's way of life.

The week ahead features GDP, PCE, Bank of Canada, ECB.  The Fed is in a blackout period as we approach the November 1 FOMC decision (markets are pricing in almost certainty of the Fed holding policy rates):

Today: No economic releases

Tuesday: S&P PMI's, 2Y Note Auction

Wed: New Home sales, 5Y Note Auction, Bank of Canada

Thur: GDP (3Q Advanced), Durable Goods, Jobless Claims, European Central Bank, 7Y Note Acution

Friday: PCE, UofM asking about gas prices

XTOD: Real Life Dune https://x.com/netcapgirl/status/1715747743212130398?s=20

XTOD: Workers are the unhappiest they've been in 3 years—and it can cost the global economy $8.8 trillion https://www.cnbc.com/2023/10/02/-employee-happiness-has-hit-a-3-year-low-new-research-shows.html?utm_content=Main&utm_medium=Social&utm_source=twitter%7Cmain

XTOD: Fed's latest Financial Stability Report is out. I thought it was less interesting than usual, in part because there were few special "box" sections. But there are still some helpful things:  Fed staff finds term premium still historically low (yields have risen a bit since Sept).  Common measures of Treasury market liquidity are still not good, Median interest coverage ratios for firms remain within historical ranges, in part due to much of the debt taken out a low rates. Some deterioration is being seen in the lowest rated debt. Default rates on lev loans are rising but still historically low.  House prices are expensive on a price to rent ratio. Bad for home buyers, but it is also boosting wealth of homeowners. Almost ALL homeowners have some equity. Does not look like there will distress there.  Household credit quality overall remains within historical ranges - auto loan and credit card defaults rose but are not high.

XTOD: What, precisely, can "monetary policy" do in the face of commodity shocks, transport and production shocks, and real-resource strains?

XTOD: Ah it's a Zoltan weekend I see. 1. There is a yield curve shape that would require a Fed response - current shape is not this shape by 100's of bp.  2. Before the Fed bought to constrain a 300bp positive 2's 10's slope they would change regulations on SLR to encourage private sector bank curve riding again  3. Long term treasury buying (QE not YCC) in a wartime environment is certainly possible.  What trade would one do today?  Buy gold?  Sure it's already up.  Sell USD. Probably but for what?

XTOD: I criticize parts of the Fed all the time and will continue to do so. It’s a civic duty!  With one huge exception.  @FedFRASER  is the most fabulous collection of documents and professionals there is, I will brook no dissenting views.

XTOD: Your time is your most valuable asset.  Leverage it wisely by focusing on what truly matters.  #TimeIsLeverage

XTOD: Thank you for the kind words. I hope people listen to the speech.  https://twitter.com/i/status/1715736101627834414

XTOD: Complexity is job security for many advisers.

XTOD: Connecting everything tightly together has downsides

Daily Economic Update: October 20, 2023

It hit 5 already, you could leave early... jobless claims once again proved you can't get fired (not career advice - you definitely can get fired - and probably for reading this while you should be working) and anyway I mean 5 handle on the 10Y.   The 10Y did cross 5% in the evening yesterday, but is now back down 4-5bps to 4.95%.   The 2Y is also lower, yielding ~5.16%.   Reuters reports that "The yield on the benchmark 10-year Treasury...has risen by 30 basis points this week - marking its biggest weekly rise since April 2022." (JPM research calls the WTD change 35.9bp...guess it matters what you call the open and close).  The next bond market watch is for the un-inversion of the 2s10s curve.

The prospect additional spending associated with Biden's Presidential address may have helped pushed yields higher last evening.  The USD:JPY also hit 150 last evening, despite Japanese inflation coming in at its lowest level in a year at 3%

There is no economic data today.

 

If you missed it yesterday, Powell was viewed as "dovish".  Powell gave a nod to 'long and variable lags' and the idea that the bond market is doing tightening for them, a premise that seems somewhat shaky or at least predicated on the Fed being a credible actor.  In his opening remarks Powell said the following:

• " inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal"
• "the labor market is gradually cooling"
• "the record suggests that a sustainable return to our 2 percent inflation goal is likely to require a period of below-trend growth and some further softening in labor market conditions"
• "The stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation. Given the fast pace of the tightening, there may still be meaningful tightening in the pipeline" 
• "Financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening. We remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy." 

In the Q&A he hit on some of the following - along with my commentary in red:

• economy may be less interest rate sensitive - this one bothers me because those long-dated fixed rate liabilities are someone else's assets, hasn't Powell seen everyone complaining about bond losses on bank balance sheets?
• there's no precision in our understanding of lags, because forward guidance means markets should anticipate moves - I think I agree with Powell here, but isn't he saying that long and variable lags don't exist? Or is this all a "sticky price" thing?
• he seemed to hit on aging population and the good old Bernanke 'global savings glut' and uncertainty over long run growth - still no clue what the neutral rate is
• David Westin repeatedly tried to ask Powell what his hypothesis is around how rates impact the economy and what his sense is of the neutral rate.  - I'm not sure if Powell's answers basically implied he's some sort of market monetarist now, we'll know things are working when we see things working
• tails are really wide, but they happen more regularly than they should - Powell sounds like Nassim Taleb now
• longer term yields are not being driven about expectation of higher inflation or about shorter-term policy moves, so it's really term premiums and potentially bets on higher growth, as well as deficits and QT
• Powell talks about how long term yields impact financial conditions which impacts economic activity, hiring and inflations - Powell then hits on whether the change in longer yields is endogenous (dependent upon the Fed following through).  MS Research hit on this here 
• Does Powell consider fiscal policy when setting monetary policy?  - Powell calls the fiscal path unsustainable, I sensed tears from Stephanie Kelton.  Good to know the Fed doesn't believe their at risk of fiscal dominance, I can rest easy now.
• Powell says higher bond yields literally works by tightening financial conditions, as long as yields are rising for reasons other than those that they are expecting the Fed will be doing something, then they are tightening conditions and that's what the Fed is trying to achieve -  seems a little circular, but sure
• Most of the inflation wasn't from the Phillips curve it was the collision of strong demand and constrained supply - classic, supply and demand intersects at price, well played

XTOD: Powell: "We don't focus on fiscal policy."   Sure, for now. However, an "unsustainable (debt) path" can lead to fiscal dominance where the Fed is forced to keep the U.S. government solvent, gives up control of the price level, and becomes one with fiscal policy.

XTOD: I love the new way of baseball….where the pitcher is dominating and they go to the bullpen to see if one of those guys can pitch as good as the starter!

XTOD: Powell engages in a little trash-talk to kick off the game of chicken that Sargent and Wallace envisioned.

XTOD: Focusing on stable prices require fiscal policy to be consistent with that goal. On the other hand, what else could he say? He is trying to do his job

XTOD: [not a tweet, but I won't tell you what twitter tells me comes after "Hot Girl Summer" for the fall moniker...maybe you'll get a different answer]

XTOD: The year is 2027. Tens of trillions of sov bonds have been added to CB balance sheets around world. A summit is held in which CBs forgive the debt owed by their respective Govs.  S&P, Fitch & Moody's immediately upgrade the Sov ratings. Fintwit freaks out and says it isn't fair.

XTOD:.....I estimate from about 35% to about 50%. A hot war in another part of the world, like the ones in Ukraine and in Gaza, with the US playing a role like it is playing in the other two wars, would strain the US in classic ways that caused other past empires to become weakened by being over-extended, which would be another notable step toward a more global war.

XTOD: your kidney can go for like $300k and you only need one to survive 

god gave us all startup capital. you just have to want it bad enough

XTOD: Cash has ZERO upside, ZERO convexity and a 💯 Reinvestment risk.Just saying.

XTOD: It’s true the classic 60/40 stock-bond portfolio had a bad 2022, but that doesn’t make it a bad long-term strategy. A 60/40 portfolio “reduces the probability” of a large loss, it does not eliminate losses. If you were told anything else, you were told in error.

XTOD: If you have a 2.9% mortgage locked in, I have one piece of advice for you:

Refinance at 8% right now

The higher rate will motivate you to grind harder, and you'll end up becoming much wealthier in the long run

Daily Economic Update: October 19, 2023

 

Yields continued to rise as the 10y has a 5 handle in its sights.  This morning the 10Y is hitting new local highs yielding 4.96% and the 2Y is yielding 5.24%.  Yesterday, the 20y auction was well bid, but it's the 20y, so I'm not sure how much you'd want to read into that, especially not when there is plenty more supply coming from Treasury.   The lifting of some sanctions on Venezuela raises the prospect of additional oil supply which is helping to keep oil prices contained.  

Speaking of Treasury and sanctions, yesterday they announced new sanctions geared towards Iran and Hamas. The role that crypto has played in supporting terrorism is certainly a story to watch, especially as the SEC continues to consider crypto ETF's.

In Fedspeak - I guess we're at the part of the inflation cycle where we can blame continued inflation on people at home playing video games ???  See Governor Bowman: "What has been somewhat surprising, however, is that the relative strength in goods spending has persisted, rather than reverting to its pre-pandemic trends. This pattern we see in the U.S. is also unusual relative to other advanced economies, where the composition of goods versus services spending appears to have returned to historical norms. There are a number of potential explanations for these newly emerging spending patterns—some that would likely be temporary, and others more lasting. For example, the strong sales of computers, televisions, and video game consoles this year might reflect some ongoing pent-up demand following earlier supply shortages, or they might reflect a more permanent change in preferences for these goods due to the greater amount of time many of us are spending at home."

Maybe staying at home and watching TV is to blame, I mean look at how Netflix is trading post earnings.

Readers generally know that I've generally been open to questioning the standard narrative about how interest rates lower inflation (I'm not saying it is incorrect, just that it's worth examining).  Steve Williamson, formerly of the St. Louis Fed researcher had this to say on his substack yesterday: 

• Basically, according to these people, a disinflation is produced by high interest rates. “Demand” is too high relative to “supply,” an increase in the nominal rate of interest increases the real rate of interest, which reduces demand, which reduces the rate of inflation. It’s basically an IS/LM/Phillips curve story.
• if the central bank narrative is correct, why did inflation come down? In the basic narrative that reduction in demand shows up as a decline in economic activity and an increase in the unemployment rate - it’s not something I can see
• given this modern framework for monetary policy, central banks have a rather strange view of how inflation control works. For example, central bankers want to engineer a disinflation not through some means where we know where we’re going in the long run (low inflation, low nominal interest rates, economy humming along), and anything bad that happens is due to non-neutralities of money. Instead, they seem to think that disinflation works through the non-neutralities of money, as if Volcker reduced inflation because he induced a recession. Basically, we control inflation by controlling the unemployment rate. And we’ve known for a long time that that’s a messed-up approach - or maybe some people forgot.
• The danger here is the following. Long-run neutrality - inherent in all the dynamic models we work with, essentially - says that higher nominal interest rates ultimately engender higher inflation. That’s just Irving Fisher. That’s why the long run world with low inflation has low nominal interest rates. So, in a disinflation, engineered by the modern central banker, that central banker eventually has to find a reason to reduce nominal interest rates. What would make our central banks cut interest rates? More unemployment? Inflation at target? Both?
• The risk is that, if high nominal interest rates persist, then so does high inflation. How high?
• Serious disinflation is something that has never been done before in the context of modern central banking frameworks (inflation targeting and nominal interest rate rules). I wish I were more confident in BoC and Fed people, but they worry me.

…..of course Steve could be completely off-base and it’s just a matter of time until the ‘long and variable lags’ kick in.

On the day ahead we'll get Powell talking as well as jobless claims and leading indicators

....and if you're looking to read something different, have fun with this super-long "The Techno-Optimist Manifesto" from Marc Andreesen.

XTOD: Beige Book: "There were multiple reports of firms modifying their compensation packages to mitigate higher labor costs, including allowing remote work in lieu of higher wages, reducing sign-on bonuses or other wage enhancements"...... "shifting compensation to more performance-based models, and passing on a greater share of healthcare and other benefits costs to employees." ..."Contacts across many Districts reported less pushback from candidates on wage offers. "

XTOD: 2019-2022 was the largest 3 year jump in wealth over the past 30+ years  More than double the next largest increase on record  I wonder why we haven't had a recession yet? (crazy this period includes one of the worst years ever for 60/40 portfolio too)

XTOD: The 2022 net worth data for U.S. households was just released: 25th pct = $27,000 (was $12,410 in 2019) 50th pct =  $192,700 (was $121,760) 75th pct =  $659,000 (was $404,100) 90th pct = $1,936,900 (was $1,219,500) 99th pct = $13,615,400 (was $11,121,100)  Blog coming next week

XTOD: SCF early impression: America is flush with auto asset wealth.  (But are autos truly wealth? A thorny wealth inequality question suddenly has some higher stakes with it.)  https://federalreserve.gov/econres/scf/dataviz/scf/chart/#series:Owned_Vehicles;demographic:all;population:all;units:median.

XTOD: The thing to remember is that the median household has essentially zero financial assets. They have a house (the large majority of their wealth), then some liquid savings and a car. Past 3 years saw a big jump in housing, liquid savings, and car values, and it shows in the SCF. 

XTOD: Having fun with the new SCF microdata (and learning the R package "gt"). Here's a table showing how each age group got richer over the pandemic. Housing price inflation was an enormous boon to gen Xers https://twitter.com/riccoja/status/1714803786030444646/photo/1

XTOD: Student Loan Payments Will Have Minimal Impact on U.S. Economy, Fed Research Shows

XTOD: My view is that the modern media is set up to deliver a very negative view of tight labor markets. Tight labor markets are great for workers but not for employers and (to a lesser extent) investors.  Guess whose voices drive most economic coverage? Employers and investors.

XTOD: Bored Ape Yacht Club. WTF was that?

XTOD: ‘Growing concerns over the US government’s near $2tn annual budget deficit, which were exacerbated by Fitch Ratings decision in August to cut the US debt rating, have only added to upwards pressure on yields, investors said.’

XTOD: TL;DR: I'm leaving @LinkedIn! Will take some time off and then figure out what's next. :) Longer version below...10/ What's next? Spending a lot of time with my wonderful family and figuring out what I want to do next! It'll probably have to do with economics, so stay tuned. (And if you have an interesting opportunity, please reach out!)

XTOD: No, I think Congress will balance the budget. Means test entitlements. Fewer generals and F35s (shitty airplane anyway). Financial transaction taxes on leverage. Then clean house in the Caymans.   "Its easy if you try"

XTOD: War does not resolve any problem. It only sows death and destruction, increases hate, multiplies vengeance. War erases the future. I exhort believers to take only one side in this conflict: the side of peace – not in word, but in prayer.

Daily Economic Update: October 18, 2023

 

The beat in retail sales, including the revision higher of prior retail sales, sent yields to highs generally not seen since 2007, with the 10Y crossing 4.80% and the 2Y crossing 4.20%.   This morning yields are off those local highs with the 2Y down ~3bps to 5.18% and the 10Y down ~1bp to 4.83%.  Crude is looking at reclaiming $90 (WTI) on supply concerns. 

 Overnight, China's retail sales data beat expectations and this morning's UK inflation data beat expectations coming in at 6.7% YoY

The hospital bombing in Gaza further complicates Biden's trip to the region, which will now just be a meeting with the Israeli's as several Arab leaders all canceled their planned meetings with Biden. We still have no speaker of the house as we tick time away towards another government shutdown.  Despite all the negative, Atlanta Fed GDP Now is showing 5.4% for 3Q.

Yesterday's Fedspeak featured Barkin commenting something along the lines of, while the data is good, the vibes are bad and Kashkari saying inflation is too high.

On the day ahead it's housing starts, building permits, the 20Y auction, Fed Beige book and of course more Fedspeak. 

XTOD: Happy 1 year anniversary to the 100% chance of recession forecast that never happened

XTOD: Well as someone who runs true alts I wouldn’t go that far :)  But PE and private credit are not alts. Not close. They are full blown beta, often levered beta for PE, at massive fees with #volatilitylaundering.

XTOD: NEW: Private equity is making a huge new play in HVAC and energy services, buying up heat pump installers.   Part of an alarming trend: After big subsidies in IRA, enviros said prices of heat pumps would fall. Instead, they’re rising:

XTOD: ICYMI COLUMN: Exactly 50 years ago today, Arab nations weaponized oil against the US. 

Soon, America created a defensive shield: the Strategic Petroleum Reserve.  Now, the US needs to refill the SPR, which is at a dangerously low level. #OOTT  https://bloomberg.com/opinion/articles/2023-10-17/energy-policy-the-us-needs-to-refill-its-dangerously-low-oil-reserves?utm_source=website&utm_medium=share&utm_campaign=twitter | 

@Opinion

XTOD: The problem, Minsky argued, is systemic. When prices rise rapidly year after year, all you need is a normal distribution of risk-taking behavior among economic entities, in which case the overall system tends automatically towards leveraging up dangerously on property.

XTOD: What a scam!  UK private equity groups sell assets to themselves as exit routes dwindle 

Disposal of portfolio companies to ‘continuation’ funds becomes preferred strategy to return cash to investors  https://ft.com/content/042b1aa9-5f8f-4adb-9d93-83ddd2e83165 via @ft

XTOD: On CRE exposure:  $BAC Analyst: "...I just wanna make sure I heard correctly. Did you say you marked your exposure by 50% in CRE office?" 

$GS CFO: "Yes, to clarify, for our CRE in the office space, we've either marked or impaired that down by ~50%...that's quite significant"

XTOD: *SCHUMER SAYS `THE HOUSE IS SORT OF A MESS'  me to my husband

XTOD: BREAKING: The U.S. tightens the reins on Nvidia chip sales to China, a crucial move in controlling AI advancements. $NVDA is currently down close to 7% due to this news.  

The shocker? On July 27th, Nancy & Paul Pelosi swiftly offloaded their entire 25,000 Nvidia shares.

Daily Economic Update: October 17, 2023

 

Yields decided to take a break from bull flattening to resume their bear steepening, as the 10Y rose ~8bps yesterday to close above 4.70% while the 2Y rose only ~4bps to close at 5.10%.  This morning that move continues with 10Y moving another 5bps higher out to 4.76% while the 2Y is ~5.11%.  Markets continue to monitor foreign and domestic politics. Biden to travel to Israel tomorrow and domestically it's possible there is a vote to install Jim Jordan as Speaker of the House. There is still the ongoing UAW strike and in other financial news China's CRE is still a mess, as Country Garden debt could end up in default, and in the UK wages rose less than expected but still was up 8.1% YoY, so I guess inflation is under control.

On the day ahead we get BofA and GS earnings, Retail Sales, Industrial Production, Bowman and Bostic .

XTOD: Too many people are playing life like it's a single player game.   That's like trying to solve a puzzle with only half the pieces.

XTOD: Scientists propose sweeping new law of nature, expanding on evolution http://reut.rs/3LZ21uk

XTOD: Worth the read The Loser’s Game   By Charles D Ellis

XTOD: There's no free lunch. Save on labor, lose it to theft.

XTOD: No priority ever goes unfunded. If the votes are there, the money is there. 

True for defense.

True for Medicare.

True for Social Security.

XTOD: Yardi: "Multifamily rents turned negative in September, with the average U.S. rent declining $6 from August and $3 during the third quarter."  "It marked the first time since 2009 when national rents decreased in September."

XTOD: A fake news report that sparked a brief 10% rally in Bitcoin is shining a spotlight on a crypto industry that’s waiting with bated breath for the arrival of mass-market ETFs

XTOD: Bosses want people back in the office, but employees are finding a workaround—it's called 'coffee badging'

Daily Economic Update: October 16, 2023

 

Last week ended with UofM sentiment declining and showing rising inflation expectations, but all of the data is currently taking a continued (and justified) back seat to the wars.  On the week ahead, the highlights in data will be retail sales, industrial production, housing data, earnings and of course whatever Fed officials have to say (I believe there are something like 17 fed speeches this week - with Powell on Thursday as the highlight).

Today: Empire Mfg, Fedspeak

Tue: Retail Sales, Industrial Production and more Fedspeak

Wed: Building Permits, Housing Starts and still more Fedspeak

Thur: Jobless claims, existing home sales, Powell Speech at 12pm

Fri: and more Fedspeak

XTOD: How the drivers of US yields have evolved this (last) week: Monday/Tuesday: Dovish statements from #FederalReserve officials (lower yields); Wednesday/Thursday: Somewhat hotter than expected (PPI and CPI) inflation numbers (higher yield); and Today: Geopolitical concerns (lower yields).

XTOD: When researchers analyzed the performance of 18,000 regular gamblers in casino games, only 13% won over a two-year period.  But, less than 1% of day traders reliably generated a positive return two years running. Bookmark this 🧵 for the next time you feel like day trading:

XTOD: 2023 study: “Our thesis is that a primary cause of the rise in mental disorders is a decline over decades in opportunities for children and teens to play, roam, and engage in other activities independent of direct oversight and control by adults."  Psychologists sometimes talk about "get out of your head and into your body." You know what's really good at doing the opposite: taking you out of your body? Spending hours craned over at a screen where people you'll never meet are saying stuff that makes you feel a certain way.

XTOD: this is absolutely wild but my favorite bit is maybe when someone asks "what's the #1 thing that CZ might find in diligence that could blow up the deal" and she's like "oh nothing, FTX is pretty straightforward, except for the customer funds shortfall."

XTOD: I said it about Elizabeth Holmes, and I’ll say it about SBF: they are both functionary scapegoats. That does not mean they’re not both incredibly guilty and deserve to be punished to the full extent of the law. It means the serve a psychological and social role in our society. If you don’t understand that they fulfill the role of scapegoats—that they are stand-in’s for the guilt of many others—you don’t understand Girard’s theory.

XTOD: The surge in private credit has led to significantly compressed lending spreads relative to history. The argument is that these funds are lending to better credits. But anyone who has been through a few credit cycles knows that when spreads squeeze forward returns suffer.

XTOD: If a war with China over Taiwan takes us by surprise, we will have only ourselves to blame. We were blindsided by Ukraine, blindsided by Israel. By now we should have learned that the world is a more dangerous place than it was five or ten years ago.

Daily Economic Update: October 13, 2023

 

CPI came in above expectations including a rise in rents and owners' equivalent rents. On the Friday the 13th ahead we get JPM earnings, Import Prices and UofM survey of gas prices (kind of).

Heading into the weekend we still have many of the same question marks around wars, strikes, China's economy, the next House Speaker, impact of continued high deficits.

Lev Menand on Macro Musings 10/2/2023:  The thing to keep in mind is that the federal government has three core strategies for dealing with a mismatch between its revenues and its expenditures. It can increase taxes, it can borrow existing money, or it can print new money. There are obviously other things that the federal government can do, but we don't think of those as core strategies. It can seize goods, in kind..... We generally think of the US government only using the first two that, that third strategy of printing money is generally not thought to be on the table.

Reuters had a good infographic on the Hawk/Dove spectrometer which includes some of the recent quotes from Fed members

XTOD: CPI analysis:  Ex food, healthcare, transport, energy, vacation, entertainment, medicine, baseball cards, Rolex, Tesla, Perrier, dog food, vacuum cleaners, office supplies, light bulbs, batteries, diapers, matches, cable TV, vinyl albums, pretzels, real estate commissions, real estate, pots and pans, sunglasses, glasses, goggles, pizza, pasta, cookies cake coffee tea, and soda, it was a historically weak report.

XTOD: XTOD: Core #CPI remains persistently elevated. Full stop. You can slice and dice the data to tell the story you want to see in the data, but that's a dangerous game to play. .....What's it all mean? * The journey from 4% to 2% will be harder than 9% to 4%. *The longer inflation remains above target, the more entrenched it becomes. *Additional rate hikes aren't inevitable, but definitely not off the table.  10/10

XTOD: 'This is no longer about when the peak will get here – it's about where inflation is going to decline to. From 6.6% to 4.1% was the easy part. From 4.1% to 3% is going to be difficult. From 3% to 2%? So far, I don't see anything that gets us there.' https://inflationguy.blog/2023/10/12/summary-of-my-post-cpi-tweets-september-2023/

XTOD: Yields spike on fears Fed will have to hike more meaning the Fed will not have to do more meaning yields will now drop

XTOD: Do traders mislead salesmen by feeding them false narratives?  Of course, often.  Whenever they want to get rid of stuff on their books for which they can't find a home, especially if it's underwater.  Do salesmen collude with traders to mislead customers? ALL THE TIME.  If a salesman tells you the sky is blue, look out of the window before you believe them.  Same with "research".  It's all painting a picture to get you to buy stuff. 

XTOD: Ozempic--the new weight loss drug--is an appetite suppressant. No more buying a cart full of Cheetos!  Will Ozempic be bad for business?   Just think about all those poor companies suffering from less demand!  Introducing: The Fixed Window Fallacy https://www.economicforces.xyz/p/the-fixed-window-fallacy

XTOD: On Day 2 of the Hedgeye Investing Summit, Danielle @DiMartinoBooth dropped the TRUTH BOMBS Wall Street doesn't want you to hear...💣"After the pandemic, you gave people the money directly, and they spent it directly. That's what caused inflation. 💣2 individuals have been confirmed to the Federal Reserve Board who advocate for: - Universal basic income - Modern monetary theory - The Fed's ability to address climate change - Central Bank digital currency - Reparations  That's why, I joke (but not really) ...  💣If we get a Blue Wave and somehow, someway, they manage to have Special Ops take out Powell, I'm going to Italy. At least they embrace their socialism.  💣What progressives dream about every night is the Federal Reserve not actually existing to make policy. All they want is for interest rates to be 0. 💣Zero interest rate policy is NOT monetary policy. It's not. It's just a state of existence in third-world countries. But that's what the progressives want."

XTOD: Delete this shit. How dare you?