Daily Economic Update: February 26, 2024

Stocks will start the week coming off record highs.  The week ahead will feature PCE and the first revisions to 4Q2024 GDP.  Speaking of GDP, the NY Fed Nowcast forecast remains at 2.80% (real GDP for 1Q) while the Atlanta Fed GDPNow will be updated Tuesday.

The highlight of the weekend was the Berkshire Hathaway annual shareholder letter .  The letter starts with Buffett highlighting the impact Charlie Munger had on both his success and that of Berkshire Hathaway, calling him the "architect" of the company, a nod to Munger's love of architecture.  Buffett goes onto credit Munger with what was arguably the most important change in his investing philosophy, stating: "Charlie, in 1965, promptly advised me: “Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practiced at small scale.”   For more on Munger, see here.

As for the rest of the letter, here are what I consider to be the highlights:

• Buffett opens the letter by basically differentiating investors from speculators (a topic we covered here) whereby he believes in attracting "lifetime" shareholders as opposed to those locking for lottery tickets.
  
  
• Buffett also takes a jab at so called economic experts in the following lines (discussing his sister Bertie as a typical investor): "She is sensible – very sensible – instinctively knowing that pundits should always be ignored. After all, if she could reliably predict tomorrow’s winners, would she freely share her valuable insights and thereby increase competitive buying? That would be like finding gold and then handing a map to the neighbors showing its location. (again a topic we covered here).
  
  
• Buffett never misses a chance to bemoan accounting standards, "So sanctified, this worse-than-useless "net income" figure quickly gets transmitted throughout the world via the internet and media. All parties have done their job - and legally, they have."  Lamenting the mark-to-market accounting requirements impact on Berkshire's GAAP earnings.
  
  
• Buffett remains optimistic about the power of investing in U.S. based equities and the patient approach to investing, avoiding the noise. (we talked about optimism here and noise here)
  
  
• Buffett describes his continued investment philosophy in terms of owning businesses with strong fundamentals that can deploy additional capital at high rates of return in the future, he pulls no punches that he can't predict the winners and losers, but he hopes he can select a few of these business that are run by "able and trustworthy" managers.  Later in the letter he points to Coke and Amex as two such companies where patience has paid and how these two wonderful decisions can outweigh the many other mediocre decisions Berkshire has made over the years.
  
  
• Buffett states his realization that the size of Berkshire today makes it nearly impossible to double the net worth of the company in the near future stating "There remain only a handful of companies in this country capable of truly moving the needle at Berkshire...outside the U.S., there are essentially no candidates..."
  
  
• Buffett believes "Berkshire should do a bit better than the average American Corporation, and, more important, should also operate with materially less risk of permanent loss of capital.  Anything beyond "slightly better," though, is wishful thinking.  (Buffett is known to recommend passive index investing as being an acceptable strategy for most investors).
  
  
• Buffett lays out two investing maxims: (1) Wall Street will market whatever foolishness that can be marketed and will do so vigorously - they want activity (2) "Never risk permanent loss of capital" - you will be rewarded if you make a couple of good decisions during your lifetime and avoid serious mistakes.  Or to quote Munger: "Never interrupt compounding unnecessarily".  (In my opinion both of these maxims are clearly drawn from his mentor Benjamin Graham, you can see the groundwork laid in these Graham quotes: (a) "Nearly everyone interested in common stocks wants to be told be someone else what he thinks the market is going to do. The demand being there, it must be supplied."  and (b)  "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"
  
  
• Buffett as usual is very patriotic throughout his letter.  He refers to the things like the "American tailwind",  Berkshire's "allegiance..to our country", and Berkshire's goal to be "an asset to the country - and to help extinguish the financial fire [referring to any situation where the U.S. hits a financial disaster]".  Buffett also discusses the increased ownership stake in Occidental Petroleum, his ownership of railroads and energy assets all in patriotic terms.
  
  
• Buffett describes Berkshire as having "extreme fiscal conservatism" as a corporate pledge, holding a sizeable cash and T-Bill position and always being prepared for a period of economic paralysis while also never wanting to inflict permanent damage on any of their investors.  (I feel like you can see how engrained Ben Graham's margin of safety concept is in his thinking - always having a buffer that allows you to render an accurate forecast of the future as unnecessary.)
  
  
• Buffett concludes the letter, where he started with reference to his sister Bertie, imparting this piece of advice as it relates to the patient approach to investing: "in 1980...Retaining only the mutual fund and Berkshire, she made no new trades during the next 43 years. During that period, she became very rich..." "Millions of American investors could have followed her reasoning which involved only the common sense she had somehow absorbed as a child in Omaha"

In addition to the above, the letter provides an overview of Berkshire's core rail, energy and insurance businesses and an overview of the three managers who are responsible for overseeing Berkshire's business day-to-day.

On the week ahead:
Today: New Home Sales, Treasury Auctions 2Y and 5Y notes

Tue:  Durable Goods, 7Y Auction

Wed: 4QGDP (1st revision), Inventories 

Thur: Jobless Claims, PCE, pending home sales, Fedspeak

Fri: ISM mfg, construction spending

XTOD: The ridiculous images generated by Gemini aren't an anomaly. They're a self-portrait of Google's bureaucratic corporate culture. The bigger your cash cow, the worse your culture can get without driving you out of business. And Google's cash cow, search advertising, is one of the biggest the world has ever seen.

XTOD: This shall now be known as the Paul Graham Rule - absolute monopolies endanger themselves - they lose the self correcting imperatives of competition. Now layer on the greatest Innovator’s Dilemma in the history of business. $GOOG needs  @elonmusk  level course correction!

XTOD: Working in finance has completely ruined me. Literally got paid an amount that a few years ago I would have literally shed tears of happiness over, and it just feels like it's never enough.

XTOD: A Harvard professor asked millionaires how much more money they'd need to be 10 on the happiness scale.    Here's how each group answered:    $1 mm: Double  $2 mm: Double  $3 mm: Double  $5 mm: Double  $10 mm: Double    Folks, the hedonic treadmill is real

XTOD: Absolutely. I receive 5X the number of inquiries per month that I can consult with. Other advice-only advisers (non-asset management or product sales) have similar backlogs. The issue here isn’t people looking for advice, it’s people who are looking only for advice and don’t want to be forced into an AUM relationship or similar.

XTOD: If you were funded, with no strings attached, to pursue your obsession for 2-3 years, what would you pursue?   I wish their were more programs that funded this sort of thing. 

Nothing as infectious as someone’s passion coming awake after a long slumber

XTOD: “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully.”    — Steve Jobs 

Diversity of focus leads to average results.  

One way to create advantageous divergence is to focus all of your efforts on the one or two best opportunities in front of you.  

A question to ponder:   What would it look like if you organized your life to maximize focus around the biggest opportunity you have?   What would you stop doing?

Daily Economic Update: February 23, 2024

New all-time highs for equity indexes as we all live in an AI simulation. Even Japan has now surpassed its 1989 peak, there is truly nothing AI can't do. Jobless claims continue to show that you can't get fired (I guess unless you work for one of the many companies that have announced layoffs..when, if ever, do those hit the claims data?) and existing home sales data shows you can sell a home even with 7-handle mortgage rates.

Have you stopped to think about how 76ers great Allen Iverson feels about all this AI hype? After all the man was the original AI.  I recently contemplated this and found that apparently others have thought about this too. Fortune wrote a satire piece back in 2018 on the topic.

Yields sit near 3 month highs as optimism around rate cuts continues to wane. 2Y at 4.71% up 50bps on the month.  

Speaking of yield, Matt Levine's article yesterday shed some light on the ETF ticker BOXX, which is designed to provide T-Bill returns (risk-free) but without generating taxable interest. Pretty cool if these guys really have figured out a way to get a risk free return with more tax efficiency.  How is that possible you ask?  The answer is in the name "Box" which is for "Box Spread".  Unfamiliar with options and the box spread trade, the NY Fed actually wrote about how they use these trades to estimate risk-free rates while eliminating "convenience yields".  In summary, from The Research Foundation of CFA Institutes Fundamentals of Options and Futures:

"The box spread is really a spread of two spreads—constructed by buying

a bull call spread and selling a bull put spread. The pair of option strike

prices for the put and call spreads are the same, with X2 greater than X1.

The box spread can also be thought of as two put–call parity pairs, one

long and the other short. 

The payoff profile for the box spread, shown in Figure E.6, is a constant,

X2 – X1, the same no matter what happens to the security price.

Because the payoff is constant, the four options should be priced to give

a net payoff equal to the riskless interest rate by arbitrage"

XTOD: Sad to share that I was laid off from Google today. I was in charge of making the algorithms for Gemini as woke as possible.   After complaints on Twitter surfaced today, I suddenly lost access to Hangouts and Google Drive, and my manager (he/him), texted me to let me know that i was fired.  

I’m getting 12 months of severance and after that I’ll decide what to do next (seeking $2.7m TC).  

What a journey these past 5 months have been learning about LLMs and AI!

XTOD: Me: I want to buy a GPU for gaming 

Nvidia: yep

Me: …and a crypto mining operation 

Nvidia: yeah nw we got you bro 

Me: also weird q but do you know where I can turn $100 into $100,000

Nvidia: buddy ur not gonna believe this

XTOD: Crazy.  Pelosi has now made 10 years worth of salary through her $NVDA trade. 

She's up ~$1,800,000 in just 92 days.  Her yearly salary is $175K.  That's 10x.

XTOD: This is absolutely crazy...An owner of an office building in LA is seeking approval to tear down the building and construct 30 EV charging stations   I don't know what's crazier...this headline or seeing office properties drop 80-90% in just a few years  The commercial real estate recession (primarily office) has gone from scary to a meltdown in many cities across the US and it seems as though the damage is permanent 

XTOD: Scientists grew a pair of testicles in a lab — and they offer new hope for male infertility https://trib.al/pAJul6d

XTOD: This puts a new spin on the phrase "grow a pair" lol

XTOD: Good news for Big 4 accountants

XTOD: Less > More     Slow > Fast      People > Things

Daily Economic Update: February 22, 2024

Thankfully we've made it through what was likely the biggest event in the history of mankind with yesterday's earnings from NVIDIA and thankfully for mankind, their earnings beat and they guided higher.

Yields rose a few bps heading into FOMC minutes and held those yield increases. Those minutes generally highlighted the risk of cutting too quickly and that the Fed will be data dependent (as if there is ever a time decisions are made without any data).

Biden forgiving more student loan debt had me thinking about one of my favorite theories, the fiscal theory of the price level.

Eric Leeper, a fiscal theory proponent, and UVA professor, was a recent guest on the MacroMusings podcast.  If you're looking for a theory of inflation and perhaps a different perspective on whether inflation be stickier than thought, here were some of Leeper's thoughts (with my emphasis added).

• [On dismissing other factors for inflation]. We focus on the single cause, a large increase in federal COVID-related spending financed by new government borrowing, with little to no discussion of how, ultimately, to pay for the spending.”   

• [On relative price changes vs. inflation] Inflation, by definition, is a steady increase in overall prices. We often look at things that are happening at high frequency, various shocks that hit the economy, that can move relative prices around. Then, it's convenient to say, "Oh, they must have caused inflation."  And it's certainly true that if the price of goods suddenly goes up relative to services, ..... But that can't be sustained. Eventually, they will adjust their habits to accommodate what's happened to the relative prices. And so, those kinds of shocks to the economy are inherently going to have transitory effects on inflation. Then, the other side of this, which you already alluded to, is that people still have to have the income to buy the stuff when the relative prices have gone up. Where is that coming from? To me, that's really getting at what the fundamental cause of the overall inflation is. As you suggested, I think it was because we handed out a lot of transfer payments to businesses and individuals in the economy.

• [On general FTPL] one of the themes of the fiscal theory of the price level is that inflation is always and everywhere a monetary and fiscal phenomenon....Critically, the atmosphere around fiscal policy was different than it often is....And, if you lay on top of that the idea that President Trump had his name on some of the checks, it was pretty clear that these transfer payments were meant to be gifts. They weren't meant to be loans that would have to be paid back with interest in higher taxes in the future. You don't typically put your name on a check when it has attached an IOU for future taxes. That communicated to people that their permanent income had gone up. Well, they're going to want to translate that permanent income into consumption. That's what standard economic theory tells you.

• [On fiscal dominance]  What happens is that the government issued $5 trillion in new debt. There was no expectation that primary surpluses were going to rise in the future to pay off that debt. So that debt has to be revalued, has to be devalued, which happens through a combination of lower bond prices and a higher price level. That's because, basically, the current value of the goods that will support those new debt issuances hasn't changed, and so the real value of debt can't change.

• [On the Fed's current role in fighting inflation]  what has happened is that Congress did what we call an unbacked fiscal expansion, and then turned to the Fed and said, "Okay, now you mop it up." But what the theory tells us is that, in the absence of some kind of fiscal consolidation that ultimately raises primary surpluses to soak up that debt, there's nothing the Fed can do to permanently offset the inflation. They can change the timing of it. And so what the theory tells us is that the Fed's increase in interest rates serves to reduce inflation, at the time, by pushing it into the future. 

• [On the role Interest on Govt Debt can lead to inflation]  the Fed has raised the interest rate. And so, what we're now seeing— another way of thinking about what's going on right now— is that interest payments on the debt are exploding. Then, the question becomes, how are those interest payments going to get financed? So far, they've been financed by just issuing new debt. If that continues, you can expect more inflation. If, on the other hand, what happens is that Congress starts to see that they've got to pay the bills from borrowing, and therefore they can't spend money in other ways that they would like to spend it, then they do something to either raise revenue or cut spending. How those interest payments get financed is, I think, the critical question for thinking about inflation going forward

•  [On the fundamentals of FTPL] nobody disputes that Treasury bonds are a liability of the government. Nobody disputes that the bank reserves that the Fed created to buy government bonds are also a liability of the government. Both of these liabilities these days pay interest. Then, you've got to think, what are the offsetting assets? If the government's going further into debt, there have to be assets that offset that. That's where the primary surpluses come into play. And those assets don't have to be present today. There has to be some assurance that, as these bonds mature, those assets will be present. And so, that's the other way to think about it.  We think about those assets as being denominated in units of goods. The liabilities, though, are denominated in dollars. So, the price level can adjust to equate the real value of those liabilities to the real value of the assets that back them

• [On fiscal sustainability]   I think there are just some very troubling signs coming from the bond market....he $1 trillion-plus that we'll have in the deficit that has to be financed and the fact that the Fed is undertaking QT and putting more bonds into the system. Easily, we have to finance about $10 trillion, which is roughly a third of the stock, in one year.....And to be honest with you, I did paint a grim picture, but deep down inside, I actually believe that, when interest payments get high enough, even a highly dysfunctional Congress will do the right thing.....And I think that they all recognize that you can't just make marginal changes, that something fundamental has to change. And I'm sure that entitlements would be part of that, and maybe there'd be some other taxes, maybe a consumption tax. But the resistance to taxes in the United States is so fundamental to our nature.

XTOD: Head Of Boeing 737 Max Program ‘Leaving Immediately’

XTOD: it's awesome that the boeing guy hadn't been fired yet

XTOD: Rumors circulating that NYC migrants will be given 10,000 in $NVDA calls

XTOD: “The speed of innovation happening in AI is moving at a pace I've never witnessed in my entire career"  - Kyle, 22, 8 months experience at Deloitte

XTOD: Don't let your dreams of a "bonanza" lead you to "expose yourself to the possibility of a catastrophe" - Howard Marks

Daily Economic Update: February 21, 2024

Today brings FOMC Minutes, Fedspeak, and a 20Y Treasury Auction and NVDIA earnings.

Yesterday was an overall a light news day, though stocks fell being led down by tech names, and yields rose slightly. 

To fill the void of no major economic date, I'm sharing a couple of recent post that caught my attention. 

The first being the Treasury Basis Trade, a topic you can google, but the trade leads to some concerns over Treasury market stability and resilience, a topic that was highlighted in Darrell Duffie's paper at Jackson Hole. 

Probably one of the better reads on the Treasury basis trade in a post by Steven Kelly here.  In discussing the article professor Brad DeLong wrote the following: 

The remarkable continued profitability of the Treasury Basis Trade tells us that the U.S. Treasury has profoundly misjudged what kinds of Treasury securities that market really wants to hold. Hedge funds are filling in the gap via a maturity transformation that substantially shortens the effective duration of Treasury-created assets—and are making an awful lot of money by doing so. What is the Treasury gaining by issuing long-term debt that Hedgies immediately transform into short-term debt? It is moderating the impact of short-term moves in interest rates on its monthly funding reports. Is that gain worth handing the profits for effective money creation over to Hedgies (and possibly creating some systemic risk in the case that the Hedgies get overleveraged and so out over their skies?).

We're all familiar with the Federal Deficit, but I thought this was next level thinking of one potentially overlooked ramification is whether attempts to raise revenue might mean ending some programs that many people are familiar with, like 401K's.  Per Allison Schrager's latest piece

I give the 401(k) another 10 years---tops.

Don't get me wrong. I love retirement accounts, and I think we'll still have them. But the tax treatment has a shelf life. It is expensive, mostly benefits the wealthy, and there is not much evidence it gets people to save more.

If it does not change behavior, people won't miss it so much, which means it is easier to get rid of instead just increasing taxes. And the government needs revenue. So say good buy to the tax deferral.

 You can also find my post about Allison's book here.

And of course we're all focused on what the Fed will do next and Scott Sumner shared his thoughts in a recent post.  In addition to expressing his views that in an efficient monetary policy system, he provides the following:

The Fed has now set rates at a level expected to produce a soft landing. If they overestimated the natural rate of interest they might deliver a hard landing, and if they underestimated the natural rate we might get no landing at all. In the latter case, inflation might stay stubbornly above target, requiring further rate increases.

Two years ago, almost no one correctly forecast the recent path of interest rates. The same could be said about interest rate forecasts in early 2020, or early 2019. I don’t know what will happen to rates over the next two years, but I have very little confidence that things will play out in the way the markets or the Fed currently expect. There could be surprises in either direction.

I see people cherry picking some obscure inflation metric which has hovered around 2% for 6 months. But price inflation is not the right variable to look at. In order to have lower interest rates, we need a slowdown in wage inflation and NGDP growth. If wage inflation gets stuck at 4.5%, then interest rates are headed higher. I still think it’s likely that wage inflation will slow, but recent price inflation moderation doesn’t reassure me at all.

In an efficient monetary regime (NGDPLT), policy errors in either direction would be equally bad. But we don’t have level targeting. In addition, recent policy errors have been in the direction of an excessively expansionary policy. For that reason, the damage from a somewhat overly expansionary policy in 2024 would be greater than the damage from a somewhat overly contractionary policy in 2024. The longer that wage inflation stays elevated, the more difficult it will be to bring it down.

XTOD: Inflation may be turning upwards, but cuts are still coming. The Fed views the world through the lens of real rates, and believes r* is unchanged post-pandemic. They may be overestimating the restrictiveness of policy, but that just means fewer cuts.

XTOD: Should you put all your savings into stocks? @BarryNalebuff  & Ian Ayres: Yes, with leverage!

@CliffordAsness : No!

XTOD (reply from Cliff Asness): If you are unwilling to lever you can at least have an interesting argument.  But if you’re willing to lever, to choose only equities vs a more diversified portfolio is hard to imagine.  https://aqr.com/Insights/Perspectives/Why-Not-100-Equities

XTOD: Life is a series of tradeoffs, and greater results usually require greater tradeoffs.  The question is not, “Do you want to be great at this?”  The question is, “What are you willing to give up in order to be great at this?

XTOD: Simply, the decision to buy is always yours. The decision to sell isn't.

Daily Economic Update: February 20, 2024

Stocks coming off the first losing week in this holiday shortened week.  It seems like market narratives are generally all about (1) if/when the Fed cuts and by how much, (2) CRE concerns and (3) whether all things AI might be a little bubbly.  The 2Y is 4.66% and the 10y is 4.32%. 

In M&A news the WSJ reported that CapOne will acquire Discover.

On the week ahead it's pretty light with the highlights as FOMC minutes, jobless claims and existing home sales.  There will be plenty of Fedspeak in the mix as well.

Tue: nothing major

Wed: FOMC Minutes, fedspeak

Thur: Jobless claims, fedspeak

Fri: Existing home sales

XTOD: it's wild how there's people working on creating artificial general intelligence, miniature nuclear reactors, space warfare technology, and new types of monkey nfts and all four of them believe they're working on building the future

XTOD: Man, these Zuck memes today have me dying laughing. It turns out there are a lot of things money can’t buy. Here are my favorite memes:

XTOD: A pair of Trump Golds just sold in size 11 for $7,500, the current record.   

Someone in Trump’s camp definitely had the right idea with limited edition, but missed on price.

XTOD: Chocolate prices are about to rise — and bars and boxes will shrink too — after wholesale cocoa prices jumped beyond their 46-year old peak, setting a record high

XTOD: "Success does not lie in sticking to things. It lies in picking the right thing to stick to and quitting the rest."

XTOD: Create an emergency fund equal to two years of living expenses and gradually increase it to five years as you increase your exposure to equities over time.  If you need to spend money and you can't, that is a risk

XTOD: With rare exceptions, most of the miracles of humankind are long-term, constructed events.  

Progress comes bit by bit.   The silent miracle of humanity’s march is this: step by step, year by year, the world is improving.

XTOD: Don’t forget to report your income from illegal activities and stolen property as you’re doing your taxes this year

Daily Economic Update: February 19, 2024 (President's Day)

Stocks and bonds are closed.  On this day in history, 1807: Aaron Burr was arrested for treason.  Burr, the VP of the U.S. from 1801-1805 had conspired to create an independent nation in the American Southwest and Mexico.  Burr was acquitted thanks to a narrow definition of treason by Chief Justice John Marshall.

XTOD: I don’t understand people who get bearish and express it by shorting SPX or Nasdaq.

Like God made the perfect shorting vehicle, it’s called Ark Invest ETFs. Like it’s literally called Ark Invest.

XTOD: Yeah, It’s really happening! Coming this summer. Full reveal in May #CFB25

XTOD: There’s a meaningful chance — maybe it’s 15% — that the next move is going to be upwards in rates, not downwards. The  @federalreserve  is going to have to be very careful. 

XTOD: XTOD: Yeah, It’s really happening! Coming this summer. Full reveal in May #CFB25

Daily Economic Update: February 16, 2024

Stocks rose and yields fell slightly as market participants continue to try to make sense of the economic picture. We also have technical recessions in UK and Japan. 

Yesterday's economic data looked mixed as Retail Sales fell more than estimated, Philly Fed and Empire Mfg both looked better than expected with strength in new orders and jobless claims seemed to indicate that you still can't get fired (despite seemingly ever company announcing layoffs).  Industrial Production fell more than expected, but hard to make sense of how much weather impacted the report and Business Inventories rose in line with estimates.

On the day ahead it's PPI as the headliner with appearances by UofM asking people about gas prices.

Does any of this matter?  Apparently there is some AI called SORA that can generate incredible videos from text and people are buying Super Micro Computer, Inc. shares. 

In making sense of all of the various data it seems that the interpretation of the strength of the economy may largely hinge on your interpretation of productivity and good old "R-Star".  One interpretation might be that the post-pandemic economy is fundamentally more productive than pre-pandemic.  That productivity might be driven by things like the rise of WFH which allows some otherwise marginalized workers to contribute (increase labor), perhaps immigration (legal and illegal), and technology.  It might also be that people just had to work more productively out of necessity.  Rising productivity would generally be disinflationary/deflationary and maybe it is indeed playing that role at the moment, but immediately post pandemic it was met with a wall of money via government spending and bank lending while hitting supply constraints. This could explain the rising real GDP and rising nominal GDP coupled with low employment.

I don't really know if the economy is more productive, but the productivity - interest rate - inflation nexus is a tricky one.  What I do think could be possible is that the post-GFC period of low real and nominal growth might turn out to be the anomaly.  If true, the unfortunate thing might be that so many of the current crop of investors and managers has only and ever lived and worked in the low rate, slow growth, "secular" stagnation world of the post GFC.  

A recent post by Dario Perkins on the TS Lombard blog seems to do a good job walking through a framework to analyze the post COVID world, in it:

6. What does this mean for the global economy in the 2020s?

• The Great Moderation is over. Periodic supply shocks will create additional volatility in inflation, which, in turn, will produce larger short-term gyrations in real GDP.
• Inflation will be somewhat higher, but this will be due mostly to upside volatility. It is hard to say exactly how much average inflation will rise, but an extra 100bps is reasonable. The more important point is about the “prevailing tendency” of inflation: we see a world where it is always threatening to break out to the upside rather than sink to the downside.
• Real GDP growth is likely to be higher, too, thanks to tighter labour markets (faster wage growth), a more expansionary fiscal-monetary mix and more rapid investment (in areas such as AI, decarbonomics, defence and the reconfiguration of global supply chains).
• Productivity probably improves in a higher-pressure economy, where companies are forced to work existing resources harder (rather than rely on cheap borrowing and low wages). We are already seeing signs of this in the US. Over time, technological diffusion, which was remarkably poor in the perma-lukewarm economy of the 2010s, should also accelerate, ending the so-called “productivity puzzle” of the post-GFC era.

XTOD: Worth mentioning that 24 years later, Cisco is still below its 2000 high.

XTOD: Rate cuts are feeling very distant. But hey, if stocks are ripping and the unemployment rate stays low, who’s mad beyond real estate developers?

XTOD: ICYMI: I wrote about our national hanging out crisis. In the last 20 years, averaging face-to-face socializing has declined ~30% among adults and ~50% among teens.   We've never been so alone. And it's driving us crazy. https://t.co/hIdXbVPovk

XTOD: Excelling at the small choices that compound over time perpetually leaves you in favorable circumstances.

XTOD: This is absolutely unreal...Abercrombie & Fitch has risen another 15% over the last few weeks and has now ~8x in less than 18 months  It's the best performing stock in the S&P 1500 Index, even outperforming Nvidia $NVDA by a huge margin  Absolutely no one could have predicted this epic turnaround for a brand that was largely seen as outdated  What a story

Daily Economic Update: February 15, 2024

It was a slow day for economic news, so we were left to wonder about this 'serious national security threat' which allegedly has something to do with Russian military capabilities in outer space, while also seeing the reality of dangers down on earth with the shooting at the end of the KC super bowl parade.

Of the little economic news there was both PPI revisions and UK inflation data seemed to give bond bulls some renewed optimism on the inflation front.

Retail Sales and Jobless Claims on the come.

XTOD: AirPods have only been out for 7 years, and the average person now defaults to throwing their headphones in as soon as they’re alone in public.  Walk through the grocery store, everyone has their headphones in. Same with the gym, or just walking around town. 

This feels like a dystopic tech trend that will only accelerate as AI improves and new products like the Vision Pro continue to come out.

XTOD: Vice Chair Barr: "A single bank missing its revenue expectations and increasing its provisioning does not change the fact that the overall banking system is strong, and we see no signs of liquidity problems across the system."

XTOD: Who Had 'Russian Nukes In Space' On Their Election-Year Disruption Bingo-Card?

XTOD: U.S. House Representative, Michael Waltz stated when asked why Chairman Turner decided to make the National Security Threat today Public, “If we don't Deal with this Issue Appropriately, if the Administration doesn't take Firm Action, this could be a Geostrategic Game-Changer. And that is why Chairman Turner took this Unprecedented Step.”

XTOD:  I was laid off from Lyft today. I was the Director of Finance in charge of reporting our margin expansion in our earnings release. 

I accidentally wrote 500 basis points when I meant to write 50 and our stock tanked after we issued the correction. 

Working at Lyft has been the most exciting first job to have after taking only one finance class in college and graduating this past Fall. 

Time for some rest and relaxation and excited for what comes next!