Daily Economic Update: July 2, 2024

ISM Mfg was below forecast, showing weakness in price pressures and employment, but an increase in new orders. Construction Spending was also below forecast.  On the day ahead it's Powell and JOLTS data.  

It seems like it's been a quiet rise in yields over the last couple of weeks, but the 10Y has been up over 20bps since mid-June and is nearly back to 4.5% The move is the Yen has also been perhaps a little understated in the mainstream media but USD:JPY is over 161.

While the employment picture will be a major economic focus for the week, the political landscape is perhaps a bigger focus.  How much of an impact political uncertainty will have on how businesses investment is the question mark.  On the political front much of the talk has now shifted to Biden securing the nomination as early as mid July.

One place that nothing political or economic is stopping American's is travel.  TSA screenings continue to set records this summer.

XTOD: SECRETARY BLINKEN:  Well, look, I think China’s objectives are clear.  Over time, over the coming decades, they would like to be the leading country, the dominant country, in the international system militarily, economically, diplomatically.  That’s clear.  And if their vision for the world actually matched ours or matched many other countries, that would be one thing.  But they have a different vision, a different vision of what that future looks like https://state.gov/secretary-antony-j-blinken-at-a-conversation-on-u-s-foreign-policy-at-the-brookings-institution/

XTOD: Jill Biden is on the July cover of Vogue. Just dropped this AM. 

https://vogue.com/article/first-lady-jill-biden-august-2024-cover-interview

XTOD: I am seeing arguments in favor of hiring, for the highest ranking job in the country, someone completely incompetent at any human task, who would not even qualify for any single job in the same country --not one.   And don't tell me that things are not going downhill.

XTOD: Monkeys and Pedestals: It is a mental model that helps you quit sooner. It boils down to some very good advice.  

- Figure out the hard thing first.  

- Try to solve that as quickly as possible.  

- Beware of false progress.

XTOD: 82% (!) of the American population is headed on vacation this summer and 42% (!!) are going on multiple trips

XTOD: Which of your current habits is least aligned with the type of person you hope to become?

Daily Economic Update: July 1, 2024

"Success is not achieved by chance but through careful evaluation and timely adjustments. Just as a coach makes strategic changes at halftime, businesses and individuals must assess and recalibrate at the midpoint to ensure they hit their annual targets. It's the difference between merely hoping for success and actively engineering it."  (Not sure who to attibute this to, but it seemed fitting for the halfway point of the year. )

The beauty (or curse) of posting is daily is you can go back through everything from the start of the year.  In doing so and see all the things that everyone thought were so important, all the things we've already forgotten and perhaps just how much of the daily news is just noise.   I'm not saying any of the below were important or that we've forgotten all of these, some are timeless, but here are some unofficial 1H2024 highlights:

January:

• 7 rate cuts for 2024 
• Abercrombie and Fitch stock rally
• 10Y over 4%
• Boeing doors ripping open mid-flight 
• Japanese stocks hitting 34 year highs
• BTC ETF's
• China Evergrande is Bankrupt (finally)
• Liz Warren hates Jay Powell
• Will Taylor Swift make it to the Super Bowl from Japan?

Feb:

• Powell on 60 Minutes
• Where is the neutral rate?
• Walmart pulls Snoop Dogg's cereal
• Red Sea crisis
• Bill Ackman = Billionaire Activist Man
• Some report of a "serious national security threat" that we all forgot about
• AI Hype
• VisionPro while driving a CyberTruck
• Blowout jobs report
• BOXX etf
• Buffett's annual letter: "instinctively knowing that pundits should always be ignored" and "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. "
• Data Dependent

Mar:

• There are no bubbles
• Dog Wif Hat, Frog Wif Hat, Retardio
• r-star
• Chinese Ev's
• NYCB
• John Kennedy from Louisiana questions Powell about sexual misconduct by the FDIC
• Data Dependent
• Inflation data worse than expected
• Shoei's interpretator
• Ozempic
• Reddit IPO
• Francis Scott Key collapse
• Waller, "There's still no rush"
• Kahneman dies

Apr:

• Dollar Strength
• Fed may not cut this year
• Jobs data crushes
• Earthquake
• Eclipse
• Student Loan Forgiveness
• The end of Curb
• 2Y at 5%
• Shelter and motor vehicle insurance
• r-star
• Bitcoin "halving"
• "hawkish pivot"
• tents on city streets and campuses
• Ban Tik-Tok and Noncompetes
• stagflation
• deficits

May

• Drake and Kendrick Lamar
• Peloton layoffs
• Bidenomics gets an "F" from Druck
• GameStop and "Roaring Kitty"
• $1,000 Beef Cases in Vegas
• Jamie Dimon still sees a lot of inflationary forces in front of us
• Bernanke and Blanchard believe people need to lose their jobs for inflation to fall
• China property market bailout
• Everyone's an equity bull, including Mike Wilson at ATH's
• Uncertainty about the degree of restrictiveness
• The Yen, the Yuan
• More questions around R-Star (see Waller)
• CRE (really an all year thing)

June

• Elections (Mex, France, UK, etc.)
• Rate Cuts (ECB, Canada, etc.)
• Divergence
• June 12th, the most important Wednesday in history, CPI and FOMC
• Electric boats and sharks “Do I stay on top of the boat and get electrocuted, or do I jump over by the shark and not get electrocuted?” 
• Hawk Tauh
• Grooming
• Presidential Debate - Biden nomination and election odds

Lot's of rumors that Biden is preparing to drop out and pointing to Harris as the Dem nominee.

Following the U.S. Presidential Debate and France's first round of election, the Ray Dalio essay "Pick a side, fight, or flee" might be required summer reading irrespective of where you are on the political spectrum.   

Friday's PCE report was largely in-line with consensus estimates with the personal income numbers coming in slightly above estimates.  UofM consumer sentiment was stronger than expected with year ahead and 5 year ahead inflation expectations declining slightly but still at 3%.  Yields finished the day higher and----quick mid-year recap

The week ahead is a weird one from a timing of economic data.  You get an early market close on Wednesday, July 3rd, a full close on the 4th and then Friday features the Jobs Report.

Monday: ISM Mfg

Tuesday: Powell 930am, JOLTS

Wednesday: ISM Services, Fedspeak, FOMC Minutes at 2pm (SIFMA Close at 2pm and Stocks Close at 1pm)
Thurday:  Celebrate U.S. Independence by watching the UK vote

Friday: Jobs Day in 'merica

XTOD: A Majority of U.S. Military Bases under United States European Command (EUCOM) in Spain, Germany, Italy, Bulgaria, Poland, and Romania have now been placed on Heightened Alert, with their Force Protection Condition (FPCON) being raised to Charlie, the Reason is still Unknown.

XTOD: Here's a Biden update from http://BillOReilly.com news headquarters.  The decision has been made that the President will quit the campaign.  Two reasons: Democrat internal polling says he cannot recover from the debate, and fundraising is drying up. (1/2)

XTOD: "The Party told you to reject the evidence of your eyes and ears. It was their final, most essential command."  -- George Orwell

XTOD: France has just confirmed my worst fears. Both extremes of the political spectrum are on the rise in Europe once again. France is just the litmus.   France’s snap election, first round: the center didn’t hold. 

Le Pen: 260-310

Left: 115-145

Macron: 90-120

XTOD: “Do not put faith in constant happiness, and fear most when all smiles upon you”

If life is about developing a virtuous and just spirit, then good fortune is a distraction...

Success can deceive us; we mistake worldly praise as virtue, and forget Goodness altogether

Daily Economic Update: June 28, 2024

"The Noah Rule says: "Predicting rain doesn't count, building an ark does." - Warren Buffett

 "In the final chapter of The Intelligent Investor Ben Graham forcefully rejected the dagger thesis: "Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety." Forty-two years after reading that, I still think those are the right three words. The failure of investors to heed this simple message caused them staggering losses" - Warren Buffett

It's a summer Friday, I'll keep it brief and I won't write anything on the debate, sorry if that dissappoints....feel free to consult the odds sites https://www.predictit.org/markets/detail/7456/Who-will-win-the-2024-US-presidential-election.   With last night's debate, the first round of the French elections on Sunday and the UK general election on the 4th, elections are certainly front and center.  Today's PCE report and UofM survey will be the highlight.  

Yesterday's 1Q Real GDP was revised up to 1.4% annualized though consumption was weak and prices were higher than consensus forecast expected.  Headline durable goods were better than expected and jobless claims remained benign.  The Atlanta Fed GDP now was revised down to 2.7% for Q2 estimate.  

If you spend all day running your life or business going from one economic data point to another, you might want to take a step back and revisit Ben Graham's secret of sound investment which he distilled into three words: Margin of Safety.

XTOD: My 1 repeated learning in life: "There Are No Adults" Everyone's making it up as they go along. Figure it out yourself, and do it.

XTOD: Incredible work by the Wells Fargo analyst who ordered the same burrito bowl 75 times at eight different Chipotles in NYC to prove the portion size inconsistency

XTOD: The collapse of #walgreens has been unlike anything I've ever seen in big retail.  It's down 24% today and has now lost 80% of its value in under 5 years.     This is America's largest pharmacy chain .. with over 8,500 stores & more than 300,000 employees.  Simply insane.

XTOD: Compounding starts slow and then happens all at once.  Looking for quick results and checking in on your progress constantly can be disheartening.  Be patient with the results, and trust the process.

XTOD: Augie Garrido 5x NCAA national 🏆⚾️coach at Cal State Fullerton & Texas told me in a podcast 15 years ago when I asked him what he knew now he wish he knew early in his career 

he said  “Be loyal to people not institutions or brands, institutions change, you don’t work for an institution. You work for people. When the people change, the institution will too.”

Daily Economic Update: June 27, 2024

 

"You don't realize how easy this game is until you get up in that broadcasting booth." - Mickey Mantle

Financial services loves to provide predictions and when data is slow it appears to be louder.  Like Mickey Mantle quipped, everyone is an expert from the sidelines, willing to provide you with an opinion on the stock market, the direction of yields, the Yen, etc.  As Warren Buffett says: “Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.” Not everyone gets to that point of acknowledgment.

It will be interesting to see in hindsight who the dumb money is that doesn’t yet realize it’s dumb, the firm that’s been playing poker for an hour and hasn’t figured out the fact that if they can’t figure out who the patsy is at the table it’s them.  The guys who think they’re the smartest guys in the room, but aren’t and just don’t know it yet. Is it the soft landing crowd, the hard landing crowd, the crypto crowd, tech crowd, the CRE crowd, etc.?  Don’t ask me, I acknowledge I’m dumb.

Don't worry the first debate and PCE will give pundits plenty to talk about over the remainder of the week.

Bank stress tests showed everyone passed, while absolute stressed, worst case loss levels increased. In a few days we’ll see banks reaction to these test via what they do what dividend and buyback policies. 

Sales of new homes fell more than expected.  The 5Y note auction was solid, but yields rose on the day.  The 2Y is 4.76% and the 10Y grinded higher and is now 4.34%.   With 2's10's back near 50bps inverted, I'll ask again, is anyone willing to trade a steepener here? One of these years it will work.

The Yen at 36 year weakness against USD sitting 160.59 is certainly not a beneficiary of central bank divergence.  I know some warnings have been issued by the IMF but I'm a little surprised there haven't been a ton of recent articles about how the strength of the USD since 2021 is a potential risk to emerging markets that issued USD-denominated debt. 

On the day ahead it's Q2 GDP (2nd), Durable Goods, Pending Home Sales, Old Guys On TV in primetime.

XTOD: Nate Silver has published his first 2024 election model prediciton…It gives Trump a 66% chance of winning.   In my opinion, Nate is the best mainstream election forecaster in the game. He’s also said many times that he personally does not want Trump to win.

XTOD: An insightful piece by  @mjmauboussin  on Market Concentration. 

"Many investors have a sense that concentration is too high because it has risen sharply from a much lower level. But perhaps we should ask whether concentration was too low before."

XTOD: Dollar strength cannot be stopped right now ... Bloomberg Dollar Index now at its highest since last November

XTOD: The US yield curve continues to confound many: Rather than dis-invert by now as many had expected, the 2s-10s curve is back at its December (more inverted) level of -50 basis points.

What is also notable is the lack of agreement on why this has taken place:

From those interpreting the curve as a warning about a US recession to those dismissing the curve's economic information content.

XTOD: Tiny, repeatable choices compound as days turn to weeks, weeks to months, and months to years.   Working out tomorrow won't change your physique much, but working out every day for the next year will increase your chances of staying in shape.

Daily Economic Update: June 26, 2024

 "People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There's always been a market for people who pretend to know the future. Listening to today's forecasters is just as crazy as when the king hired the guy to look at the sheep guts. It happens over and over and over." - Charlie Munger at the 2004 Berkshire Hathaway Shareholder Meeting

I don't know if this qualifies as a prediction of the future, but perhaps Nobel Prize winners will know the future, at least according to a Biden campaign spokesperson citing a letter written by 16 economist arguing that a Trump presindency will reignite inflation: “Top economists, Nobel Prize winners, and business leaders all know America can’t afford Trump’s dangerous economic agenda.”   The word "know" there seems pretty strong.  

On a related note, in my observation, it is interesting that many American's believe that the political party they oppose is sure to create more inflation, but collectively many American's and most economist seem to believe inflation is falling and likely to continue to fall.  Can it really be true that survey's about inflation show that people believe inflation is well anchored and not likely to rise in the short and long-run, while at the same time, irrespective of the next President something like 50% of the population will also believe that inflation will rise because of the party running the country?  The reality is likely that neither party has any current concept of fiscal responsibility.  Maybe Fed Gov. Bowman is right to believe that rate cuts shouldn't be in the cards for 2024 citing fiscal stimulus in her risk of concerns yesterday.  

And maybe Ray Dalio is right to be concerned about this crazy political divide when he writes: "we are probably headed toward an existential battle of the hard right against the hard left in which you will have to pick a side and fight for it, or keep your head down, or flee. By flee, I think that will mostly be from one state to another and we will see increased emphasis on state rights rather than the central government being dominant."  Dalio cites that the U.S. is in the midst of late-cycle debt dynamics leading to civil conflicts, in a very long piece he wrote for TIME and published on LinkedIn.  In fairness I didn't read his entire piece yet, but the gist is debt and wealth inequality are precursors for potentially terrible conflicts.

In the markets yesterday it was pretty boring, some rising home prices and Canadian inflation rising for the first time in 5 months, dashing further rate cut hopes some.   Yields are 4.71% on the 2Y and 4.25% on the 10Y.   On the day ahead it's sales of new homes and the 5Y Auction.

XTOD: Until broad assets stop rallying I will never get to recession island. Tacking back and forth with powerful offshore breezes making for no progress.  As assets continue to rally there remains a small chance that our ship will be blown off course completely and arrive back on H4L island 

@DannyDayan5  is there waiting for a hike.

XTOD: Based on my study of history, I believe there are now and have always been five big, interrelated forces that drive how domestic and world orders change.  

The following article https://linkedin.com/pulse/pick-side-fight-keep-your-head-down-flee-ray-dalio-53fpe/?published=t, which appears on @TIME , focuses on why I believe we are approaching the point in the internal order-disorder cycle when you will have to choose between picking a side and fighting for it, keeping your head down, or fleeing.   Please leave any thoughts or feedback you have in the replies.

XTOD: Wow. TSA throughput reached 2.996 million people on Sunday ... a new high

XTOD: Stop saying yes automatically, without thinking!  The point is not to say no to all requests. 

The point is to say NO to the nonessentials so we can say YES to the things that really matter!

XTOD: “Open your mind to what I shall disclose, and hold it fast within you; he who hears, but does not hold what he has heard, learns nothing.”        — Dante Alighieri, Paradisio, Canto V

Daily Economic Update: June 25, 2024

Rough day for Nasdaq with Nvidia sliding again.  Treasuries did little as markets await PCE later in the week and lacked any other real catalyst.  In Fedspeak both Goolsbee and Daly were fairly dovish focusing on downside risk from keeping policy rates at their current levels, citing weakening consumer spending and some uptick in jobless claims.  For those looking at "weakening" various "surprise indexes" are showing data continuing to miss estimates, or in more economic jargon, various economic surprise indexes are registering their worst levels since 2022.  Let's be honest, data misses vs. analyst consensus estimates are likely as meaningless as data misses vs. the Fed's dot plot.    Speaking of the Fed I've seen a couple of Fed papers recently that seem to continue to downplay how long inflation has been above target (see XTOD for one of them).

The biggest immediate risks to markets is likely elections, with France and UK elections right around the corner.  With France the concern is around deficits and things ultimately becoming something akin to the "Greek Debt Crisis" of the 2010's era. 

The 2Y sits around 4.73% and the 10Y around 4.26% as we head into home price data and more Fedspeak today. 

XTOD: Apollo’s Torsten Slok: “There is a major gap opening up between the mean and the median of long-term inflation expectations, which means that half of the population has long-term inflation expectations that are dramatically higher than the other half.”

XTOD: Money leaving chips for everything else

XTOD: Higher inflation can lead to greater efficiency. It all has to do with the price dispersion that inflation generates, which might motivate some consumers to search for the lowest prices, increasing competition among sellers. https://federalreserve.gov/econres/feds/inflation-price-dispersion-and-welfare-the-role-of-consumer-search.htm #FEDSPaper

XTOD: "In my experience, high-achievers focus a great deal on becoming the person they want to be at work—and far too little on the person they want to be at home."  - Clayton Christiansen

XTOD: I suspect large swathes of people who don’t have kids or who had kids a while ago will have no idea what I’m talking about but youth sports travel teams are killing the American dream!  The current trends in how this works are bad for families, bad for social equality, bad for community, bad for public health, and just overall bad. https://t.co/QAOu3Ld0Ue

XTOD: In order to apply most of your energy in one direction, you have to say no to things that a lot of other people say yes to.   Most successful people are masters at eliminating the unnecessary from their lives.

Daily Economic Update: June 24, 2024

What'd I miss?  Nevermind, I'll ask AI.  With the Presidential Debate this Thursday, I'm actually surprised I haven't seen anyone use AI to simulate the debate yet (I'm sure someone has).  I know PCE is on the docket for the week ahead and I'm confident inflation will come up at the debate.

I need to keep a better list of macro topics so I can more easily forget about them and then remember them in a few months when people care about them again.  Oh wait, I do that with this blog.  One day, 25 years from now, I will have my AI and Robot assistant and the Terminator, all jointly, publish this blog under the title "the definitive guide to financial history." (yes in lowercase, to deemphasize the importance of everything documented).

Just for fun, here's a list (likely much abbreviated of the current/oft repeated macro topics):  AI, China, Geopolitics, Trade/Tarrifs, Elections, Wars, Climate, Inflation, Deficits, Crypto......at the core of how many of these "macro" topics does the saying "history doesn't repeat, but human nature does" apply?

On the week ahead PCE, Fedspeak, Debates

Monday: Fedspeak (Waller overnight)

Tuesday: Home prices, consumer confidence

Wednesday: New home sales

Thursday: Q2 GDP (2nd), Durable Goods, Pending Home Sales, Old Guys On TV in primetime

Friday: Personal Income and Spending, PCE

XTOD: When Keynes wrote “The General Theory of Employment, Interest and Money” the unemployment rate was around 20%   The unemployment rate in the US today is 4%. 

We don’t need more make-work job programs.

XTOD: For me, crypto has always been a means to an end. Crypto is the vehicle for accelerating the velocity of capital formation and allocation to effectuate all the positive change we want to see in the world. Advanced manufacturing. Small Modular Reactors. Bio-computing. Breakthroughs in Neuroscience. Photonics. 

XTOD: Michael Dell explains “AI”:  “Its going to notify you of emails and important calendar events.”

HOLY SHIT!   A top computer manufacturer can’t provide a single practical example of “AI”.

XTOD: "You only have to do a very few things right in your life so long as you don't do too many things wrong."🎯   Warren Buffett

XTOD: What did  @TheSeesEO  learn from Charlie Munger?   "Simplicity."

XTOD: One of the odder historical facts I can think of is that Reggie Jackson and Benjamin Netanyahu went to high school together

XTOD: You: Grinding 70 hours a week on Excel spreadsheets and getting a pitiful 1% match on your 401k to make $120k a year.   Hawk Tuah Girl: Goes nuclear on the timeline and sells marked-up trucker hats for $120k in one day.

Daily Economic Update: June 21, 2024

"Meaning is not something you stumble across, like the answer to a riddle or the prize in a treasure hunt. Meaning is something you build into your life. You build it out of your own past, out of your affections and loyalties, out of the experience of humankind as it is passed on to you, out of your own talent and understanding, out of the things you believe in, out of the things and people you love, out of the values for which you are willing to sacrifice something. The ingredients are there. You are the only one who can put them together into that unique pattern that will be your life. Let it be a life that has dignity and meaning for you. If it does, then the particular balance of success or failure is of less account. "  - John Gardner, "The Road to Self Renewal"