Daily Economic Update: May 3, 2024

 Another Jobs Day in 'merica is upon us. Except maybe not for her as Peloton lays off another 15% of their workforce.

Market is looking for a headline jobs print of around 250K, though immigration, a topic Powell discussed this week, is a major wildcard with the possibility for an upside surprise and recently considered a major source of divergence between headline payrolls from the CES/Establishment Survey and the data on Unemployment and Labor Force Participation which comes from the Household Survey and is based on census data.  Anyway, feel free to ask a real economist.

Yesterday's nonfarm productivity showed a 0.3% mom increase and a 2.9% YoY increase, but as (or more) importantly increased by 4.7% which was above estimates.  In jobless claim data, apparently approximately the exact same number of people file for claims every week.

Stocks traded higher and bond yields fell.  The 2Y is 4.88% and 10Y is 4.59%.  Apple’s earnings and $110bln buyback led to further equity gains after hours as we head into payrolls.

On the day ahead it's Jobs, PMI's and bring on Fedspeak, including NY Fed's Williams at 815am.

XTOD: The last 13 weeks of initial unemployment claims. It finally moved off 212k, but barely.  

Again, we are a $30 trillion economy with over 160 million workers. Unemployment insurance is a state program, meaning there are 50 states with 50 rules, 50 different ways to sign up, and 50 websites. Filling out these forms takes work. That alone should give a variability of more than a thousand or two a week.  Unemployment insurance is highly seasonal; little things like a holiday on the week make a difference (see around Feb 16, President's Day, and March 29, Easter).  Yet, given all this, these numbers barely move.  I'm not accusing anyone of anything. Rather I would like someone from the BLS (who collects the data, seasonally adjusts it, and releases it) to offer an explanation for the lack of volatility.  (This is a screenshot from Bloomberg; it must have glitched as April 12 is missing. That was also 208k, same as this week.)

XTOD: The last several weeks have been remarkable in that a series of considerably firmer #inflation, #wage and #economic data points have dramatically re-rated the market-implied probability of 

@federalreserve  policy rate cuts by year end.

XTOD (I think he read my Dark Matter post...): Amount of attention, digital ink spilling and coverage the FOMC gets is totally out of proportion with the level of signaling it carries. These guys are systematically wrong and literally have no fucking clue what they are doing or where they are heading. They don’t have a plan and keep getting punched in the sack. When inflation was staring right in the face their informed view was not to think about thinking about hiking rates. When inflation set on it’s largest, possibly structural, surge of the last half a century, they labelled it transitory and carried on with unholy QE while driving real rates into deep negative territory. When inflation was about to get sticky and re-accelerate they touted victory in their infamous Dec 23 dovish pivot. Now they have no clue and are saying as much, just waiting for the next data punch. Next is after denying stagflation, to call it transitory. Not sure Trump setting monetary policy would do much worse to be honest. Hell a monkey would do better. And never any accountability.

XTOD: Jerry Seinfeld on why he still works hard: "Because the only thing in life that's really worth having is good skill. Good skill is the greatest possession. The things that money buys are fine. They're good, I like them, but having a skill - I learned this from reading Esquire magazine. They did one issue about Mastery. This is a very Zen Buddhist concept: pursue mastery. That will fulfill your life. You will feel good. I know a lot of rich people. They don't feel good - as you think they should and would - they don't. They're miserable. So I work because if, you don't, in standup comedy, if you don't do it a lot, you stink."

https://x.com/biancoresearch/status/1786017610871849053

https://x.com/INArteCarloDoss/status/1785958043361972685

https://x.com/RickRieder/status/1786032627130282229

https://x.com/NeckarValue/status/1786044600131404081

Daily Economic Update: May 2, 2024

Refunding announcement showed continued high bill issuance, unchanged from current auction sizes.  JOLTS data showed a large decline in job openings, ISM showed weakening activity and really the only economic beat yesterday was in ADP Employment.   Of course now of this really mattered as the main event was Powell's presser, which was aptly summed up in this tweet from Bloomberg's Jonathan Ferro: "One gear: dovish.  Powell says policy is restrictive and the presser ended almost as soon as it started. The 2-year rallies for the 5th straight Fed decision-day."  That dovishness and the reduction in QT was enough to send yields lower and stocks higher.   The 2Y is back under 5% at 4.96% and the 10Y is 4.63%.

If you'd like a little more on the Fed check out my recap here.

On the day ahead it's Jobless Claims, Productivity & Unit Labor Cost, Factory Orders and Apple earnings.

XTOD: Federal Reserve holds interest rates steady, fires back at Kendrick Lamar

XTOD: "The Treasury has continued to stick to their prior market guidance of not expecting to increase nominal coupon auction sizes for next several quarters...because if they were to deviate from that and increase, we WILL have a resumption of the term-premium scare..." @Nomura  #McE

XTOD: Feed the transcript from today's FOMC press conference  to ChatGPT. Here is its summary: https://pbs.twimg.com/media/GMhLEfzXMAAPbV4?format=png&name=small

XTOD: Apparently, the secret to a long and happy marriage is…proposing at the Berkshire Hathaway annual meeting?   https://wsj.com/finance/berkshire-hathaway-annual-meeting-romance-25eb77fc?st=npgr0xi3cucb39s via  @WSJ

XTOD: “I’ll just work until I have X dollars and then do what I want.” If you don’t define the “what I want” alternate activities, the X figure will increase indefinitely to avoid the fear-inducing uncertainty of the void.

XTOD: The best antidote to burnout is not teaching people coping skills to handle stress. It's redesigning work to reduce stress.  The cure for exhaustion is removing overwhelming demands and the norm of self-sacrifice. Healthy workplaces value well-being as much as performance.

FOMC Recap: "Dark Matter" matters

 

• The FOMC maintained their policy fed funds rate at 5.25%-5.50%
• The statement noted that "there has been a lack of further progress toward" the 2% inflation objective.
• The FOMC will reduce the pace of QT.
• Powell characterized U.S. growth as strong, the labor market as relatively tight, and that it will take longer than thought for inflation to return to target.
• Powell continues to characterize monetary policy as 'restrictive' though noting that the data will ultimately tell them if that's true.
• Powell does not believe the Fed's next move will be a hike.
• Powell isn't really thinking about the calendar and whether they will have time to cut rate this year. "I don't know how long it will take".
• Powell said, the economy has been hard to forecast. There are paths to cuts and paths to no cuts, but he doesn't know.

"My own view is that physics envy drove economists to think of the social world as a potentially perfect machine." - Robert Skidelsky, What's Wrong With Economics?

It is sometimes said that economics suffers from "physics envy", aspiring to find the mathematical models that will afford us the precision of physical laws, seeking precision where none is often found.  Economist Robert Skidelsky points out the complexity of human behavior, the influence of social, behavioral, moral, psychological, and other factors that render making precise mathematical modeling of the economy impossible.  

These other factors are the "Dark Matter" of economics.  In physics, Dark Matter is something unobservable but inferred from the gravitational effect it has on physical matter.  It is the hypothesized thing that scientist believes effects the behavior of the galaxies.  In economics, I'll call Dark Matter all of the hidden, unobservable, or misunderstood forces that influence economic outcomes. This economic Dark Matter could be things like sentiment, changing attitudes and moralities, the role of money, financial conditions, the influence of the FOMC's own narratives and policies, the uncertainty of buildups of financial excesses, the global effects of monetary policy, feedback loops, the role of expectations, the credibility of the Federal Reserve and other institutions, and likely many other factors.  Some economist in the so-called school of "Market Monetarism" would place a strong emphasis on using market-based indicators to guide monetary policy, as these market based prices can provide valuable information about the stance of monetary policy.  In other words, by observing prices and nominal GDP, you can infer the existence of economic Dark Matter when policy doesn't generate the expected result.

We obsess over and analyze economic data, the FOMC meetings, the Fedspeak, but are we seeking precision where none is going to be found?  Are we failing to recognizing inherent uncertainties (even when they are telling us they are uncertain)? Are we succumbing to the noise, listening to the pundits, unable to find the signal?

Speaking of 'noise', the more beautiful sound is music. Speaking as a child of the 90's, Pearl Jam recently released their twelfth studio album, Dark Matter, and corresponding closely to today's FOMC meeting, will begin touring in support of this album on May 4th.  Inspired by the lyrics of the title track and with the help of ChatGPT, I wanted to share some thoughts on the Dark Matter of economics:

• "Steal the lights from our eyes": Represents the loss of clarity and transparency in economic decision-making, where hidden forces obscure understanding.
• "Take my blood from my heart": Symbolizes the extraction of wealth or value from the core of the economy, leaving it weakened.
• "We're in all of this dark matter": Reflects the pervasive influence of hidden economic factors, such as market sentiment or systemic risks.
• "Take the breaths from my chest, Take the pulse and I'm outta line": Suggests the suffocation of economic vitality and stability, leading to disruptions and imbalance.
• "Denounce the demagogues, King diamond to discard": Calls for rejecting misguided leadership and outdated economic models that no longer serve the collective good.
• "Deplore the dialogue, Your word against the law": Highlights the breakdown of effective communication and trust in economic institutions, leading to uncertainty and conflict.
• "It's strange these days, When everybody else pays For someone else's mistake": Illustrates the unfair burden placed on the broader population for the failures or misdeeds of a few, echoing themes of moral hazard and systemic risk.
• "No tolerance for intolerance, intolerance for- No patience left for impatience no more": Reflects the need for a balanced and disciplined approach to economic policy, rejecting short-termism and reckless behavior.
• "No love lost for lost loves, No sorrow for the unaccountable": Conveys the necessity of holding accountable those responsible for economic harm, without sentimentality or excuse.

Overall, these allegorical references paint a picture of the complex and often opaque world of economics, where hidden forces and systemic flaws can have profound impacts on individuals and societies.

There might be more wisdom in this AI generated allegory than in obsessing over every word Powell spoke today.

Daily Economic Update: May 1, 2024

In another data point that dashes rate cut hopes, the Employment Cost Index data from the BLS showed wages and benefits rising at the fastest pace in the last 3 months and rising at a 4.2% pace YoY from last March.  The 2Y closes the month back above 5% while stocks finished the month on a down note to close out a losing month, the first since last October.  To start the month of May, the 2Y is 5.05% and the 10Y is 4.68%.  With the curve flattening yet again, is anyone willing to trade a steepener here?

May starts on a busy note with the details of Treasury issuance, JOLTS, ISM Manufacturing and of course, the FOMC decision.  While you wait for Powell, you're welcome to peruse my previous FOMC recaps here.

As for the FOMC meeting, we all know the data hasn't inspired the kind of confidence a 'data dependent' Fed desires before initiating rate cuts.  Recent Fedspeak following the last FOMC meeting all point to H4L, but it will be interesting to see if any there is anything new as it relates to how the Fed views the categories that are most responsible for the 'sticky' inflation.  Secondly, will there be any questions about the 'neutral rate' given both stubborn inflation and strong growth?   Remember when Powell spoke at J-Hole and how the Fed was navigating by the stars?   And remember how nobody has any clue exactly how to measure R-Star?

XTOD: Overlapping Generations macro says old retired people sell their assets to buy labour services (and things produced with those labour services) from the working young. A (demographic) labour shortage means asset prices fall, relative to wages. I'm not seeing it. Yet  Plus: the prices of "long" assets (houses, equities, etc.,) should fall in anticipation of that future (predictable) labour shortage.

I'm not seeing that either. Yet.  I don't know why, either. Yet.

XTOD: It's fair to say that Yellen-JPOW have failed. They clearly wanted to curb the deficit not through spending (politically impossible in an election year), but through lower inflation => lower rates, lower cost of debt, lower deficit => lower cost of debt etc... This is not happening and they need a plan B.  

They need it urgently because the cost of debt is spiraling totally out of control.

XTOD: This morning’s ECI and housing price inflation figures confirm what I have suspected and feared. Inflation is not securely trending to target levels.  Note that the ECI has accelerated from previous quarterly, semi-annual and annual levels. I suspect it has been understating labor cost inflation of late because of reduced work requirements associated with WFH. 

The home price inflation figures are also cause for concern that shelter inflation is not durably declining. With higher interest rates and higher unit prices, rents will at some point reaccelerate. 

Note, that as many have pointed out, bottlenecks have been easing over the last year or so reducing inflation momentum. This will not be forever and given geopolitics may reverse.

Financial conditions are now loose by historical standards.  All reasons why the 

@FederalReserve  is in a treacherous environment, should have been more careful about easing signals and now should be very cautious about possible rate cutting.

XTOD: "Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things you only hoped for." — Epicurus

Daily Economic Update: April 30, 2024

 Yields fell 3-5bps as investors await the FOMC and other action this week.  Stocks started off the week strong with Tesla gaining approval for self driving/driving assistance in China. Oil fell on cease fire hopes and the Yen stabilized around 156 v. USD after a wild weekend where it had touched 160.

The Treasury Quarterly Refunding Announcement showed their estimates for the April - June borrowings at $41billion more than forecast back in January, while also projecting $847 billion in new borrowings in July to September quarter.  We'll get more details on the mix of Treasury issuance this Wednesday ahead of the FOMC.

On the day ahead it's Employment Cost Index data, S&P housing prices and Amazon earnings.

XTOD: Stagflation, you say? NY Fed's estimate of underlying inflation is basically flat at 2.6 percent 

XTOD: "Every person who is angry about inflation should go to their local planning board and demand more high-density housing in their neighborhood. That’s what we must have to be a vibrant economy. Housing is crucial."  -  @Claudia_Sahm

XTOD: "Apollo Accused in Lawsuit of Illegal Human Life Wagering Scheme"   Creditors to APO portcos have been subject to this for decades

XTOD: 🚨Holy Moly🚨 We're on course to spend $𝟎.𝟗 𝐭𝐨 $𝟏.𝟒 𝐭𝐫𝐢𝐥𝐥𝐢𝐨𝐧 on debt cancellation. That's more than we spent ALL higher education spending before 2020, and as much as we are on course to appropriate for TOTAL education over the next decade.  https://crfb.org/blogs/total-cost-student-debt-cancellation

XTOD: Look at each item on your to-do list and ask, "Is this truly necessary?”

Daily Economic Update: April 29, 2024

FOMC Wednesday with Jobs Day in ‘merica Friday will make for another busy week.  Last week was rocky for equities, but ended up being a strong week as tech came to the rescue.  Friday's PCE data showed sticky inflation with slowing savings and continued strong spending and income.  I should probably include an obligatory mention of the weak Yen and something about speculation of Chinese Yuan devaluation, so there, this sentence counts.

Trump apparently wants to reduce the Fed’s independence per a WSJ report (link to Reuters report on the WSJ report...more accessible).  Irrespective of the underlying rationale for this apparent proposal, at the end of the day I categorize this apparent news item as part of the larger meta issue which is broadly the giant experiment titled ‘Do deficits matter?’ One way to lower deficits might be to pay less interest, which is definitely an MMT view. 

I could be wrong, but I think the "deficit" issue is probably the biggest macro issue at present and the one from which narratives about other macro variables, especially inflation likely stem.  As an aside, author, Mark Higgins provided his thoughts on what he sees as "Three Financial Challenges for the United States in 2024"  which he subtitled: Inflation, War, and Unsustainable Spending, so I must not be too wrong.

Recent chatter about deficits reminded me of Ole Miss economist Josh Hendrickson's recent appearance on the Macro Musings podcast, in which Hendrickson discussed his work on the Treasury Standard and Global Dollar Dominance.  Some excerpts I found worthwhile to consider are as follows:

Hendrickson: So, if we think about seigniorage, in order to try to generate seigniorage— essentially, to do this effectively, to use this as a tool for emergency finance, you're not going to be just maximizing the seigniorage every single period. What you actually want to do is you want to create the biggest tax base possible. And so, when it comes to seigniorage, that means having the highest level of money demand possible. The way that you can do that is by committing to price stability during normal times. But then, when you go to war, or you have some national emergency or something like that, you need to spend a lot of money really quickly, then you can exploit that monopoly.

Hendrickson: And you exploit that monopoly while you have a large tax base. But, again, you've got to go back to that commitment to price stability afterwards, because otherwise, if people know that every time there's an emergency you're going to do this, then anytime that people anticipate there's an emergency, they're going to react. Then also, you're just going to reduce your tax base over time, because you're just going to have this record of always printing money, or always debasing the currency, or something like that, during times of war, and those effects are permanent. What you want to do is actually promise to reverse any of those effects that were experienced during the war once the war is over.

.......

The cost of the US Treasury security being the global reserve asset is that, as the world economy grows, what happens to the demand for reserve assets? Well, it grows along with that growth in the world economy, and so, if the United States doesn't provide that, if they don't provide a sufficient amount of Treasuries, then yields are going to go down.

Hendrickson: That tends to incentivize governments to borrow more. "Look, we're running these massive deficits, and it's not affecting our interest rates. Maybe we should run bigger deficits." The thing is, there are lessons from the literature on the international monetary system that essentially say that when you control the supply of this global reserve asset, and this asset is a debt instrument, well, you run into a problem, because the more and more debt that you run up— at a certain point, people are going to become concerned that you won't be able to pay back that debt without resorting to devaluation. But the thing is, is that the devaluation doesn't actually have to come first, right? All that has to happen is that people start to worry about devaluation, and they start acting on it. 

Hendrickson: They start selling their dollar-denominated assets, and then you have turmoil in international markets, and maybe the Federal Reserve has to intervene and buy some of these assets or settle down the Treasury market, which leads to expanding their balance sheet and leads to higher prices. And so, the point is that the system has substantial benefits. As long as the level of debt that the US has is sufficiently low, the benefits dramatically exceed the costs, at least for policymakers. We can debate some of the other secondary effects on the actual people of the United States, [but] for policymakers, as long as the debt level is low enough, they can sustain this indefinitely.

Hendrickson: The problem becomes, if debt gets sufficiently high, now the system becomes potentially, very fragile, and it becomes subject to self-fulfilling runs, and once it gets there, then we're talking [about] very costly consequences. And so, what I'm encouraging people to think about is that, yes, this foreign policy tool that we have might help us to impose sanctions. It might help us to do things— to harm people without actually having to engage in military conflict, but there are costs people might diversify away. Yes, having the global reserve asset might give the United States policymakers the ability to do all of the things that they want to do, but it's also potentially fragile, if debt levels get too high. So, there are always costs and benefits, and policymakers need to think about those things.

............ 

 I'm not going to say it's not sustainable. What I'm going to say is that it's not sustainable under certain circumstances, and we don't want to ever find ourselves in that certain circumstance.

Hendrickson: Policymakers need to be cognizant of that, and they need to be especially cognizant of that when they're thinking about deficits and when they're thinking about debt, because there is a point at which you can have too much debt, and then it becomes unsustainable. You don't want to find yourself in that position, but also, in terms of the secondary effects, it's not at all clear that this is beneficial to the United States as a whole.

If you're looking for a more in depth study of the history of the Treasury market, I would say George Hall might be the go-to.   His paper with Tom Sargent titled: Three World Wars: Fiscal-Monetary Consequences is worth a read (at least read the first paragraph and concluding remarks).   https://macromusings.libsyn.com/george-hall-on-the-history-of-the-us-national-debt-and-government-financing

On the week ahead FOMC and Jobs will dominate the data, while earnings will continue to be in focus:

Mon: No Major Data, I'd take a day off to get ready for Powell on Wednesday

Tue: ECI, home prices

Wed: ADP, Quarterly Refunding Composition, ISM Mfg., JOLTS, FOMC

Thu: Jobless Claims, Productivity & Unit Labor Cost, Factory Orders

Fri: Job's Day!  ISM Services, Fedspeak returns

XTOD: btw guys the Fed actually has 3 mandates, the one never spoken of is to have "moderate long-term interest rates"  just mentioning - in case any president thought rates were too high.

https://federalreserve.gov/aboutthefed/section2a.htm

XTOD: An interesting week ahead for the global #economy and #markets, including (but not limited to)…

  The release of the US monthly #jobs report, Eurozone inflation and GDP, and China’s #PMI’s; and 

  A 2-day policy meeting at the #FederalReserve.

By the end of the week, we should have some additional information on two of the three key questions for the US economy (and related spillovers for the global economy):

  How the #Fed is thinking about recent data, including the worse-than-expected #growth and #inflation numbers: and

  The extent to which the labor market can continue to support strong consumption at a time of greater weakness in the balance sheets of the more vulnerable segments of society.

XTOD: Had drinks last night with a friend who is retired CIO of a big Institutional CRE shop who's been investing in CRE for 40+ years and really made his first fortune on RTC. 

A few thoughts I thought worth passing along....He's seeing lots of new deals being underwritten on FORWARD INTEREST RATES which he sees as dangerous as the yield curve is downward-sloped.  "We always assumed refi rates would be around where they were at origination, NOT LOWER."   Not enough margin of safety in underwriting....I asked about Jon Gray of Blackstone's pronouncement that it's the right time to get back in to CRE: "He's talking his book.  He has lots of nervous investors both among public pensions and increasingly HNW.  Depends on sector, but generally we haven't hit bottom yet."

XTOD: Being smart  and being wise  are not correlated.

Daily Economic Update: April 26, 2024

Yesterday's 1Q2024 GDP report was "stagflationary" with lower than expected real growth (1.6% vs. 2.5% estimated) and higher than expected inflation (3.1% v. 3.0% estimated on headline, with Core PCE at 3.7% v. 3.4% estimated).   Of course everyone is pointing to the miss being driven by trade and inventories as making it somewhat less meaningful, but who knows.

Stocks fell over 1%, then rebounded some. Out on the curve hit highs not seen in 5 months with the 10Y over 4.70%.   Initial jobless claims broke the streak of printing 212K by printing 207K. 

After hours Google and Microsoft earnings helped improve sentiment.

On the day ahead we have the BoJ who is facing a super-weak Yen and the U.S. PCE report along with the UofM sentiment survey (asking consumers how they feel about gas prices...not really, but highly correlated).

XTOD: Microsoft’s yearly data center spend for the next few years is more than that of the Apollo program (yes, adjusted for inflation)

XTOD: Treasury Secretary Janet Yellen said the US economy 'continues to perform very, very well' and that she still sees inflation falling back to more normal levels

XTOD: GDP growth came in a bit below expectations at a 1.6% annual rate in the first quarter. 

But much of the slowdown was in non-inertial items like inventories (-0.35pp) and net exports (-0.86pp). The better signal of final sales to private domestic purchasers was 3.1%.

XTOD: If no revisions, and there will be some surely, today’s quarterly Core PCE implies a m/m up by almost 50 bp (48 bp to be precise) to be reported tomorrow - this is really bad (consensus and whisper are around 30 bp) and most likely warrant a language shift by JPOW on Wednesday 

Market shifted full price cut from Nov to Dec and residual probability of a 2nd hike is now down to just a third

XTOD: Sitting at Eden Rock conceiving of the most outrageous outcomes

It's hard to conceive of a US slowdown presently

We're no way near through the end of fiscal spend

I keep saying 2 for 2...

We won't see 2% inflation for 2 years

The fiscal transformed the US into the economic locomotive of the world

Great, but...

Arguably, the dollar standard was conceived under the conceit that the US economy would be a dullard

Today, instead, it's the locomotive of the world...

And it's reset the risk free rate to intolerable levels for the RoW

Somethings gonna break

But before then

Just like the late 1920s, 

There's a huge carry trade pouring money into US risk assets

Borrow in yen for zero, catch 5.5% on cash

Hell, 20% on risk asset price gains pa

Pay your yen back in stronger dollars

This money train is unstoppable

Then imagine the ECB cuts rates

They really need to...

And that carry trade is gonna be amplified to the moon.

The RoW needs lower rates

Will the Fed subjugate its domestic growth mandate

Will it be convinced of the need to coordinate an interest rate cut with the Europeans ?

A coup de whisky...

It's done so many times before

But it'll need convincing

Somethings likely to break

Can I remind you that the yen has devalued 40% 

40% !!

And US banks have huge unrealized losses on their hold-to-maturity treasury holdings and no one cares, no one asks for quantification, everything's gonna be alright, yeah ?

And we're 10 bps away from ten year treasury yields exploding higher

And 5 bps from the red cabbage accelerating its decline

Recap

US economic engine of the world

Global monetary system never conceived of this

Higher rates killing the collateral value of Treasuries

Not killing the velocity of US GDP growth

Something gonna break

Fed will cut in unison with the Europeans

Risk asset prices could explode higher

if you don't understand, go back to the beginning 

Daily Economic Update: April 25, 2024

Sorry, I was busy day-trading NYC restaurant reservations, I hope those gains are going to be subject to Biden's proposed 44.6% capital gains tax rate.  A mostly boring day for equities with META beating after hours but trading much lower anyway.  Yields rose a few bps as stocks fell slightly ahead of today's GDP release, the first of two 'major' economic releases for the week.  Yesterday's strong durable goods data did little for stocks but seemed to support higher yields with the 5Y Note Auction being relatively poorly received.  

As expected both the Tik Tok and non-compete bans are being challenged.

On the day ahead it's GDP, jobless claims, home sales and the infamous 7Y Note Auction.  

XTOD:  Huh. The Macro Musebot (https://ai.macromusings.org) had some strong views about its favorite macro theory:  "What is your favorite macroeconomic theory? Is it (1) New Keynesian, (2) Monetarist, (3) Fiscal Theory of the Price Level, or (4) MMT?  @JohnHCochrane

My favorite macroeconomic theory is the Fiscal Theory of the Price Level (FTPL). While the New Keynesian, Monetarist, and MMT frameworks all offer valuable insights, the FTPL provides the most coherent and compelling explanation for the determination of the price level in my view. 

The key strength of the FTPL, as articulated by John Cochrane, is that it directly addresses the fundamental question of why money has value. The FTPL argues that money is valuable because the government accepts it for tax payments - the "state theory of money." This is a more satisfying explanation than the ad hoc assumptions underlying the quantity theory of money or the vagueness of MMT. Additionally, as Jesus Fernandez-Villaverde and Eric Leeper have discussed, the FTPL highlights the inherent linkages between fiscal and monetary policy. The government's intertemporal budget constraint means that the central bank cannot fully control inflation without considering the actions of the fiscal authority. This nuanced view of policy coordination is more realistic than the strict separation of monetary and fiscal policy in New Keynesian models.

That said, I don't dismiss the other theories entirely. As Scott Sumner and Robert Hetzel have noted, monetarism and New Keynesianism have been useful frameworks at different points in history, depending on the prevailing economic conditions. And Nathan Tankus has rightly pointed out that MMT has pushed the profession to think more carefully about the consolidated government balance sheet. Ultimately, I believe the FTPL provides the most coherent and comprehensive theory of the price level, one that incorporates the insights of other approaches while addressing their shortcomings. By focusing on the government's intertemporal budget constraint, the FTPL offers a powerful lens through which to understand historical episodes of inflation and deflation, as well as guide policymakers in the present day.

XTOD: "We think any company that has an economist, you know, certainly, has one employee too many."    - Warren Buffett

XTOD: "In 2025, we get either Bidenomics 2.0 or Trump 2.0: in either case we are going to see more huge fiscal deficits, protectionism, and industrial policy, but in the latter case, perhaps on steroids." -  Rabobank

XTOD: "We now get more news in a single day than most people ever saw in their lifetimes a few short centuries ago. Our brains aren’t hardwired to have this much information thrown at them. And so much of the information we see is negative."