Daily Economic Update: October 15, 2024

Stocks again at fresh all time highs, that's like 40+ times this year that they've set new highs.  Not bad.  Mr. Market was more optimistic than the day prior.  

I'm sure you were dieing to know who won the Nobel Prize in Economics well it was Daron Acemoglu, Simon Johnson, and James Robinson “for studies of how institutions are formed and affect prosperity.”  There work has provided influential research into the critical role institutions have played in long-run economic growth and development.  Their book "Why Nations Fail" contrasts extractive political and economic institutions, which impede growth, with inclusive institutions that support market economies and broadly shared prosperity.  In full disclosure I haven't read their book, so I'm only reguritating what I've learned of it from other sources, nonetheless it certainly is worth thinking about the importance of institutions in fostering prosperity in an age where politics and the Fed are so divisive. 

In Fed news, we had Gov. Waller with his Waller, speech here where the press keyed in on this line: "I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting". The highlights:

• recent GDP/GDI revisions: These revisions suggest that the economy is much stronger than previously thought, with little indication of a major slowdown in economic activity.
• watch demand for goods: there is considerable pent-up demand for durable goods, home improvements, and other big-ticket items - couple that with lower interest rates and boom.
• labor market: moderation but not a deterioration. 
• inflation: feels like a rollercoaster, too soon to know if the last print is a noise or signal
• Taylor rules: one set says to proceed gradually, the other agressively with cuts. But Taylor rules are subject to subjective estimates of the 'stars'.
• Wallers 3 Scenarios to inform future cuts:
• Strong economy, no major labor concerns --> slow and deliberate cuts (probably less 50's)
• Inflation falls below 2% for some time and labor deteriorates --> front load cuts
• Inflation escalates even if due to supply shocks with no material labor concerns --> no cuts
• In the longer run: less clear the final destination/terminal rate

Waller still "think(s) the larger message of the SEP is that there is a considerable extent of policy accommodation to remove, and if the economy continues in its current sweet spot, this will happen gradually."  

He didn't sound like a guy looking to cut another 50bps quite yet.

In geopolitics we had the U.S. sending missile defense capabilities to Israel and Chinese war games around Taiwan.  That usually inspires confidence, but nonetheless oil continues a little lower as reports emerge that Israel is not planning to strike oil related infrastructure, at least for now.

Empire Mfg and more Fed stuff on the day ahead.

XTOD: It’s called private credit, T. Earnings are made up but the doc is fuckin’ tight and get this…these weirdos let us mark it at whatever the fuck we want.

XTOD: btw watched roughly 60 hours baseball in the last week plus and I don’t even know what I’m supposed to be buying from Strauss

XTOD: American Airlines will operate 1,600+ flights to the destination cities throughout each weekend of the final stops of Taylor Swift’s Eras Tour.

• Nearly 75% of passengers on those flights are female (+33% from a year ago for the same dates and destinations). • Roughly 60% of passengers are Millennial or younger (+30%) • About 40% of passengers are traveling in groups of two or more.  

XTOD: Channel 14 in Israel is reporting that the Israeli Retaliation against Iran will be Significant, not Moderate, and will likely cause Iran to Respond; with them further stating, “We need to prepare for a Significant Exchange of Blows, that might drag the Americans in, which Iran certainly would not want.”

XTOD: U.S. President Joe Biden has instructed his National Security Council to make it clear to Iran, that an Assassination Attempt against Former President Donald J. Trump would be seen as an Act of War.

XTOD: "If I make extreme changes, they are not sustainable. But moderate, incremental changes - they are sustainable."  - Tom Gayner (quoted in Richer, Wiser, Happier by  @WilliamGreen72)

Daily Economic Update: October 14, 2024

SIFMA bond market closure for Columbus Day while stock markets are open.   The 2Y is 3.97% and the 10Y is 4.10%.

Last week ended with stocks at all time highs.  Investors don't yet seem wary of the old proverb that "trees don't grow to the sky".  And why should they be wary, when you have seemingly unending demand for AI and the chips that power them, we've got events with robots, rockets that get caught by their launching towers, banks that earn money from the Fed irrespective of whether they actually do banking, politicians globally promising to stimulate everything, everywhere all at once. But I digress.

 Friday's PPI data quelled some inflationary fears, though energy prices were a big piece holding the overall reading flat month over month, which could reverse in the coming months with rising oil prices, the core reading was up 0.2% MoM which was slightly below expectations. The UofM data showed some softness in consumers confidence in the current conditions and their expectations for the next 12 months while also showing an increase in consumers expectations for the next 12 months.  Speaking of inflation data, China's inflation continues to slow, did China ever follow through with all of that stimulus investors loved a week ago?

For the week ahead we move on from inflation to retail sales and industrial production as well as corporate earnings.   The ECB meets and is expected to cut 25bps.  Thursday looks to be the big day for activity on the data front.

Over the course of last week, markets seemed to start to discount the probability that an Israeli response against Iran will be something impactful. 

Mon: Fedspeak

Tue: Empire Mfg, NY Fed survey about consumer inflation expectations, Fedspeak

Wed: nothing major

Thur:  ECB Decision, Retail Sales, Jobless Claims, Industrial Production

Fri: Building permits, housing starts, more Fedspeak

XTOD: Power is the worst drug on Earth and you have no idea how many addicts are running around.

XTOD: This but for the whole economy.  Not a joke either:  “Years of having financial engineers as CEO, rather than real engineers, finally catches up to Boeing…

XTOD: Sitting on the sidelines?  In money market accounts?    Nope, that’s smart money.   

Congrats, you’re in the cheapest part of the curve, with the least amount of interest rate risk. 

There are other cheap, safe, floating-rate assets that float off of this part of the curve.

XTOD: @AtlantaFed ’s sticky price CPI (slow-to-change consumer prices) rose 3.9% on an annualized basis in September, following a 3.5% increase in August. Graph and track the index in FRED: https://ow.ly/CTfp50TJcQ1

XTOD: "We should all just acknowledge that we operate within a fully managed financial system where the authorities have all of the tools to ensure that we never have a 2008-style crisis again or even a recession or recessionary conditions in markets again.  So, the big risks now don't really exist in the areas of the market that most people typically consider; rather, they're externalized to the political and social domain.  For example, the big risk I see is that a political party in Europe, the US, or some other major economy will recognize people's frustrations and anger about various issues like feeling left out or left behind, and will perceive central banks to be a major instrument responsible for propagating this accelerating gap, and decide to take away their power to use their tools on behalf of markets.  This is the type of thing that market participants need to price in, and these things don't just break out in one direction or another. When we do lose equilibrium, things break out fast and to a much larger extent than they used to. These are real risks that could generally derail the economy and financial markets…risks like the people wrestling control of the monetary system from the Fed, which is not on people's radars…"  @GestaltU   on  @HiddenForcesPod  (10/14/2024)

XTOD: The reason most people can’t walk away is simple: they operate from a scarcity mindset.

XTOD: You lack discipline because you fear success

Daily Economic Update: October 11, 2024

 Yesterday's CPI report was hotter than expected posting a 0.2% MoM and 2.4% YoY increase on the headline figures and a 0.3% MoM and 3.3% YoY increase in the core levels.  Car insurance, airfares, food and services were all contributors to the higher than expected readings.  The initial jobless claims data was higher than expected but is somewhat murky as it captured some increases due to Hurricane Helene and the Boeing strikes, but auto sector layoffs in Michigan seem a legitimate concern.  

The inflation print didn't do anything to re-inspire confidence in a 50bp cut in November.  Bostic even commented that he might be ok with standing pat at the next meeting. The recent move higher in yields lead to a strong 30Y auction, with strong foreign demand.  We ended the day with stocks backing down from all time highs, the 2Y yield actually falling a little, back under 4% to 3.98% and the 10Y climbing to 4.08%,

Speaking of inflation, the October 7 episode of Macro Musings podcast featured an interesting discussion of a paper titled: *Why Do Workers Dislike Inflation? Wage Erosion and Conflict Costs.* which the author, Jonathon Hazell describes as:

"employers don't automatically give workers raises when inflation is high. Instead, workers have to fight for these raises. That places them in conflict with employers. That's the key idea of the paper. It's bringing forward this notion of conflict. It's saying that when inflation is high, for nominal wages to catch up, to catch up with prices, people need to be doing conflict. That's difficult. That's painful."

and is furhter summarized in a quote from Vox's Dylan Matthews:

"Inflation is a tax on conflict-averse people who are bad at negotiating— me."

It's an interesting take on why people hate inflation so much, despite data showing that generally worker's raises keep pace with inflation over time and timely in the sense that you clearly have seen more worker strikes as a means to achieve pay increases since inflation has taken hold.  In other words inflation imposes an additional unmeasured cost on workers through this "conflict" channel.

Another interesting inflation related article comes courtesy of Mark Higgins substack post.  Mark as a financial market historian, blatanty views the Fed's 50bp cut as possible a "BIG Mistake" at least through the lens of history.  Mark cites the Aurther Burns Fed easing prematurely and, tieing that back to the idea of the "conflict cost" of inflation, how the failure to contain inflation lead to strikes that in some ways then made it harder to control inflation.  

Higgin's view is that the Fed is violating the most important rule established after the Great Inflation:

"The rule is quite simple: It is not enough for the Fed to merely extinguish the visible flames of inflation; they must also extinguish the embers that threaten to reignite it."

Futher characterizing the recent employment and CPI data as evidence that the "embers" remaining aglow.

Time will tell if Higgin's is correct and inflation will reignite, but for the day at least nothing in the data seemed to signal an "all clear" on the battle against inflation.

On the day ahead it's PPI and UofM in data and the threat of an Israeli retaliatory strike against Iran looms large.

XTOD: Israel’s public television just published an “inside-the-room” of the Biden-Netanyahu phone call. Major points: 1) Biden pushed against attack on nuclear / oil; 2) Israel’s current thinking is for a retaliation larger than what Biden would like | #OOTT

XTOD: Big takeaway from the CPI: Disinflation is still becoming entrenched. It was a touch above expectations, but nothing to panic about.   I've been saying this for over a year, but outside of a commodity boom it's hard to see how inflation surges again because the shelter disinflation is so firmly entrenched that something very significant would need to offset it.   Although imperfect, the NTR Index continues to forecast falling shelter prices. It leads by 12 months and is now at the widest spread since its creation. Shelter will continue to put downward pressure on CPI in the coming 12 months. Very hard to see inflation being a big problem in the next 12 months given this....

XTOD: Overall the same story as recently: IF you believe the last six months of numbers are correct and everything before that is outdated or anomalous then we're still in fine shape.  But if some of the last six months is anomalous (in reverse) then inflation is more of a concern.

XTOD: Why is the 10-year above 4%?   This summer, the economy was a party that was winding down. Then, Jay Powell showed up with some booze and China brought the snacks. Party is picking up!   The risk? Trump is pulling up in an Uber outside, wearing a Hawaiian shirt... and bringing cocaine!  The 10-year could be at 5% by January! Will stocks like that? I don't know... I don't think anyone wants to party that hard...

XTOD: “Any time I’m telling myself, ‘But I’m making so much money,’ that’s a warning sign that I’m doing the wrong thing.”   Looking back at his career, B.J. Novak noticed that he could have stalled in a number of places. Instead, he became very well known for The Office and other mega-successes.  

How did he repeatedly choose the right fork in the road? He attributes a lot of it to heeding the above rule of thumb.   If you find yourself saying, “But I’m making so much money” about a job or project, pay attention. “But I’m making so much money,” or “But I’m making good money” is a warning sign that you’re probably not on the right track or, at least, that you shouldn’t stay there for long.   Money can always be regenerated. Time and reputation cannot.

Daily Economic Update: October 10, 2024

This was written before Hurrican Milton made landfall, which will no doubt be devastating to many people, an apt reminder of what really matters.  But since this blog is focused on economics and markets, the recent hurricane activity will no doubt have ramifications for economic data going forward.

The FOMC Minutes seemed largely in line with Powell's post decision press conference and should the debate over exactly how restrictive monetary policy has been.  "Participants emphasized that it was important to communicate that the recalibration of the stance of policy at this meeting should not be interpreted as evidence of a less favorable economic outlook or as a signal that the pace of policy easing would be more rapid than participants' assessments of the appropriate path." The minutes also showed a lack of concern around the labor market as a source of inflation and an overall view that inflation was sustainably moving to target. Overall the minutes couple with the recent jobs report seem to support the idea of a 25bp cut at the next meeting, but we'll see what the CPI report shows today.

Not even the antitrust talk against Google could keep stocks from making new record highs for stocks. Bond yields continued to rise, oil continued to fall and for all the Bitcoin talk, it sold off on the day.   The 10Y Note auction tailed 0.4bps to where WI was trading, alloted at 4.066%, metrics didn't look great compared to the last auction which had a much lower yield and higher bid to cover.  How much of the backup in yields is tied to inflation concerns, election concerns or something else is tough to say.  Though we know that the MOVE index implies that yields will remain volatile through the election.  We ended the day with the 2Y at 4.03% and the 10Y at 4.07%.

Did you watch the Bitcoin documentary on HBO? I eventually did and personally didn't find it all that interesting and it didn't seem to change the world.  What I always find paradoxical in the crypto discussion is that they incessantly value their "currency" in terms of USD.  A basic thread of thinking is something like, think of how many dollars Satoshi must have if he has X million Bitcoin, imagine if he sells it all.  When the documentary speaks that way, to me it implies, that in order for his Bitcoin to be worth something he needs to trade it back into USD?  I'm sure I'm wrong in the intent of the framing, but I find it somewhat ironic nonetheless.

On the day ahead, CPI and jobless claims will be the all the rage and NY Fed President John Williams will speak at 11am.

XTOD: Proposed motto for a new social-media platform:  You don’t have to have an opinion on everything—and shouldn’t listen to those who do.  If only!

XTOD: Bond market worries of post-election panic... The #MOVE Index measures the Implied Volatility of a constant one-month bond option.  On Monday the election fell into this 30-day window. 

This jumped the MOVE from 100 to 124  The market is bracing for an 18bp rate change on the day(s) after the election.  Similar Equity options jumped by 20%, but have since given back most of that increase to only 9% higher.   As has been the case since mid-2022, financial risk is all concentrated in bonds, not stocks.

XTOD: the Credit Suisse group acquired by Apollo was not ready for the Apollo lifestyle: 

https://bloomberg.com/news/articles/2024-10-09/apollo-s-bet-to-take-on-banks-hit-snags-before-atlas-ceo-s-exit  https://pbs.twimg.com/media/GZdKUfWX0AAI7Bn?format=jpg&name=small

XTOD: The hallmark of expertise is no longer how much you know. It's how well you synthesize.

Information scarcity rewarded knowledge acquisition. Information abundance requires pattern recognition. It's not enough to collect facts. The future belongs to those who connect dots.

XTOD: Having good health isn’t everything, but not having it is.  Having money isn’t everything, but not having it is.  You don’t need 6-pack abs or a million dollars to be happy, but it is worth learning the fundamentals of fitness and finance.   They bring a margin of safety.

Daily Economic Update: October 9, 2024

I wrote this before the airing of HBO's documentary "Money Electric: The Bitcoin Mystery" where rumors have been swirling that the real Satoshi Nakamoto will be unvieled which will reportedly send "shockwaves" through markets and the election.  I guess I'll take the under on the impact of this documentary and side with Charlie Munger's sentiment on the importance of Bitcoin, perhaps best summed up in his quote: "It's like somebody else is trading turds and you decide, ‘I can't be left out.’"

Chinese stimulus hopes fading for now. Oil prices fell despite uncertainty around the Mid-East turmoil, but for now mixed messaging around the possibility of an Israeli attack on Iranian oil, coupled with a lowered expectations for Chinese stimulus might be helping to slow the recent price spike.  Speaking of uncertainty we have Hurricane Milton and uncertainty of the path as well as the secondary and tiertiary knock on impacts that could arise from the storm.  Lastly, on uncertainty, yesterday's NFIB Small Business Optimism highlighted this quote:

"Small business owners are feeling more uncertain than ever,” said NFIB Chief Economist Bill Dunkelberg. “Uncertainty makes owners hesitant to invest in capital spending and inventory, especially as inflation and financing costs continue to put pressure on their bottom lines."

This reminded me of a quote by legendary economist Irving Fisher, which I referenced here:

 "Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."

Perhaps a feeling that the Fed is willing to let the inflation rate run a little hotter in order to provide more certainty for the labor market will paradoxically create instability for the labor market by causing business uncertainty due to inflation.  

Speaking of the Fed, Jamie Dimon spoke on BBG noting he thought the Fed was right in beginning to cut rates, but he really focused on structural issues such as regulation, deficits and geopolitics.

Bond markets didn't love the 3Y Note Auction with a 0.7bp tail and a poors showing from indirect bidders (generally foreign demand).  The 2Y is 3.97% and the 10Y is 4.03%.   Nonetheless equity markets were up, because tech only goes up.  The latest Atlanta Fed GDP estimate for 3Q is 3.2%, a number I don't think many expected for a year that has had a 5 handle interest rate policy.

On the day ahead the highlights will be the FOMC Minutes and the 10Y Note Auction.

XTOD: IOW, NGDP growth > 5%. Aggregate demand growth remains robust. No slowdown in sight.

XTOD (long but good read by Michael Pettis, here's 1 of 11) : 1/11 Adam Tooze suggests that "If your aim is restoring the competitive position of US industry, a large dollar devaluation would do more than a sprinkling of industrial subsidies."

XTOD: "Microsoft has become more cautious about paying for ever-bigger server  clusters for OpenAI as the cloud giant aims to ensure it won’t take a  loss on costly data centers that may not generate consistent revenue in  the coming decades"

XTOD: NEW FROM US:Roblox—Inflated Key Metrics For Wall Street And A Pedophile Hellscape For Kids  https://hindenburgresearch.com/roblox/ $RBLX 

XTOD: Lou Simpson: “The essence [of investing] is simplicity.” https://pbs.twimg.com/media/GZXWSwSX0AAHoRM?format=jpg&name=900x900

XTOD: Simplification is the art of organizing your life around purpose.

Daily Economic Update: October 8, 2024

Yields continued their march higher as markets reassess the stance of monetary policy and the outlook for growth and inflation.   Oil also continues to climb due to concerns in the middle east, where prospects of an Israel attack on Iranian oil loom large.  In equity land, ahead of the start of earnings season, NVIDIA helped keep indexes from experiencing larger losses than the 1% loss they experienced.

With corporate earnings and inflation data on the come as well as the backdrop of extreme weather and national and geopolitical politics, there will certainly be continued catalyst that could pose risks to whatever views are priced into markets over the coming weeks. 

Nothing major came out of Fedspeak, so we'll look to the day ahead with very little data and more Fedspeak.

XTOD: Musalem says his baseline outlook is for continued economic expansion over the next several quarters, supported by a gradual easing of monetary policy and accommodative financial conditions

XTOD: Amos Yadlin, a Former Major General in the Israeli Air Force as well as the Former Head of the Israeli Military Intelligence Directorate, stated earlier today on CNN, “The Israeli Attack on Iran will be something that has never been seen in the Middle East.”

XTOD: With the confusion around Fed policy and the upcoming CPI release, I was thinking about Powell’s focus on Supercore inflation during the tightening cycle (and particularly in his November 2022 speech).   It’s another example of how policymakers with a buffet of 100s or even 1000s of data points can pick and choose based on their prior taste for the direction of monetary policy. In November 2022, they were hiking, so they cared about Supercore. Now, they’re cutting, so they don’t talk about it anymore.  We hang on every new indicator they claim is important. Then they just pick some new ones. It’s fun. https://pbs.twimg.com/media/GZULPuXWsAALRE6?format=png&name=small

XTOD: Real talk. Am i getting screwed on taxes?   I pay 50% of everything I make to the Gov.  Is Kamala saying teachers, nurses and firefighters pay more than 50%?  I've asked my accountants for this super wealthy tax break and they cant seem to find it.

XTOD: The bond market is revolting against the Fed   This morning, yields on the U.S. 10-year bond soared over 4%. This continues a non-stop rise in yields following the Fed’s 50 basis point rate cut on September 18.  Normally, long term rates follow the path of interest rates in the overnight lending market, which the Fed controls. But this isn't a normal environment.   Consider last Friday’s "blowout" jobs report, which was entirely driven by the biggest government hiring spree on record outside of COVID-19. Whoever believes our economy is strong, must think borrowing unsustainable amounts of money, printing money to pay for those loans, and then hiring people to do wasteful government jobs is the path to prosperity. It isn’t.  The U.S. government is running deficits equal to 6% of GDP, and only generating 3% economic growth. In other words, if you remove government spending from the equation, America's economy is shrinking.  We are on our way to a Soviet-like collapse in our economy as more and more of everything we do – including our jobs – are controlled by the government. 

Mr. Market is starting to sniff this out. That’s why investors are dumping Treasuries and flooding into gold, stocks, and real estate at record high prices.  Meanwhile, we’re witnessing an entire presidential election campaign without either major party bothering to address the single most important issue at stake in our country: America’s unsustainable debt burden and the coming insolvency of the federal government.  It is only a matter of time now until, one day, the U.S. Treasury market suddenly realizes that no amount of printing will stop the collapse: there will be “no bid” for our country’s bonds. 

And on that day, everything you think you knew about America will be completely gone.

XTOD: In the first and comprehensive analysis of the candidates’ plans, we find Vice President Harris would add $3.5 trillion to the debt ($0 to $8.1t) and President Trump would add $7.5 trillion to the debt ($1.4t to $15.2t).   See https://crfb.org/papers/fiscal-impact-harris-and-trump-campaign-plans

XTOD: 'I had coffee with the head of a large family office today, and he said something really profound that I’d never quite put together.    Paraphrasing: “Capital structure ripples through management and ultimately ripples through employee experience”  If you work in a business run for cash flow, a PE-backed platform, a business run for growth or a business run for long term hold, your experience as an employee could not be more different.   

The cash flow capital demands low overhead, fast ROI, had little patience for capacity building.  

The growth capital spends aggressively to build the company of tomorrow, today. Nobody worries much about profitability.  

The PE capital is all about the exit, and everyone is managed aggressively quarterly to maximizing strategic value and EBITDA at time of sale.   

The long term hold capital worries about downside more than upside and tends to err on the side of conservatism. It’s a marathon, not a sprint.   

No one right way, but it’s worth remembering that it’s the capital that ultimately designs the game that everyone else plays.'  -Xavier Helgesen   My own personal add:  'The same owner/ownership group can go thru multiple capital structures depending on ambition, goals, & just where they are personally.   

Time frame being the easiest way to spot who's in what camp. And while you may not agree w/ their choices, understanding their time frame will at least give you understanding for why they are doing what their doing.'

Daily Economic Update: October 7, 2024

We start CPI week with the 2Y at 3.93% and the 10Y at 3.96%.  It is also the anniversary of the October 7th terrorist attacks on Israel, heightening tensions and risks for the day.

On Friday, headline jobs crushed expectations, coming in at +254K, prior revised higher.  Unemployment falls to 4.1% and AHE beats at 0.4% MoM.  About those rate cuts?  Immeadite reaction in bonds was a double digit rise in yields and market expectations for a 25bp cut at the November FOMC meeting. 

With respect to the Jobs report, there was some talk of the impact of college students dropping out of the workforce as they return to their schools as a factor in this report, but to me that sounds like something that happens every September and these economist should have already accounted for that in their estimates.  I guess everyone will have to choose their narrative, but for the month of September at least it looks like job growth outpaced the growth in labor supply.

As many readers know there is also a narrative that these data points are all lagging and that therefore survey data might be more relevant.  There was an interesting CFA blog post that attempts to identify what macroeconomic factors explain changes in business and consumer sentiment as measured in surveys.  Their finding is that a lot has changed post-Covid:

"By the post-COVID period, an increase in GDP did not lead to an increase in consumer sentiment. An increase in unemployment also had no impact on sentiment. In fact, only two variables out of eight had significant power in predicting the direction of consumer sentiment: inflation and the stock market returns."

Speaking of sentiment and inflation, I thought this quote from economist John Cochrane was good: "Expectations are conveyed by institutional structures."  You can read more about Cochrane's views on inflation and his fiscal theory, which he calls a theory of inflation which can also be the fiscal theory of no inflation, in his recent post here.

On the week ahead it's CPI week as the highlight.

Mon: Fedspeak

Tue: Small Biz optimism, Balance of trade, Fedspeak

Wed: Fedspeak, Inventories, 10Y Note, FOMC minutes

Thur: CPI, 30Y, moar Fedspeak

Fri: PPI, UofM prelim

XTOD: Higherer for Longerer island after one number is suddenly seeing a lot of fast ferry traffic from soft landing and recession islands. Aloha!

XTOD: I believe   the Fed will now end Balance Sheet Runoff sooner than  originally planned. They will cite an unexpected decline in bank reserves and end it at one of the next two FOMC meetings

XTOD: Maybe, just maybe, nominal income growing at 5% is a sign that labor markets were not cooling down.

XTOD: The problem is right there: highly skilled people can be used remotely. But you can't clean bathrooms, mow the lawns, plant trees, etc. with remote workers & rich countries are now structurally addicted to cheap unskilled labor. Structurally?  Size of houses, yards, etc.

XTOD: Tonight or tomorrow morning, think of a decision you’ve been putting off, and challenge the fuzzy “what ifs” holding you hostage. If not now, when? If left at the status quo, what will your life and stress look like in 6 months? In 1 year? In 3 years? Who around you will also suffer?

Daily Economic Update: October 4, 2024

Jobs Day in 'merica.  Equity markets largely on hold, the movers have been the continued rise in oil related to middle-east tensions, a continued rise in yields and a stronger dollar which is benefitting from dovishness out of other central banks.  The 10Y is up to 3.84% and the 2Y at 3.71%.

Yesterday's jobless claims were largely in line with expectations and did not appear to be impacted by Helene which hit at the end of the measurement period.  The ISM services data looked strong and also showed an increase in the prices paid component, for whatever that's worth. Factory orders looked relatively weak, but in my mind it's a generally noisy set of data. 

It looks like there may be a pause in the port strike until January 15, and that a tentative deal may be in hand.

On the day ahead Jobs is the highlight, estimates are generally around +150K on the headline, though the whisper number seems lower.  Of course markets will look to see if the unemployment rate creeps up from 4.2% and average hourly earnings looks with 0.3% MoM as the estimate. In geopolitics the question of how Israel will respond and will it involve targeting oil assets or nuclear assets or something different entirely.  Time will tell. 

XTOD: A great example of what Palantir does in an easy to understand way:In 2016, Airbus showed how Palantir Foundry transformed their business by connecting complex systems of data to make quick & accurate decisions.   Imagine using this in ’24 with AIP to deploy LLMs within it https://x.com/i/status/1841494176799588765

XTOD: A reasonable counterfactual for 2020 is a severe financial crisis like we experienced in 2008. Yes, different origin stories for 2020 and 2008, but shutting down an entire economy in 2020 should have caused a severe financial crisis. The fact that it did not happen is amazing.

XTOD: In my 55 years as a global macro investor, I have seen, traded through, and studied many big debt crises (48 are covered in my book, “Principles for Navigating Big Debt Crises.”) It is that perspective that leads me to believe that China is at a fork in the road and can either: deal with its debt by beautiful engineering or deal with its debt crisis in a way that drags on. To me, this one in China looks like “another one of those” that can and should be treated in big, classic ways— but more is required. I go over this in my latest article. As always, I welcome your comments and suggestions. https://linkedin.com/pulse/beautiful-deleveraging-chinese-characteristics-ray-dalio-d7aue/?trackingId=gMQCFX85TbuJ4Ok1RZ8aUg%3D%3D

XTOD: It sounds obvious that reading is important in investing (or life). But in today's information environment, reading is practiced less and less. If practiced at all, the reading is in bite-size snacks, with not enough nutrition in it to develop key investment skills like visualization, recall and self-awareness.