Daily Economic Update: April 2, 2024

Yields rose and stocks fell to start the quarter, in a move that likely reflected the fact that Friday was a market close and thus the delayed reaction to PCE and Powell.  The 10Y yield was up double digit basis points to 4.32% and the 2Y yield was up ~8bps to yield to 4.71%

Speaking of the Fed, economist Allison Schrager weighed in on her blog with the following:

"Is it worth damaging an otherwise strong economy to get inflation from 3% to 2%? There is nothing wrong with 3%, other than the fact the Fed’s target is 2%. I know, credibility is important. But let’s be honest, when have they ever hit their target? Their credibility is about faith more than history. They were below target pre-pandemic and now just above. Maybe a wide range is a better idea, or we just admit the Fed does not have precise control over these things. Though I also worry that giving up now could destabilize expectations.

Sometimes we all need to believe something, even if it is not true. It makes for a stable(ish) equilibrium."

In yesterday's data, the ISM Manufacturing index was above estimates with strong internal components including jobs.  Construction spending was below estimates.    The Atlanta Fed GDPNow is up at 2.8% for Q1 while NY Fed's model is ~1.8%.

XTOD: First Case Of Bird-Cow-Human Transmission Of Bird Flu Reported In Texas

XTOD: Can someone explain to me how Trump Media is trading at ~$6B market cap with $4M in revenue and $58M loss?  How is this not in free fall lmao

XTOD: Bitcoin might be off its all time highs, but over the last 3 years it has outperformed the S&P 500 by over 20%.  April Fools! Actually, the S&P 500 has outperformed Bitcoin by over 20% in the last 3 years.  Thanks for playing!

XTOD: McKinsey is now offering staff 9 months severance if they agree to leave the company, in a bid to reduce headcount amid a huge downturn in professional services.

XTOD: People aren’t really looking to be economically stable before they start families; they’re looking to be existentially stable.

They will opt-out of important life decisions altogether because they are waiting for the day when they will feel like more of a confident person with a firmer sense of self before making a commitment—not knowing that it’s those very decisions and commitments which they are opting out of that would allow them to develop into the person they desire to be.

Daily Economic Update: April 1, 2024

The start of 2Q2024, let's see if the gains of Q1 can continue.  "Do not attempt to fly a blimp in the shape of Charles Barkley".  I wonder if I'm the only person who saw this warning, which is in the fine print in a Capital One commercial.  I found it somewhat bizarre, but funny, that this warning (had to be?) shown on the screen.   Anyway, I guess flying a blimp shaped like Barkley might be challenging, kind of like trying to manage inflation and unemployment by moving an interest rate (generally in 25bp increments) every six weeks.

Economist Scott Sumner has a prediction: "PS. Here’s a prediction for 2024: Inflation will remain above the Fed’s target, disappointing those who expected a soft landing. The economics profession will fall all over itself making up phony “supply-side” excuses for the lack of progress against inflation (which has obviously been a mostly demand side problem, and will remain so in 2024.)"

Speaking of inflation, on Friday, the Fed's preferred inflation measure, PCE, was largely in line with expectations.  The headline was 0.33% MoM v. 0.4% est and 2.45% YoY v. 2.5% est.  The core was 0.26% v. 0.30% est and YoY 2.718% v. 2.8% est.  Personal spending rose slightly more than anticipated (0.8% v. 0.5%) and income rose slightly less (0.3% vs. 0.4%).  It doesn't seem like there was anything overtly evident in this data that screams a major slowdown or even that inflation has been firmly defeated.

Powell continued to stress the need to see more data before cuts but still seems confident that inflation is on it's way back to target.

Speaking of data, to me, the NCAA Tournament is a reminder that there are times we take data and analytics too far.  As I watched some tournament games, you see the impact of the '3-point revolution' based on data that shows a higher expected value for 3-point shots relative to 2-point shots outside of shots in the paint.  In short it's the idea that because 3-point shots are only made at a slightly lower rate than 2-point shots that teams are better off shooting 3-pointers.  

In watching some of these games you just see teams relentlessly shooting 3's, which for some teams was clearly not working.  Without getting into statistics at all, it just seems that there are times that the fact that sports are played by real people, who can have a million factors impacting their performance, seems to be lost on those wed to the data.  At least that's what it looks like to an outside observer when they see a team that is clearly not shooting well from 3, appear to make no adjustments to account for that fact. Maybe a guy just might to step in a few feet to get his shot despite the fact the analytics might say it's better for him to shoot the 3.  Setting all that aside there have been some all-time great scorers who had strong mid-range scoring games, see Michael Jordan.

I don't doubt that on average, over time, and across many teams, shooting 3's might be the best expected value strategy. Perhaps Taleb's quote is applicable here:

Never cross a river that is on average 4 feet deep 

Which I believe is a reminder that averages alone (like the average shooting percentage on 3 pointers across a wide universe of players) tell you very little about the variation around that average, you wouldn't try to walk across a river that has a passage that is extremely deep despite the fact the average depth is only 4 feet.  With 3 point shooting there seems to be some large variances and sometimes as a casual fan observing it just appears teams might be too wed to the data.

On the week ahead it looks like JOBS Day Friday, ISM reports, JOLTS and Fedspeak will make for an eventful week.

Monday: ISM Manufacturing

Tuesday: JOLTS, Factory Orders, Fedspeak

Wednesday:  ISM Services, ADP, Powell and Williams

Thursday: Jobless Claims, Fedspeak

Friday: Jobs Day in 'merica

XTOD: Powell spoke today. Some headlines  *POWELL: CAN HOLD RATES STEADY IF INFLATION DOESN'T COME DOWN  *POWELL: DON'T THINK RATES WILL RETURN TO PRE-PANDEMIC LEVELS  *POWELL: ECONOMY NOT SUFFERING FROM THIS LEVEL OF RATES  *POWELL: NO REASON TO THINK ECONOMY IN OR ON EDGE OF RECESSION

-- Only one market is open today ... crypto/Bitcoin. It is sold off as Powell spoke, Views his talk as hawkish.

XTOD: As the market climbs, the implied ERP for the S&P 500 drops to 4.23%, its lowest value since 2008. As a forward-looking price of risk, the ERP drives everything in markets. I have a review that I do on ERP, and my fifteenth annual update is now available: https://bit.ly/49fSBU0

XTOD: BREAKING: Barry Sternlicht's Starwood Capital surrenders 3 buildings in Oakland just 5 yrs after acquiring them  Starwood defaulted on $365M in loans (from Deutsche Bank) tied to the properties w/ a combined footprint of ~1M sq ft  They acquired the buildings for $494M in 2019 and are expected to be sold at significantly lower prices  Oakland faces a critical situation w/ office vacancy at a record 30%+ surging from 9% in 2019

XTOD: A surprising result from Jonathan Haidt's research is that religion seems linked to better mental health in young people.  It's a rare chink of light in an otherwise bleak picture on the effects of smartphones on teenagers.

XTOD: When you know what's coming, prepare. When you don't know what's coming, position. 

If you have a presentation on the calendar next week, you can rehearse. If you have an appointment, you can easily factor in travel time so you're not late. If you know the bill is due next year, you can save the money this year. 

When the future is uncertain, you can position. No one knows what's going to happen with the economy, but you can position yourself against potential loss by spending less than you earn. You don't know what's going to happen to your health, but you can strengthen your position against disease by exercising. You don't know when you might need your friends, but you can be in a good position to ask for their help by being the kind of friend they can count on. 

Being well-positioned enables anyone to come out ahead no matter what obstacles the unknown may present.

Daily Economic Update: March 29, 2024

Markets closed for Good Friday.

Yesterday, 4Q2023 GDP was revised higher yet again, up to 3.9% and jobless claims remain crazy low.  As with some other commodities, like cocoa, gold is at record high.   Away from the market, FTX founder, SBF, was sentenced to 25 years, less than what many had speculated.

Despite the unambiguously positive economic news of late and stock market gains, earlier in the week, Blackrock's Larry Fink was extremely concerned about the state of U.S. retirement funds.  According to Reuters: "Fink said data from the U.S. Census Bureau's survey of consumer finances in 2022 showed nearly half of Americans aged 55 to 65 reported not having a single dollar saved in personal retirement accounts. "Put simply, the shift from defined benefit to defined contribution has been, for most people, a shift from financial certainty to financial uncertainty," he added."   Just a reminder that not everyone has benefited from recent economic gains.

Speaking of unequal gains, Ray Dalio was out with a piece this week titled In China: The 100-Year Storm on The Horizon.  In it Dalio references his big debt cycles and states: "It is quite typical for such booms to produce debt bubbles and big wealth gaps that lead the booms to turn into bubbles that turn into busts."  In China in particular Dalio discusses the history and how a convergence of forces, perhaps accelerated by Covid, coupled with a the domestic debt bubble bursting and increased international conflict has led China toward a more communist nationalist mentality.  Dalio states that: "History shows that in all countries through all times during these very difficult 100-year-storm-like periods, leaders go to much more autocratic policies because the alternative becomes great internal conflict and disorder, and typically there are forced changes of leadership that those in power fight against."  Dalio believes China needs a 'beautiful deleveraging' lead by debt restructuring coupled with easy money policies to avoid a lost decade.  He also sounds concerned about the prospects for wealth confiscation and the possibility that China tries to drag the U.S. into a 3rd war.

XTOD: Not sure what to make of this:  -25 Years for SBF sentencing  -Just about 100% recovery for FTX clients

XTOD: NYC’s Delinquent Property Taxes Soar Without Incentive to Pay  @business  #CMBS  

▪There’s an estimated $880 million in unpaid taxes this year

▪Cobble Hill, Brooklyn rental owes $52 million, city data shows

XTOD: A favorite quotation from Danny Kahneman: "Nothing in life is as important as you think it is when you are thinking about it." (Except Danny.)

XTOD: Dream big, start small, act now. Every small step counts towards your extraordinary future. 

Daily Economic Update: March 28, 2024

Another record high close for the S&P 500 and this time the gains weren't lead by AI stocks.  The S&P is now up ~10% on the quarter.  In fixed income land, bond yields fell with the 2Y down ~3bps to 4.57% and the 10Y down ~5bps to 4.18% as the strong 7Y note auction priced about 1bps through where WI issued was trading, making this a strong week for Treasury demand.

Fed Governor Waller's speech was titled There's Still No Rush, you probably didn't need to make it much past the title to get the gist.  "Adding this new data to what we saw earlier in the year reinforces my view that there is no rush to cut the policy rate. Indeed, it tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2 percent."  "I continue to believe that further progress will make it appropriate for the FOMC to begin reducing the target range for the federal funds rate this year. But until that progress materializes, I am not ready to take that step."..."In my view, it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data. "..."As a result, in the absence of an unexpected and material deterioration in the economy, I am going to need to see at least a couple months of better inflation data before I have enough confidence that beginning to cut rates will keep the economy on a path to 2 percent inflation. "

You may not have directly heard of Danny Kahneman or read his books (Thinking Fast and Slow is an interesting read, though I found it to be a tough read), but you're likely familiar with some of his work around heuristics, bias and ultimately his impact on the field of behavioral finance.  Kahneman passed away yesterday at age 90.  I don't know if Kahneman is best known for "prospect theory", but for those unfamiliar with the theory, it essentially says that individuals place different weights on gains and losses.  In the work of Kahneman and his long time partner, Amos Tversky back in 1979 they conducted a study in which participants were offered a choice of a sure gain of $500 or a 50/50 chance to either gain $1,000 or nothing at all, respondents overwhelmingly chose the "sure gain".  Correspondingly, when another group was asked to choose between a sure loss of $500 or a 50/50 chance to lose either $1,000 or nothing at all, a majority gravitated to the uncertain outcome.  It appeared to be that human nature is to prefer an uncertain loss to a certain loss but to prefer a certain gain to an uncertain gain. [aforementioned paragraph comes from a CFA Reading from 2007 on managing investor portfolios written by James Bronso, Matthew Scanlan and Jan Squires)

Further, author and former poker player, Annie Duke, references Kahneman's work on prospect theory and loss aversion in her book, Quit.  In it she discussed further work by Kahneman that involving coin flip propositions where a person starts in a $100 position and is offered a coin flip with a positive expected value of $110 that showed that people "are willing to give up extra profit to lock in the sure win.  They will pay to avoid their win evaporating with the flip of a coin, and the regret that comes with it."  The same experiment also started people off with a $100 loss position and offered them a coin flip with a negative expected value of $110 which showed that "people will indeed pay for the chance to recruit luck into the equation, which is the only way they can turn a sure loss around."

XTOD: My conversation with the legend, Daniel Kahneman.  Daniel was gracious enough to spend an entire afternoon with me the first time we met.  May he forever rest in peace.  https://fs.blog/knowledge-project-podcast/daniel-kahneman/

XTOD: One of the strangest things with tip culture is who does not get tipped.   Waiters yes, flight attendants no.   Uber Eats driver yes, UPS driver no.   Valet yes, front desk no.

XTOD: What turns an Austrian boom into a bust isn't slower credit expansion or disinflation; its real interest rates rising back to their "natural" levels. And my impression is that that's already happened.

XTOD: 16 sentences of wisdom from bond trader turned restaurateur, Sean Feeney, that will make you a better person, friend, and leader.

1. The most important ingredient is the one that’s left out.

2. The greatest gift is courage. Give someone the courage to be themselves.

3. Success is doing something every day for the rest of your life, happy to do it.

4. Everyone has genius inside them.

5. Truly showing belief in others will buy them a ticket to someplace they never knew.

6. Hospitality is creativity plus compassion.

7. “That’s just the way it is,” tells you there’s money to be made.

8. It is tempting to have something for everyone but there is preciousness in not filling demand.

9. Create a brand that people chase, don’t chase people with your brand.

10. Make others feel a part of something.

11. You are one of us, whether you work with us or you're dining with us.

12. Treating others well is good for business.

13. Finish the day, asking, “How did I impact someone in a positive way?”

14. Know what works and be honest with what doesn't and don't do that.

15. Block out all the noise and keep it simple.

16. Believe every day is a good day. But don’t think it’ll be easy.

https://x.com/ShaneAParrish/status/1773042318578200855?s=20

https://x.com/morganhousel/status/1773064353928913386?s=20

https://x.com/GeorgeSelgin/status/1773030503211295157?s=20

https://x.com/InvestLikeBest/status/1773040994801291298?s=20

Daily Economic Update: March 27, 2024

In a data heavy day, durable goods new orders both headline and core exceeded expectations, while shipments were below expectations and home prices rose more than expected.  The S&P Case Shiller home price index showed increasing home prices MoM generally in line with expectations and clocking in at a rate of 6.6% YoY.  The Conference Board's consumer confidence survey was slightly below expectations and showed “Consumers’ assessment of the present situation improved in March, but they also became more pessimistic about the future,” said Dana M. Peterson, Chief Economist at The Conference Board.  Despite some pessimism in the report, the data showed consumers continuing to reduce their recession odds and still consider jobs to be plentiful.

Stocks ended down for a 3rd straight day while cocoa prices hit new all-time highs.  Yield were down slightly with the 2Y at 4.60% and the 10Y at 4.23%.  We'll get some of Fed Governor Waller on the day ahead.

In tragic news, the collapse of the Francis Scott Key Bridge in Baltimore following a massive container ship losing power causing it to ultimately hit one of the bridge's support columns, is an abject reminder of uncertainty.  Investigations will continue to try to assess what could have been done to prevent this accident and what can be done to prevent these types of accidents from occurring in the future.  Certainly some lessons will be learned.  I wouldn't be surprised if we find that some of the problems in this disaster were tied to the topics of complexity and tight coupling, but time will tell.

I've written about the topic of uncertainty (and it's close cousin risk) a ton on this blog, you can find those instances here and further find the word "uncertainty" with a good old fashion Ctrl+F search on the page.

XTOD: It’s easier to be lazy than it is to fail.   As soon as you actually try you realize how little you have to do to beat the people who do nothing.  There are far fewer people who’ve failed than people who were too lazy to try.

XTOD: Is there a known law for a long-life of compounded positive reputation DESTROYED at end (Ala @nntaleb turkey’s life before thanksgiving)?.....Paraphrasing Buffett + PE’s Buffett (and Lux godfather) Carlyle’s Bill Conway “10 years to build a rep 10 seconds to lose it”....Coach Wooden nailed it:  Care about your CHARACTER over your REP, because it’s what you really are  REP is just what others think you are

XTOD: We put round pizza in a square box and eat it in triangles.

XTOD: Many different methods will deliver training results. The only two non-negotiable factors for success, though, are effort and consistency. Adaptation won't happen unless you force it.

XTOD: Is what I'm about to do today connected to what I'm going to value over the long-term?

Daily Economic Update: March 26, 2024

I wonder if there is a Reddit about trading Reddit shares? There probably is.  Reddit and shares of some AI stocks did well while the major indexes closed slightly lower.  Yields rose 3-6bps across the curve as Fedspeak from Bostic and Cook leaned slightly more hawkish against the usually dovish Goolsbee.  Bostic is on record calling for only one rate cut this year.  The 2Y at 4.63% and the 10Y at 4.25% as traders position for markets being closed on Friday as PCE data hits.

Meanwhile as we wait for PCE, it looks like two staples, chocolate and gasoline, will continue to be expensive.  Cocoa prices continue to reach new all-time highs due to supply shortages largely related to weather and oil prices are rising related to geopolitical supply concerns.  

Away from economics and markets, it was heavy in pop culture news:  P. Diddy investigated for human/sex trafficking, Ohtani says he never bet on sports and was stolen from, Trump couldn't post bond but gets more time, Huberman can't manage dating five woman at the same time, and the Terminator had a pacemaker put in. 

Today's we'll get durable goods orders (does all the Boeing issues - now with a C-suite shakeup ever show up in this data?) , home price data and some consumer confidence data.  We also have the 5Y Note Auction.

XTOD (Andy Constan - who to the best of my knowledge coined "H4L Island"...now leaving): FWIW I have left H4L island and expect NGDP to be lower than longer than expectations. I am sailing in the Economic Slowdown Sea.  The only destinations on my journey are Recession Island or Soft Landing island.  My guess is the former.

XTOD:  A few smart things I've read lately: https://collabfund.com/blog/smart-words-from-smart-people/

XTOD: Imagine working hard to get into a good university, studying to get into a competitive IB job, and toiling away for 90+ hours a week to earn $150-175k in comp after your first year, only to have teenagers yolo shitcoins with no inherent value and gain millions of dollars

XTOD: I don't think it's the price of being an A podcaster—there are many honest ones. It's the price you pay for selling yourself as someone you're not, and making millions off it by engaging in a form of deception that is supported by an oligarchy of deceivers, all of whom emerged in the wake of the pandemic. These were people who knew how to take advantage of other's vulnerability.  I don't feel bad for him.

Daily Economic Update: March 25, 2025

Sorry if this post is incoherent.  I wrote it with an experimental neuralink device while exercising "squatters rights" in a $2 million property in NY and taking Ozempic.

Who would you like to sue?  We've got shoppers suing Hermes because Birkin bags are rare, expensive and they won't sell them to just anyone, you need to buy a bunch of other stuff to prove you're worthy first.  On top of that we've got a suit against Starbucks because oat milk is a surcharge and some people are dairy intolerant (apparently lactose intolerance is recognized as a disability).  I have decided to follow on with lawsuits against every company in the food and beverage category because: (a) healthy food is generally more expensive than junk food and (b) I have a kid with celiac, which requires him to be gluten free.  Last I checked gluten free food is ridiculously expensive and not offered at every single restaurant. They shouldn't be able to limit my access to healthy food or charge more for gluten free food, right?  Capitalism and Supply and Demand be damned.

Last week was a nice week for equities despite Friday's down day.  The tensions around the terrorist attack in Russia and the failing ceasefire negotiations in Israel are reminders that there are plenty of geopolitical risks still out there.

We start the week with 2Y Treasuries at 4.60% and 10Y at 4.20%.  Anyone willing to trade a 2's10's Steepener here?

More inflation data on the week ahead with the Fed's preferred PCE measure on Friday.

On the week ahead:

Monday: Fedspeak, new home sales

Tue: Durable goods orders, home price indexes

Wed: Gov Waller

Thur: Jobless Claims and a 3rd read of 4Q2023 GDP, UofM asking people about gas prices

Fri: PCE, Powell

XTOD: Doing what everyone else thinks you should is a sure path to the same results as everyone else.

XTOD: Take pride in your effort, not your talents. Your talents are a gift, you didn't do anything to earn them. You should take pride in what you do w/ them. True excellence comes from combining gifts with dedication and effort. (Working & studying hard/practicing consistently)

XTOD: Resendo Tellez, a 27 y/o from Wasco, California was Arrested earlier today after an Incident occurred this morning in which he was a Witness to a Fatal Accident at an Amtrak Rail Station, which involved a Person being Struck by a Train and Killed, before Tellez decided to then take the Severed Leg of the Victim and was later Filmed by a Passerby as he attempted to Eat the Human Leg.

XTOD: Breaking News - Pete Rose is now claiming it wasn’t him.   It was his Translator ( pictured below) https://pbs.twimg.com/media/GJT_pbHXMAA34I6?format=jpg&name=900x900

XTOD: This week I reintroduced my Ultra-Millionaire Tax.   It’s time for millionaires and billionaires to start paying their fair share.

XTOD: the lowest earning 40% of americans pay no income tax  the top 1% of american earners pay 40% of all income tax

XTOD: Bitcoin: Crypto’s Original Use Case:  The coin that Warren Buffet called “rat poison squared” is now a $1.3 trillion global asset sought after by some of the largest financial institutions in the world—with the potential to disrupt a wide range of markets.

Daily Economic Update: March 22, 2024

I still can't believe no one asked Powell for his NCAA pick.  

Yesterday's jobless claims data proved you still can't get fired, while S&P PMI's showed continued expansion.  The news on the central bank front was slightly more interesting with the Swiss National Bank cutting rates by 25bps to 1.50% in a move that was not priced into expectations.  The BoE heled their policy rate at 5.25% but is more clearly moving away from a hiking bias and towards easing.

Even a DOJ anti-trust case against Apple couldn't keep the major indexes from continuing their bull run.

The 2Y yield rose to 4.64%, reclaiming some of the ground lost earlier this week, and the 10Y is 4.27%

We’ll get some Powell at a Fed Listens event today, which will likely be a non-event and everyone will be watching basketball or buying AI stocks anyway.

XTOD: I am concerned because I am hearing reports of a mass epidemic of a terrible 48-hour virus that has people not showing up for work or school today. Hope everyone is feeling okay!!! Take care of yourself, get your rest, nothing more important than your health.

XTOD: DOJ suit against Apple has five claims on monopoly maintenance. Antitrust Division alleges Apple:

1) Blocking super apps 

2) Mobile cloud streaming services

3) Excluding cross-platform messaging apps

4) Degrading non-Apple smart watches

5) Limiting third party digital wallets

XTOD: Some thoughts about the bond market treading water since the Fed meeting while risk markets rally ...  ----- The Fed cannot randomly pick some day and cut rates. If they do and the market thinks it is not serious about inflation, sell bonds. 

In 2022, the Fed hiked 75bps at four consecutive meetings. While they were doing this, inflation hit 9%. But the Fed was "on the case," and the 10-year yield peak was just 4.22%.

Contrast this with 2023. The Fed stopped hiking in late July 2023, when the 10-year yield was 3.95%. Even though inflation had declined from 9% to 4%, the market was "unsure" about the Fed's commitment to fighting inflation. Ninety days later, the 10-year yield jumped to over 5%, peaking in October 2023.

If the Fed is not serious about fighting inflation, when the market thinks it is a problem, it is not serious about owning the 10-year notes.

Fed dovishness only works if the market is convinced inflation is not a problem. Right now, it is unsure.

I long thought inflation was a problem (3% to 4% problem), and the economy is "no landing." So I think the market will resolve that inflation is at least an issue and that the Fed is not acting seriously about it, and it will start selling bonds.

XTOD: Microsoft CEO Satya Nadella to board members: 

"If OpenAl disappeared tomorrow, we have all the IP rights and all the capability. We have the people, we have the compute, we have the data, we have everything. We are below them, above them, around them."  Wow.

XTOD: “Welcome back to SportsCenter Presented by ESPN Bet, for more on the Ohtani situation we go to our FanDuel MLB Insider Jeff Passan at our DraftKings Studio in Los Angeles brought to you by Caesar’s Sportsbook. Jeff, how could something like this happen?