Daily Economic Update: December 27, 2023

 “Counterfactuals are the building blocks of moral behavior as well as scientific thought. The ability to reflect on one’s actions and envision alternative scenarios is the basis of free will and social responsibility.”

- Judea Pearl, The Book of Why 

Daily Economic Update: December 26, 2023

 "..the notion...that all these wondrous machines that, in one way or another, now allow us to avoid overworking our brains, will somehow diminish our capacity for thought, in much the same way that underused muscles with tend to atrophy, will stop working in the absence of need".

"But what if the opposite is true?  What if the mind does not work at all like a muscle? What if not having to tax our minds with such tedious matters as arithmetic and geography and spelling and memorizing so many facts actually frees our mind?  What if mental leisure gives it the time and space to suppose, ponder, ruminate, consider, assess, wonder, contemplate, imagine, dream?  What if by removing the storm and stress of daily mental need, lowering the mind's noise-to-signal ratio, we instead clear the mind and allow it, now less clouded, taxed and troubled to seek out the potential it always had? To be thoughtful, considerate, patient - and wise."

                - Simon Winchester, Knowing What We Know 

 

Daily Economic Update: December 22, 2023

"Often we tell ourselves, "Don't just sit there, do something!" But when we practice awareness, we discover something unusual.  We discover that the opposite may be more helpful, "Don't just do something, sit there!" We must learn to stop from time to time in order to see clearly.  At first, "stopping" may look like a kind of resistance to modern life, but it is not. It is not a reaction; it is a way of life.  Humankind's survival depends on our ability to stop rushing."

-Thich Nhat Hanh, Peace Is in Every Step

Daily Economic Update: December 21, 2023

 "A life without friendship or leisure lacks a specific something, for which no amount of respect can compensate.  This is why moralists from Aristotle and Confucius onwards have cautioned against excess specialization.  Single-minded concentration on one small branch of art or science may enrich the common stock, but only at the cost of deforming the individual artist or scientist.  Of course, those in possession of the full set of basic goods may reasonably strive for additional, more specific goods.  We have no wish to make mediocre generalists of everyone.  But no one, however successful in a single domain, can claim to lead a good life if he lacks the rudiments of health, leisure, personality and so forth."

                        - Robert and Edward Skidelsky, How Much is Enough 

Daily Economic Update: December 20, 2023

 "...These leaders too often fixate on advancing their own fame, fortune, glory and legacies at the expense of the company and Cause. Management becomes disconnected from people and trust breaks down. And when performance starts to suffer as a result, these same leaders are quicker to blame others than to look at what set the company on the new path in the first place.  In order to "fix" the problem, their faith in people is replaced with faith in the process. The company becomes more rigid and decision-making powers are often taken away from the front lines. It can't be a good thing when the captain of the ship, who is supposed to be on deck navigating toward the horizon, is now in the ship tinkering with the engine trying to make it go faster."

                        - Simon Sinek, The Infinite Game 

Daily Economic Update: December 19, 2023

 "The word "decision" comes from the Latin word caedere, which means "to cut".  When we decide to pursue one thing, we necessarily cut away another.  If there's no cutting, we haven't made a decision at all."

"The word "discernment", on the other hand, comes from the Latin root discernere,  which means "to distinguish"; it refers to the ability to see the difference between two paths and know which one is the better way forward."

"Discernment is an essential skill because it's a process for making decisions that includes but also transcends rational analysis.  It's critical for deciding which desires to pursue and which ones to leave behind."

"After all of the rational considerations have been laid out, what if there isn't a clear-cut way forward?  This happens all the time in life."

"...Many books have been written about improving one's ability to discern well.  Here is a distillation of some key points: (1) pay attention to the interior movements of the heart when contemplating different desires - which give a fleeting feeling of satisfaction and which give satisfaction that endures? (2) ask yourself which desire is more generous and loving; (3) put yourself on your deathbed in your mind's eye and ask yourself which desire would be more at peace with having followed; (4) finally, and more importantly, ask yourself where a given desire comes from."

" Desires are discerned, not decided. Discernment exist in the liminal space between what's now and what's next.  Transcendent leaders create that space in their own lives, and in the lives of people around them".

                        -Luke Burgis, excerpts from "Wanting" 

 

 

 

 

    

 

 

Daily Economic Update: December 18, 2023

 "We will continue to ignore political and economic forecast, which are an expensive distraction for many investors and businessmen."

"In each case, we pondered what the business was likely to do not what the Dow, the Fed, or the economy might do."

            -Warren Buffett (two separate quotes)

Sure there was the BoJ and we've got economic data, including PCE and there will be Fedspeak, but this week we're going to ignore the noise.  

This is the only X/Twitter Thought of the Day I'll post for the week.  I think it illustrates Wednesday to Friday of last week fairly well. 

For the remainder of the week, you'll get one quote/excerpt a day from whatever books I have laying around.

XTOD: Kyla Scanlon  @kylascan How the Fed Navigates Uncertainty through Lovebombing
https://twitter.com/i/status/1735772930175373430

Daily Economic Update: December 15, 2023

Yesterday's retail sales were better than expected and jobless claims show no signs of labor weakness, yet rates continued their post FOMC decline.  The BoE and ECB both sounded more hawkish than the FOMC.  Yields continue to fall further to start the day as the everything rally continues.  2Y at 4.39% and 10Y at 3.92%.

ATL GDP now is at 2.6% for 4Q.  Empire Mfg and Industrial Production on the day ahead. 

In sticking with the holiday theme of issuing reports about financial stability, here is the Financial Stability Oversight Council's 2023 report  in which they cover a range of potential vulnerabilities and provide recommendations for action.

XTOD: Holiday Video (Blackstone's Version) 🎬🎵  Inspired by the Eras Tour, Steve Schwarzman & Jon Gray take $BX on the road for “The Alternatives Era” Tour… many sequins & one original song later, we bring you the latest in our annual tradition ⬇   Watch the full video: https://bit.ly/47V13YZ

XTOD: I watched this again and I’m 80% sure it’s going to be in a documentary ten years from now about a massive financial crisis

XTOD: “Not only will we not tell you the accurate marks, but we’re hilarious!”  Aside from the cringeworthy video, can we please stop calling highly correlated levered equities “alternatives” because they don’t update the prices?  That doesn’t make them bad investments, but they ain’t alternatives.

XTOD: Powell has no problem with money going into stocks. It cant do any (inflation) damage there, and the capital gains tax revenues will be welcome. He needed to get the "pivot" (which, unlike the Put,  was always inevitable) out of the way before Iowa. Now they go dark.

XTOD: Criticize the Fed on policy grounds, but trade with them, because they are bigger than you. 

I do both :)

XTOD: Here's a great stat for you: The small-cap Russell 2,000 made a new 52-week high today after hitting a 52-week low just 48 days ago.  That's the shortest turnaround time in the index's history to go from 52-week low to 52-week high dating back to the 1970s!

XTOD: A quick 🧵on monetary policy because I see a lot of market commentators who don’t seem to understand what the Federal Reserve is thinking regarding the future path of interest rates. One way to think about monetary policy is in terms of the difference between the policy interest rate and the “natural” interest rate.  The conventional wisdom in the mainstream of the profession is that when the policy rate is below the natural rate, inflation rises. When the policy rate is above the natural rate, inflation declines. When the policy rate is equals natural rate, the inflation rate is constant. If you accept this premise and you are in a world of rising inflation, that means the policy rate is too low. But you can’t just raise the policy rate to equal the natural rate since you need inflation to decline. Thus, you have to raise the policy rate above the natural rate.  Of course, you can’t leave the policy rate above the natural rate indefinitely. Thus, once inflation comes down and expectations of inflation start to be around the central bank’s target rate, they should lower the policy rate down to the natural rate.  Thus, there’s no great mystery about why the Fed is signaling that rates will be lower next year. This isn’t the Fed admitting there are fiscal constraints. This isn’t the Fed having weak hands. This isn’t (necessarily) an Arthur Burns moment. This is their standard framework.  Now, it’s possible that they lower rates too soon. That could be — or might lead to — an Arthur Burns moment and the potential for the stop-go policies of the 70s.  But the main challenge the Fed is going to face in the months ahead is how it weighs its credibility with the public against what their policy framework would say to do. They might be reluctant to lower rates if the public sees them as lowering rates too soon.  Thus, if they lower rates too soon, inflation won’t get back to 2%. If they are perceived to have lowered rates too soon, this affects their credibility & inflation expectations could be wildly un-anchored.  If they wait too long to lower rates, they’ll likely cause a recession  To me, this suggests that all the talk about a soft landing are wildly pre-mature. (A lot of this is just cheerleading anyway.) This is especially true because a lot of debt is going to have to roll over at higher rates in the coming months.  But my basic point is that a lot of the commentary following the Fed meeting is just noise. It’s straightforward to understand what they’re doing if you know how they think.