Daily Economic Update: January 26, 2024

In a big day of data, the U.S. GDP 4Q advance reading was well above consensus coming in at 3.3% vs. 2.0% est. while the GDP Price Index data was below estimates, showing signs of cooling inflation.  The GDP data of the last two quarters coupled with further signs of disinflation is continued fuel for the soft landing narrative.   Jobless claims were above 200K for what feels like the first time in a while. Durable Goods Orders and New Home Sales were also solid.  The ECB was on hold as expected with LaGarde trying to push back on rate cuts, while hitting on the fact that they are waiting to see wage growth stabilize or slow, but the continued weakness in soft data such as PMI's has markets continuing to price in fairly aggressive cuts.   Overall the S&P was up, EUR:USD was weaker as markets focus on U.S. growth and U.S. bonds closed lower and the 7Y auction was better than the ugly 5Y auction from Wednesday.   2Y ~4.30% and 10% ~4.12%

If you missed it the other night, the Fed ended the BTFP arb as they wind down the BTFP facility in March as well.  If you were unfamiliar with the arb, banks could borrow from the BTFP and deposit those funds with the Fed and earn IORB, in other words you could borrow from the Fed and earn a positive spread on those funds from the Fed.  

In geopolitics, headlines indicate that Putin might be open to talks on Ukraine.  On the day ahead it's PCE as the main course.

XTOD: Q4 GDP:  3.3% vs 2.0% exp.   The best GDP report a half a trillion dollar deficit in one quarter can buy!

XTOD: The airport is nowhere in sight. H4L baby.

XTOD: the 'strengths of monetary policy transmission' is code for 'who knows?'.

XTOD: I dread disagreeing w/ Claudia, but the fact that there has been a soft landing does not itself mean the inflation was transitory.  A soft landing was possible, w/ the help of Fed rate hikes, even if it was partly due to excess AD growth. Indeed, the belief that there can’t be a soft-landing from a situation of unwanted demand-driven (hence, non self-reversing) inflation itself reflects Philips-Curve thinking. 

(I’m going to go put my suit of armor on now.)

XTOD: I've put together a list of 5 key areas to watch this year. Yes, volatility can surprise businesses and financial markets any year. What makes 2024 different is the exponential impact volatility could have in the economy. I hope you'll give them a read. https://www.linkedin.com/pulse/five-flashpoints-2024-nomi-prins-a9gce/

XTOD: Let's not forget: The inflation was premeditated & intentionally created by the central planners, as they implemented the Blackrock plan to cause inflation via my QE2 proposal that I designed for a deflationary shrinking economy -when supply was restricted https://t.co/PCzsDTf2Mv

XTOD: The best way to gauge the quality of someone’s ideas isn’t to listen to them talking. It’s to read their writing.  Compelling speakers can mask weak logic with strong charisma. Putting key points on a page exposes flawed reasoning.  Compelling writing requires clear thinking.

XTOD: Surprising new data on religious affiliation and the rise of None:  

None 28%

Evangelical Protestants 24%.

Catholics 23% 

In 2007, "None" made up just 16% of Americans

Daily Economic Update: January 25, 2024

New all-time highs on the S&P as tech/nasdaq stocks lead the way.  The S&P PMI's exceeded expectations and showed service sector expansion.  IBM beat and Tesla missed and DuPont shares were ugly. Yields were higher after a 5Y Note auction that tailed 2bps.  The 2Y is ~4.38% and the 10Y is ~4.17%

I recently wrote about the "cruel irony of investing" and Ben Graham's ideas around the difference in investing on the basis of projection vs. protection here, and that might sound like a call to avoid optimism...it's not.  I recently enjoyed a post by Joachim Klement titled When Optimism Becomes a Dirty Word .  In the article Klement fleshes out an argument that pessimism and doom and gloom hold back societies by decreasing entrepreneurship and productivity over time, he might be right.

Simon Sinek is definitely an optimist.  He defines optimism as "the undying belief that the future is bright"  while also providing that it is not blind positivity or ignoring difficult circumstances.

I don't find optimism incongruent with concepts like "margin of safety".  In fact I think it's quite congruent with the wisdom of Graham and his protege Warren Buffett.  In Buffett's words, "In order to succeed, you must first survive."  For anyone who is familiar with the basics of compounding, you have a growth rate on the bottom and an exponent. While you can get really large outcome by having a high growth rate, for those who study the best compounders they find that it's the exponent that matters the most.  That exponent is time and you can't enjoy compounding if you or your portfolio aren't around.

Author Morgan Housel likes to say "save like a pessimist, invest like an optimist"  meaning you can only be an optimist in the long run if you can survive all the short-run setbacks.  Housel has also recently written about Optimism it's worth a read.  In a talk Housel gave when discussing optimism and his first book, The Psychology of Money, Housel provided:

 Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way. 

,,,,But the most powerful and important book should be called “Shut Up And Wait.” It’s just one page with a long-term chart of economic growth.  Physicist Albert Bartlett put it: “The greatest shortcoming of the human race is our inability to understand the exponential function.”

One thing that can risk interrupting compounding unnecessarily and not allowing you to achieve the long-term optimism is excessive leverage.  "It pushes routine risks into something capable of producing ruin."   We've talked about leverage recently...go back to January 10th post on Howard Mark's "Easy Money" memo. 

On the day ahead it's the Q4 GDP Advance, Durable Goods, Jobless Claims, 7Y Note auction. ECB expected to hold, we’ll see how hard they push back against rate cuts priced in.

XTOD: I'm finding the idea that the US experienced a series of small, sector-specific recessions in 2022-2023 more and more compelling. If so, that would lower the odds of the economy generally losing momentum now.

XTOD:  "Profit: While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits." - TSLA

XTOD: Sobering chart on commercial real estate and the Fed's tightening cycle. This  time is different! https://imf.org/en/Blogs/Articles/2024/01/17/us-commercial-real-estate-remains-a-risk-despite-investor-hopes-for-soft-landing

XTOD: Berkshire Hathaway spikes to record highs on news of the upcoming release of ChatBRK which will be “trained” on Buffett and Munger letters and interviews. Berkshire will also change the URL of its website to brk dot ai and will unveil a new nft logo.

Daily Economic Update: January 24, 2024

I didn't write about the Chinese stock market or the Bank of Japan this week because what's there to write? On China go back to this post from August 2023, it tends to be a lot of rinse and repeat of the same general headlines with no real changes to the underlying themes, same with the BoJ.  No one cares anyway, we're all just busy watching Netflix apparently, as evidenced by subscriber count.

Bitcoin down something like 20% since ETF's launched.  A down day for the Dow so I'll have to slow play the Dow 40K hats. Yesterday's 2Y auction was on the screws at 4.365%.  The curve steepened a little with 2's at 4.37% and 10's at 4.14%.

On the day ahead it's S&P PMI's, the Bank of Canada and a 5Y Note Auction

XTOD: Worst trick the devil ever played was to make people believe that BTC supply is limited to 21 mill.  It's actually infinite.  We can now print as much of that shit as you want.  Just like gold. We don't even need to mine that crap.  We can create endless quantities through futures and never deliver.

XTOD: We highlight two reasons why unemployed aren't apply for claims: 1) eligibility is at all time low pre-recession. and 2) UI benefits not catching up with inflation, opportunity cost of collecting benefits higher than ever before.  We estimate that the average wage coverage gap is bigger than ever, abut $1400/week. Why collect benefits when you can earn way more as gig worker or freelancer and actually be able to pay your bills? The lower the coverage of UI, the lower the recipiency rate, at state level.  One implication of this: when UI claims do rise to a high level, then it is truly painful for people -- more so than the same level of UI in past recession.....because this time around UI claims can no longer pay the bills, and one must have exhausted other options.

XTOD: I read once (forget where) that as recently as 100 years ago the rich had the worst medical care, because they could afford all the quack treatments from sham doctors offering miracle cures that would actually just increase your odds of death/poisoning.   Something something, financial advice.

XTOD: i spent years being really confused about why states and municipalities were hoarding cash after Covid   but honestly I kinda get it now!  mea culpa   theyre now spending down those cash reserves, and it’s helping stave off a real recession

XTOD: For a certain type of voter, the logical conclusion of "everything is terrible—but I'm fine" is "burn this whole damn system down—but don't go changing things"

Daily Economic Update: January 23, 2024

Stocks continue setting all time highs (is there a market for Dow 40K hats?...trying to be proactive) as yields fall slightly and the curve flattened a little.  Some observers question whether the Mag 7 or other stocks are in a bubble.  At some level the concept of "bubbles" implies that the foundations of finance are flawed, that markets are not efficient and that people will buy an asset at a price above what they judge to be a fundamental value (people do by Bitcoin...so). As David DeRosa writes in his monograph Bursting The Bubble: Rationality in a Seemingly Irrational Market:

"Although it is not certain that anyone will be ever able to prove conclusively whether or not bubbles exist, research shows that many famous financial crisis that have been portrayed as bubbles were not bubbles at all."

DeRosa references Occam's razor, which calls for always seeking the explanation that makes the fewest assumptions possible, and Mark Rubinstein's The Prime Directive, which says that you should attempt to explain asset prices by rational models as reasons to search first for fundamental, rational explanations for asset prices before resorting to "bubbles" as the last resort.  If you want to hear DeRosa speak on the topic of Bubbles, he was interviewed here.  If you're not familiar with the story of John Law and the Mississippi Company, listen around the 11 minute mark for a quick overview, though Niall Ferguson's account in The Ascent of Money  is much better in my opinion.

Are markets rational?  I'll leave it to those smarter than me to answer.  While I believe Ben Graham believed in efficient market hypothesis, his parable of "Mr. Market" is always worth a read and reminder.

In other news, according to yesterday's NY Fed Survey of Consumer Expectations, SCE Public Policy Survey, "The average perceived likelihood of an expansion in federal student debt forgiveness increased to 28.7 percent in December, up from 27.8 percent in August but still well below its year-ago level of 34.7 percent." .....see MMT ?? 

On the day ahead it's Richmond Fed Mfg Index as markets await Thursday's GDP report and Friday's PCE report. 

XTOD: Private Credit is Having a “Golden Moment” – Buy or Sell? I read whatever @LaurenceBSiegel  writes. I’d recommend you do too.  https://www.advisorperspectives.com/articles/2024/01/08/private-credit-golden-moment-buy-sell-laurence-siegel

XTOD: Former Federal Reserve policymakers Robert Kaplan and Eric Rosengren were cleared of legal wrongdoing in a years-long probe into their trading activity in 2020

XTOD: My boss arrived to work in a brand new Lamborghini  I said: “Wow, thats an amazing car” 

He replied: “If you work hard, put all your hours in, and strive for excellence, I will get another one next year”

XTOD: MY FIRST X VIDEO MADE OVER $250,000! 😲  But it’s a bit of a facade. Advertisers saw the attention it was getting and bought ads on my video (I think) and thus my revenue per view is prob higher than what you’d experience

Daily Economic Update: January 22, 2024

Friday's University Consumer Sentiment index far exceeded expectations with strength everywhere and slightly lower inflation expectations.   As people who have read this blog for a while know, some believe this report is highly negatively correlated with gas prices which are holding fairly steady at levels that are at least 10% lower than a year ago and well off the highs.  How continued tensions in the Middle East might impact oil, nat gas, and gasoline prices remains unknown, but the data shows the U.S. has somewhat stealthily become the world's leading producer of oil and gas.

Stock prices hitting all time highs despite rising yields.  The 2's10's un-inversion watch is getting real with 10Y yields only ~20bps below 2Y yields.  Entering a steepener (betting on an increase in the difference between long-term yields and short-term yields) trade back in March or July/Aug 2023 when the 10Y was yielding 100bps below the 2Y, looks like it would have been a pretty good trade. For the uninitiated a 2s10s Steepener trade can be constructed using interest rate futures (Treasury Note Futures...it can be traded with other products as well) in one of three ways: 

1. Duration Neutral - you Buy/Long 2Y Treasury Note Futures while simultaneously Sell/Short 10Y Treasury Note Futures with both legs of the trade sized to have the same Dv01 (generally you are short a lower quantity of 10Y note contracts than you are long 2Y note contracts).
   
   
2. Bull Steepener (you think short-term yields will fall more quickly than long-term yields) - you Buy/Long more Dv01 in 2Y Note Futures than you are Short Dv01in 10Y Note futures.  The idea here is you think the steepening of the curve will come from lower 2Y yields.  You run risk that the curve steepens but the steepening is a result of the 2Y falling moreso than from the 10Y rising.
   
   
3. Bear Steepener (you think long-term yields will rise more quickly than short-term yields) - you Sell/Short more Dv01 in the 10Y Note Futures then you Long Dv01 in the 2Y Note futures. The idea here is you think the steepening of the curve will come from higher 10Y yields moreso than lower 2Y yields.

A summary of this can be found here, courtesy of CFA Refresher Reading: Yield Curve Strategies

I'm not sure how much more room the steepening of the 2s10s curve has to run, but we've certainly have had plenty of years of experience with a "normal" yield curve shape where 10Y yields were over 100bps or more higher than 2Y yields.  If I had to build a case for why trading a steepener might not work well from here it would probably be a narrative that tied to a central bank policy that the market believes is overly restrictive, leading the market to price in higher 2Y yields and lower their future growth and inflation forecast leading to lower 10Y yields.  Alternatively a scenario where the Fed embarks on Yield Curve Control or QE could plausibly also lead to further flattening/inversion.

Of course if you strongly believed that the steepening would occur from just the 2Y yield going lower or from the 10Y yield going higher you could just make a bet simply on one leg of the above "steepener" trades.  And if you believe the Steepener has run it's course, you could trade Flatteners by reversing the direction of the trades above.

The week ahead features PCE, a look at 4Q GDP, Treasury Auctions, some PMI's and Bank of Canada and ECB rate decisions.

XTOD: So if you're a Davos class type — in finance, private equity, multinational business, certain think tank/academic/nonprofit types who depend on political connections — your gut instinct is to SURVIVE at all costs.  If that means a deal with the populist, well then...Suddenly we have — as at the start of this thread — Blackstone's CEO saying, "Hey... we can't afford another Biden admin. Maybe we should keep an open mind about alternatives..."  Or Jamie Dimon of JPMorgan saying "Actually, Trump WAS right after all..."  It's still early days, but you can see the line of thinking is taking form with some of the cannier Davos types:

"I want to survive and stay in the game, so it's time to dump progressives, neoliberalism, and woke stuff, and play ball with Trump."  Watch this space people.

XTOD: Theres no fucking way the Fed eases 150 bps into ATHs in both equities and RE, so if you are an RIA get ready to switch your bullshit narrative from 'Fed cuts' to 'The market can handle higher rates'.  No charge for the advice 

XTOD: The S&P 500 closed at an all-time high.  The Russell 2000 is still in a bear market*, down more than 20% from its high.  That's never happened before.

XTOD: Jill Biden trying to distract from her comments about Hunter’s drug abuse, and ending up under a giant banner reading “Hunter High,” is straight out of a VEEP episode

XTOD: 2008: Wall Street has a bust, the whole U.S. economy crashes 2023: Tech has a bust, the U.S. economy ignores it completely and does great  Finance is more systemically important than tech, which is why it should be regulated more.

XTOD: Like everyone else, at one point, I had zero readers and zero listeners. We all start out naked and afraid. Then your mom starts checking out your stuff, or perhaps a few friends give a mercy-listen, and the fragile snowball grows from there.

XTOD: Opening day is just 69 days away!

Daily Economic Update: January 19, 2024

Stocks advanced while yields were mixed with the 10Y crossing 4.15%.  Pakistan and Iran tensions add to the mix of uncertainties in the Middle East. Over in Asia there are increasing concerns around the Chinese economy.  But in continued good news in the U.S., you still can't get fired as jobless claims printed +187K well below the 200K consensus and remaining near historic lows.   Bostic, a dove, was somewhat dovish, but conceded: “I’m staying vigilant because, though inflation has been on a path toward the 2 percent target for some time, there are risks that could throw it off course.” 

Of course Central Banks need to be attuned to risks (and uncertainties), I wrote about this in my Fed report card.

It's worth considering:

“The world of calculable and controllable risk liberates — perhaps even helped by its triumphal claim of calculability — the moment of surprise.” - Urlich Beck

There was a series of articles by Thomas Meyer on the topic of "Radical Uncertainty" (the title of a book by John Kay and Mervyn King).  I had found and saved the above quote from Meyer's article some years back.  "Radical Uncertainty" being a nod to Frank Knight's description of a situation where there is no scientific basis for calculating a probability.   As Meyer writes,  the quote above encapsulates a theme that "Kay and King describe how modern society has succumbed to the illusion that uncertainty can be transformed into calculable risks."

Benjamin Graham opined on what to do when faced with uncertainty as follows:

"In the old legend the wise men finally boiled down the history mortal affairs into a single phrase, "This too will pass". Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY"

Author Peter Bernstein provided further advice:

 “In making decisions under conditions of uncertainty, the consequences must dominate the probabilities"

XTOD: If someone told you only a few weeks ago that Iran would be at war, you would have guessed Israel, the US, or perhaps Saudi Arabia; not Pakistan.

It is very, very hard to keep in mind that we're not good at predicting & even harder to incorporate it into a general policy.

XTOD: "The western world is in danger . . . because those who are supposed to defend the values of the west have been co-opted by a vision of the world that inexorably leads to socialism, and therefore to poverty.” Try to hear the whole of  @JMilei 's speech at the @wef  yesterday, a magnificent defense of individual liberty and the free market economy. https://youtube.com/watch?v=Pfcd0gWNIog

XTOD: Zero rate world: producers of the actual goods and services watched speculators of property and stock markets & influencers get so rich - to the point that the current economy rewards people doing certain behaviors that produce nothing - ie: above examples. Being productive is rarely rewarded under the current economic system.

XTOD: people are gonna keep finding frying pan charts and i think that’s beautiful

XTOD: Lex Fridman finally did a podcast I found interesting. He spent 6 hours interviewing a con-artist (many of his guest are con-artists, and he may be too) who explained the ins and outs of identity theft and mortgage fraud in detail I had not heard before.

Daily Economic Update: January 18, 2023

Yields rose again, with the 10Y crossing 4.10% and the 2Y crossing 4.30% as retail sales again beat expectations with brick and mortar retail spending and ecommerce spending both rising solidly.  Stocks continued to react negatively to rising yields.  A control + F search of yesterday's Beige Book  returns no results for the word "recession", a stat relayed by some commentator on Bloomberg (didn't catch his name), but is quite telling and quite juxtaposed with some of the market pricing for rate cuts.

There's a few long Twitter/X thoughts of the day below, one a "Xeet" from Richard Jarc who appears to be the writer of "UncoverAlpha" newsletter.  I'm not familiar with his research and if you've read this blog hopefully you know that I believe it's an extremely high bar for someone to produce research of any actionable value.  Nonetheless, his reason for selling Google shares had me thinking about something related to Google and that is the topic of Digital Amnesia, a term to describe the phenomenon that words looked up online are often forgotten almost as quickly as they are acquired.  You'll probably forget that word after you look it up ☺.   With all the new AI technology and GPT's will we ever need to retain any information?

Simon Winchester wrote a book Knowing What We Know where one of his fundamental arguments (pp. 338-339) is that "today's all-too readily available stockpile of information will lead to a lowered need for the retention of knowledge, a lessening of thoughtfulness, and a consequent reduction in the appearance of wisdom in society."  His point from there is that are some really important moments in history where wisdom or the lack thereof played a major role, positing that a greater degree of wisdom is required in making decisions that involve building something than destroying something.  That said he doesn't preclude the possibility that these new technologies actually allow us to be wise (see quote posted here back on December 26th)

XTOD: Imagine spending YEARS of your life studying markets, macro, etc. when you could've gotten the same (or better) result simply by buying a diversified basket of income-producing assets every single month.  Investing is one of the few fields where amateurs can beat experts.

XTOD: Jamie Dimon is spot on here… “I don't like how Trump said things, but he wasn't wrong about those critical issues. That's why they vote for him. People should be more respectful of our fellow citizens.”  Biden calling 75 million Americans “MAGA extremists” is not uniting us.

XTOD: I believe that there are five big, interrelated influences that are driving the changing world order and that they tend to evolve in big cycles. They are:

1. How well the debt/money/economic system works,

2. How well the internal order (system) works within countries to influence how well people within them work together,

3. How well the world order (system) works to influence how well countries work with one another,

4. The force of nature, and

5. How well humankind invents new and better approaches and technologies.

If you’re interested, I just shared a post looking at all five of them and their prospects for 2024, a year that will likely stand out because all these forces are approaching or are at the brink of seismic shifts. I look forward to your thoughts in the replies https://linkedin.com/pulse/2024-pivotal-year-brink-ray-dalio-fwgie/

XTOD (This dude's definition of a "Short Summary" leaves something to be desired, I'm interested to see what's left for the article...): I sold my $GOOGL position today.  I will be publishing an article explaining the reasons in the coming days, but in a short summary: 

$GOOGL was one of my biggest positions and has done well for me over the years, but I want to go on the sidelines right now. 

1.  Search is over 50% of $GOOGL's revenue, and it is becoming increasingly apparent to me that LLMs, when combined with the proper UI and flow, are a better solution to solving the core problem that Google Search addresses, which is answering a question. The other issue that is becoming clearer is that we will soon have LLM assistants who can answer different questions in many touchpoints we didn't have before. So, solutions for solving the problem of answering a question become accessible at almost every step.  Example: $MSFT Office and other products, WhatsApp, IG, FB, $AMZN, $AAPL Siri, not to mention a variety of startup products and apps, both on apps and platforms as well as hardware products. With it, the need for you to go "Google" something becomes smaller.

In the past, the main thing that kept the $GOOGL moat so strong was the fact that you couldn't make a Search engine so good because you didn't have enough data to make it good for it to compete with Google Search. But without users using your search engine, you couldn't get data. So the circle was complete. But now a lot of LLMs answer the questions as well as, if not better for some questions as a Google Search, and here is where the moat has gone, IMO. This opens up the gate for other big companies as well as startups to be able to compete for the basic need that search solves (answering a question).

2. $GOOGL has two paths when it comes to Search: either they cannibalize their Search business with Bard as a spin-off individual app/solution that can compete with "legacy" Search with a new LLM-type interface or let others do it and fight it while trying to enhance your "legacy" product but not quite providing the right customer experience because of trying to make your legacy product still relevant. While I believe it is likely that, in fact, in the long run, $GOOGL is the one that develops the best new LLM Search experience, the path to reaching that goal might be painful for shareholders as Search profits and revenue will take the hit in the transition as the new LLM surface at least in the short to mid-term cannot be monetized in the same manner as "old" Search can be.

When reading the book Innovator's Dilemma, the current situation at $GOOGL ticks so many of those boxes of the typical case.

The main reason for me still holding the position was that the valuation is not expensive but quite reasonable, but I found it to be the wrong reason.

When it comes to the ad sector, which will be a strong beneficiary, I believe my position in $META is better, and when it comes to the cloud industry exposure, I prefer getting it via $AMZN and $MSFT.

Again, I have nothing against $GOOGL, but at this point, I decided to go on the sidelines and let the thing play out and have my capital deployed elsewhere.

More details will be published in the article, which will be published next week.

XTOD: Out now - @andyverity's SHOCKING allegations about the manipulation of LIBOR during the Great Financial Crisis (& the cover-up since): 

- the scandal is way, way worse than originally reported

- "the real manipulation of interest rates" was orchestrated "by central banks on a much bigger scale than any of the traders who were jailed"

- evidence showing complicity of Bank CEOs and central bankers was suppressed by a team of prosecutors, including the FBI and CFTC (then lead by Gary Gensler, the current Chair of the SEC), who conducted show trials to appease public anger at bankers, sending a few 'rogue traders' behind bars while the much greater manipulation went not only unpunished but unacknowledged  

- during 2007 and 2008, nearly all banks were consistently lying about the true cost of borrowing dollars by "lowballing" (i.e. underreporting) their funding rates by 10, 20, 30, and in extreme cases, 1000s of basis points, which led to a massively depressed LIBOR (London Interbank Offering Rate) upon which most of the financial world relied for accurate pricing of real-time floating-rate loans and fixed-income products (upwards of $500 Trillion dollars were tied to LIBOR)

- there is compelling evidence that central bankers and bank executives at the highest levels not only were aware of this lowballing of LIBOR, but blessed it and, in some instances, even directed it

- after the Crisis (2010-2012), it was not this chronic "lowballing" that was punished, but instead individual traders who, from a legitimate range of possible cash offers, reported LIBORs that were favorable to their bank, to the tune of 1, 2, or 3 basis points (i.e. on a much smaller scale than the chronic lowballing) 

- while many, many cash traders who reported LIBOR must have been aware of systemic lying, only very few have documented proof of challenging the practice of lowballing, and fewer still who made the Federal Reserve aware of this problem. 

- one such cash trader was Peter Johnson, who as early as fall 2007 was calling reported LIBORs "so f***ing wrong" and who in January told an official from the Federal Reserve that the reported LIBORs were "absolute rubbish" because "the market so desperately wants LIBORs down that it's actually putting the wrong rates in"

- In a twist of fate, Peter Johnson was later accused and convicted of conspiracy to defraud, despite the fact that he was a primary whistleblower whose actions provided evidence of lowballing

- There is much, much more to the story. For more details, check out Andy's book, "Rigged: The Incredible True Story Of The Whistleblowers Jailed After Exposing The Rotten Heart Of The Financial System."

- Andy (not me) is the expert on this topic, and it is solely he (not me, certainly not my employer or sponsors) who is making these allegations. Andy is aided by a treasure trove of evidence which he has collected for over a decade and which is extensively covered in his book, and only a small fraction of which is mentioned in the interview. Andy does cite several phone calls however which we managed to add to the interview. 

- For a fuller  picture, read the sources cited in the description to the interview and listen to the tapes. For the complete picture, buy and read the book, which I recommend highly. Filmed on January 5, 2024.

Huge thank you to  @public  for sponsoring this interview!    

As usual, this interview can be viewed on @ForwardGuidance  podcast apps as well as on YouTube on the "@Blockworks_ Macro" channel. Spotify has video now 📽️ Enjoy 💯

Daily Economic Update: January 17, 2023

Stocks ended the day down. Treasury yields were a bit all over the place as NY Fed's Empire State Mfg Survey showed general business conditions index falling 29 points to -43.7, it's lowest reading since May 2020 (per @NYFedResearch on X), but Waller didn't seem to see any need for many rate cuts, stressing gradual cuts as his expectation.  The 10Y ended up well over 4% at 4.08%.  Meanwhile Canadian inflation runs hotter than expected.  

The Gov. Waller speech yesterday: referred to the recent growth, inflation and unemployment data as "almost as good as it gets"; he spoke of labor market rebalancing and how he was correct that vacancies would absorb the decline in labor demand without upsetting employment/unemployment, but that he now believes the Fed needs to proceed in a manner that avoids over-tightening;  he considers current financial conditions "restrictive", stressed the need to be confident that inflation will stay on a 2% path after reaching there that level; he believes rate cuts will be warranted so long as inflation doesn't rebound and that the number and timing of cuts is "data-dependent", but nonetheless should be gradual; he's watching for the scheduled CPI revisions that will come out as part of the Mid Feb CPI release to confirm inflation is truly easing quickly.

Today has Retail Sales, Industrial Production, Inventories and Beige Book.

Thursday: Philly Fed, Jobless Claims, Bostic

Friday: UofM ask consumers about gas prices, existing home sales and Daly

I enjoy observing and writing about the economy and the market, but I refuse to pretend I have any ability whatsoever to predict the future.  On top of that I have as a life goal to always be able to reply to any question about the direction of markets or the economy with a simple, yet powerful response of "I don't know and I don't care."  A few years ago, I presented an economic update to the CFA Society of Philadelphia and I titled each slide with a quote from Fred Schwed's Where Are The Customer's Yachts which seemingly sums up well what I have just described.

"For a considerable time now the writer has been viewing the activities of this street each working day, usually from the vantage point of a trading table"

"Although not a deep thinker myself, I have had a thousand separate lunches with those who were"

"he would be forced to admit the sad truth that a pitifully few financial experts have ever known for two years (much less fifteen) what was going to happen to any class of securities-and that the majority are usually spectacularly wrong in a much shorter time than that."

"In this case, the notion that the financial future is not predictable is just too unpleasant to be given any room at all in the Wall Streeter's consciousness"

"For one thing, customers have an unfortunate habit of asking about the financial future.  Now if you do someone the signal honor of asking him a difficult question, you may be assured that you will get a detailed answer.  Rarely will it be the most difficult of all answers-"I don't know".

Despite the fact that the financial services industry makes forecast, some right, some wrong, most couched in gibberish that gives the person a way to hedge if they are wrong, the very fact that the stream of opinion is omnipresent makes it easy to get caught up in the short-term and feel pressure to react. After all, providing you with a stream of data and opinion is a business, a business predicated on a demand by investors (including speculators) to be told by someone else what to do (credit to Ben Graham's writing for this phrase).  The incentives are such that adding noise, complexity and a constant pressure to do something is part of the business.  Morgan Hounsel wrote about this in a blog post Trying Too Hard in which he tells the story of Jon Stewart interviewing CNBC's Jim Cramer:

"Years ago Jon Stewart interviewed Jim Cramer. When pressed on CNBC content that ranged from contradictory to inane, Cramer said, “Look, we’ve got 17 hours of live TV a day to do.” Stewart responded, “Maybe you can cut down on that.” He’s right. But if you’re in the TV business, you can’t."

All of the above is by no means to say that people don't need or shouldn't seek advice about financial matters.  There are many instances where prudent advice is needed to be a steadying influence and prevent costly mistakes. Comprehensive financial planning, constructing investment policy statements, and strategic asset allocation all are differentiated from the noise of stock-tips, speculation and prediction, at least to me.

XTOD: People who don’t value their own time won’t value yours.

XTOD: “…the vision techno-optimists sell, of humanity sailing the stars, expanding ever outward to conquer the galaxy, that does sound pretty cool. Someday it may even happen, and I wouldn’t complain. But this vision is not a solution to the nihilism that has gripped our societies today; endless expansion and acquisition for the sake of expansion and acquisition is just another expression of nihilism.”

XTOD: You can think whatever you want about Milei, but taking Lufthansa flight to Davos while so many „ESG focused“ officials and executives come with private jets is exactly the right signal to send.

XTOD: First MrBeast video posted directly on 𝕏!

XTOD: $1 Car vs $100,000,000 Car!!! I’m curious how much ad revenue a video on X would make so    I’m reuploading this to test it. Will share ad rev next week 

XTOD: “Is the Fed falling prey to groupthink?” Peter Coy @petercoy @nytimes

 is asking the right question but I beg to differ with his answer. He suggests that members of Fed Board don’t cast dissenting votes from Fed chair because they consider forward guidance a powerful tool in conducting monetary policy and wouldn’t want to send confusing market signals. But when Fed admits that it is making decisions based on incoming data, meeting-by-meeting, the value of forward guidance is already compromised. Members submit individual estimates that are published as dot-plot charts, but the chair dismisses their importance in signaling future actions. Meanwhile, Fed Board members and rotating voting members of FOMC from district Fed banks are making more speeches than ever, sending disparate, even conflicting, messages about Fed intentions using nuanced statements. Interpreting it all requires an army of market analysts.  That is what presumed “consensus” delivers: mixed messages. Diversity at the Fed is needed, yes, but the kind that matters: intellectual diversity. Expecting skin color or gender to determine how someone processes data and transforms their analysis into effective monetary policy is the worst kind of stereotyping. Utterly superficial and demeaning. What’s needed is deliberate resistance to groupthink—not to be a professional contrarian but to raise issues others might be missing in an effort to avoid policy mistakes.