Daily Economic Update: October 25, 2024

PMI and new home sales data were both better than expected.  With PMI's it was services leading coupled with rising outlooks for the year ahead that did the trick.  New home sales data looked robust with the average home price above $500K.  Jobless claims seemed to continue to show that there is very little in the way of firings.  Stocks held up well as earnings, including those of Tesla gave some reason for optimism.  The 10Y ended around 4.21% and the 2Y at 4.09%.

I guess the theme of the week has been people talking about deficits.  

As I mentioned back in Wednesday's post, the MMT crowd was likely going to want to have a word with all of those deficit hawks, and sure enough Stephanie Kelton was more than happy to X/tweet out a defense of deficits, which culminated with a link to a 2010 article by James K. Galbraith (son of famous economist John Kenneth Galbraith).  That link is here.   "To put things crudely, there are two ways to get the increase in total spending that we call "economic growth." One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is. Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors–public deficits or private loans–has to be in action."  You're welcome to make your own judgments on MMT, I've shared mine on this blog before.  

Outside of MMT, but sounding MMT-ish, financial advisor, author, Cullen Roche wrote this piece titled "We Need to Have a Talk About “Bond Vigilantes”"  in it he states: "government spending is 23% of GDP. That’s the same level it was at in 1982! And while it’s a large portion of aggregate spending we should remember that 77% of spending is coming from OTHER sources. In most cases, it’s much more efficient sources such as the most efficient corporate machine the human race has ever seen (corporate America).  Again, don’t get me wrong. When government spending explodes to 45% of GDP like it did in 2021 then big inflation can come from this because the government becomes the primary (reckless) spender in the economy. But that’s not the case today. Government spending as a percentage of GDP is about the same as it’s been for most of the last 40 years. So it begs the question – in an economy like the USA does the government drive inflation or is the government driving a small amount of inflation that is not as important as other factors in the economy?"  He goes onto posit major factors that drive the real economy.  

Lest we absolve the Fed from any role in the economy, there was former Fed Governor, Kevin Warsh on CNBC with some choice words for the Fed and their fight against inflation and questioning their recent rate cuts.  As I listened I was reminded of my favorite central bank quote:

“I define central bank independence in one sentence, it's the ability to raise interest rates when the Treasury doesn't want you to. And the Treasury almost never wants you to, because of the cost of the debt.” – Peter Stella

Anyway, I guess I'll conclude the week right we started, with the advice I shared on Monday.  In no way am I saying not to be concerned about deficits, the election, stock valuations, or whatever the current narrative presents, but rather:

"The easiest way not to be overly influenced by what other people think is to not be aware of what they think" - Shelby Davis

and that the only way to beat the market (which I'm not saying you should even aim to do) is to diverge from the market:

"the willingness to be lonley, the willingness to take a position that others don't think is to bright.  They have an inner conviction that a lot of other people do not have." - Michael Lipper describing Buffett, Soros and Templeton

and lastly that the four most dangerous words in the English language are:

"This time is different."

 On the day ahead it's UofM and Durable Goods.

XTOD: This economy stinks I just paid $128 to have someone else get off their couch, pick up my caviar for me, drive it to my house and drop it off at my doorstep  And they wanted a tip!?!? 

How am I supposed to live?

XTOD: Former Fed governor Kevin Warsh: The 50-basis-point cut had no basis in the data available at the time of the Fed's meeting.   "Maybe they're not data dependent. I do not want to be the person accusing them of politics ... but when you don't have a theory of the case and you don't follow it, it is easy to get that accusation and it is harder ... to defend them."  https://cnbc.com/video/2024/10/24/former-fed-governor-kevin-warsh-the-fed-doesnt-seem-to-have-a-serious-theory-of-inflation.html

XTOD: You can either be judged because you created something or ignored because you left your greatness inside of you. Your call.

XTOD: John Steinbeck https://pbs.twimg.com/media/GaqrpvpXcAAO6yo?format=jpg&name=900x900

Daily Economic Update: October 24, 2024

Stocks fell for a third straight day as yields rose again.  The narrative around the recent rise in longer term yields seems tied to increasing odds not just of a Trump presidency but of a Red Wave, making it more likely that deficits will increase in a faster manner than any scenario where there is division in government.  A red wave was also predicted back in 2022 mid-terms and failed to materialize.  The other cited catalyst for the recent bond selloff is around global deficit leading to increased supply that must compete for investor demand.

The 10y is right around 4.25% and the 2y is up to 4.10%.

The Beige Book showed the impact uncertainty plays on business with 15 mentions of election uncertainty. There was also low labor turnover and generally solid conditions across most districts.

Outside the U.S., the Bank of Canada cut 50bps to 3.75% as they see inflation as stabilizing at target.

Today is the big day for data with jobless claims, PMIs and home sale data.  Still awaiting Israel’s retaliation, lest we forget.

XTOD: Insane stat from the Wall Street Journal that there are like 12 million full-time influencers in the US right now. That’s  7% of the American workforce 

No way a bubble like that is at all sustainable

XTOD: 10 year interest rates are unchanged in the last 2 years and you have people on here saying the bond market is predicting USA bankruptcy. 

XTOD: “For me an economic approach must help me understand the world, and provide me with some useful insights (preferably about my day job — investing). On those measures, let me assure you that MMT thrashes neoclassical economics, hands down.” ~ James Montier (GMO)

XTOD: "Good times teach only bad lessons: that investing is easy, that you know its secrets, and that you needn’t worry about risk. The most valuable lessons are learned in tough times."— Howard Marks

Daily Economic Update: October 23, 2024

Yesterday was a bad day for McDonald's quarter-pounders and to have formerly headed Abercrombie and Fitch.  Second straight red day for equities.  Gold has now returned almost as much as the S&P over the last 12 months, which is kind of insane to think about.  In an essentially no data day, the IMF did revise up their forecast for 2025 U.S. GDP growth to 2.8%.  Nevertheless we couldn't make it a day without more warnings about the U.S. fiscal situation, this time from Paul Tudor Jones, who invoked his fear of a "Minsky moment" as it realates to a sudden recognition that the fiscal situation is "impossible".  

If you're not familiar with Hyman Minsky, I had recently summarized his "financial instability hypothesis" for someone as "calm plants seeds of crazy - you assume good news is permanent, are oblivious to bad news, ignore bad news, deny bad news, then panic at bad news, believe bad news is permanent, and ultimately repeat the cycle in the opposite direction.  Hyman Minsky thought the idea of eradicating recessions was nonsense - thus his financial instability hypothesis."

The term "minsky moment" was coined by PIMCO's Paul McCulley back during the Asian financial crisis, to refer to the tipping point in the economic cycle, often when "apparent stability begest ever-riskier debt arrangements, which further begat asset price bubbles. And then the bubbles burst, in something I dubbed a "Minsky moment."  In general the Minsky moment progresses in a forward fashion through three debt units:

“hedge” financing units, in which the buyer’s cash flows cover interest and principal

payments; “speculative” finance units, in which cash flows cover only interest

payments; and “Ponzi” units, in which cash flows cover neither and depend on rising

asset prices to keep the buyer afloat."

Once the moment occurs, it all works in reverse, with falling asset prices, higher risk premiums, lower leverage and economic contraction. How close is the U.S. sovereign to experience such a moment, I don't know?  I would venture to guess advocates of MMT would vehemently disagree with all this rhetoric.  If you're unfamiliar with MMT you can read my post here.

In other news, Howard Marks dropped his latest memo "Ruminating on Asset Allocation".  My takeaways:

• In a world where there are so many asset classes, his ephiphany of late is that "at bottom, there are only two asset classes: ownership and debt"
• It's an enormous difference to own vs. to lend.  Owners have no promise of return, lenders have a contractual "fixed outcome" assuming the borrower makes good.
• Choosing between the two is the most basic thing investors must decide.
• To anchor the decision, Marks' says you must first indentify a "risk posture", how much emphasis you want on preserving (defense) vs. growing capital (offense).  Calling this preservation vs. growth, mutually exclusive and a "inescapable truth in investing."
• The absolute level of risk must be conciously targeted and the level of risk in the portfolio must be well compensated.
• A higher expected return with further upside potential, at the cost of greater uncertainty, volatility, and downside risk? Or a more dependable but lower expected return, entailing less upside and less downside? The choice between the two is subjective, largely a function of the investor’s circumstances and attitude toward bearing risk. That means the answer will be different for different investors.
• Even after investors determine their "normal risk posture", they face a choice: they can maintain that posture all the time or deviate on occassions of market attractiveness.
• As "risk" incrases, not only do expected returns increase, but the range of possible outcomes becomes wider and bad outcomes become worse.
• "All ways of getting to a certain risk level will produce the same expected return."  There are no free lunches, in theory.  However, Marks' states "in reality, markets are not efficient in the academic sense of always being "right" and gains can be acheived through skill.
• He believes that it's difficult to advocate for investors to depart from their "sweet spot" in terms of risk level because many managers who are believed to possess alpha turn out not to.
• He concludes with a quick plug for investors to conisder the certain of allocations to credit at current levels, which he sees as returns of 7-10% (likely only obtainable in high-yield in private credit in my estimation)

Both Marks' memo and even thinking about "Minsky moments" are in someways still connected to what have been somewhat themes for the week. At a high level those themes are maintaining a level of intellectual humility and thinking about risk in the context of return goals. In the terms of Marks' memo their "offense/defense balance. For each individual or institution, this decision should be informed by the investor’s investment horizon, financial condition, income, needs, aspirations, responsibilities, and, crucially, intestinal fortitude, or their ability to stomach ups and downs."

On the day ahead it's home sales, Fed Beige Book and Canada eh?

XTOD: The Intelligent Investor newsletter.  https://createsend.com/t/d-8876921A5A4BB3532540EF23F30FEDED   Happy Ben Graham day, everyone!

XTOD: First Druckenmiller (the GOAT) and now PTJ…“All roads lead to inflation. I’m long gold. I’m long Bitcoin” - Paul Tudor Jones  Incredible how far Bitcoin has come.

XTOD: JPM Asset Management's chief global strategist David Kelly was asked at a reporter roundtable about risks to his current forecast.  He gave some great evergreen investing advice.

1.) It's always the risk no one talks about.

2.) Zoom out. It likely won't matter in the long run.

XTOD: Remember! pessimist sounds smart but optimist  makes money   Geo-political instability is temporary but commerce is the fundamental backbone of civilization  FII selling, Inflation, Recession all are expensive distractions for long term investors

XTOD: “The most valuable personal finance asset is not needing to impress anyone.”  — Morgan Housel

https://x.com/jasonzweigwsj/status/1848741927350374898

https://x.com/Geiger_Capital/status/1848739824531841456

https://x.com/_JoshSchafer/status/1848450188844888186

https://x.com/CivEngg_Adarsh/status/1847932541803577597

https://x.com/MoneyWisdom_/status/1848687915120853007

Daily Economic Update: October 22, 2024

Stocks fell and yields rose.  All of the worries were on display in financial media yesterday.  Stocks, well Goldman says you won't make money in stocks.  Bonds, well deficits.  Cash, well inflation.  Even crypto and gold didn't work for the day.  Investing is hard. 

We ended the day with the 2Y back up over 4 at 4.04% and the 10Y at 4.20%. 

There's an idea of market cycles and reversions to the mean, ‘trees don’t grow to the sky’.  Contrasting to that is the idea that the we're in a new age and there are some companies that have learned to scale at levels not seen before in history, a new Industrial Revolution, an exponential age with increasing returns to scale. 

In the "new" economic system the thinking is summed up in a 2019 in an essay called "Graham or Growth" by investor James Anderson:

"They have endured for decades even at massive scale. I don’t see this as a contention but as an observation. Ironically they’ve altered the patterns of stock market return sufficiently that the very utility of the ‘mean’ has been undermined. The mean is now so far above the median stock that our entire notion of the distribution of returns has to be reviewed. The first chance to reassess came with Microsoft over 30 years ago. The investment community has been slow indeed. We can react to economic data or quarterly earnings in seconds but adjusting our world view has proven far harder.

Separately, one can wonder what if the recent higher interest rate environment somewhat counterintuitively helped repair balance sheets, stopped the proliferation of "zombie" firms, and allowed for the reallocation of capital to more productive uses, thus helping fuel growth (an idea once posited by Claudio Borio).  

Further, despite all the deficits, what if we're poised for more growth than we think.  After all, in the fiscal theory of the price level: "I emphasize: fiscal theory says you get inflation if debt exceeds faith in a country’s long run ability and will to repay. There is no hard and fast debt/GDP limit. Argentina has debt crises at 40% debt to GDP. Japan lasted a decade at over 200%."  This John Cochrane substack post on debt sustainability is worth a read (in the last two paragraphs that's about as optimistic as Cochrane seems to get).

It’s all a lot to think about with political and geopolitcal risk abounding, so it’s important to have intellectual humility.

Jason Zweig recently described how Ben Graham’s concept of margin of safety was also meant to apply at the individual level, to yourself as an investor. In the personal context he posited:  "Do I know what I think I know? How do I know what I think I know?  What evidence is there that I might be wrong?... Why do I know something about this asset that other investors haven't figured out? Why exactly would I be right when all of them are wrong?  

Somewhat related to humility, Morgan Housel's latest post "A Message From the Past (Thoughts on Nostalgia) does a nice job of adding some perspective around the current environment.  In it:

"Are we now forgetting that at virtually every moment of the last 15 years, smart people argued that the market was overvalued, recession was near, hyperinflation was around the corner, the country was bankrupt, the numbers were manipulated, the dollar was worthless, on and on?

I think we forget these things because we now know how the story ends: the stock market went up a lot. If you held on tight, none of those past events mattered. So it’s easy to discount – even ignore – how they felt at the time. You think back and say, “That was so easy, money was free, the market went straight up.” Even if few people actually felt that way during the last 15 years.

So much of what matters in investing – this is true for a lot of things in life – is how you manage the psychology of uncertainty. The problem with looking back with hindsight is that nothing is uncertain. You think no one had anything to worry about, because most of what they were worrying about eventually came to pass.

“You should have been happy and calm, given where things ended up,” you say to your past self. But your past self had no idea where things would end up. Uncertainty dictates nearly everything in the current moment, but looking back we pretend it never existed.

Concluding with "The past wasn’t as good as you remember. The present isn’t as bad as you think. The future will be better than you anticipate."

And that's about as much optimism as you're going to get from me.

XTOD: The World Series between the Dodgers and Yankees is sold out and there are no tickets under $1,000 on the secondary market. 

XTOD: If there is not radical reduction of government expenditures, then, just like an individual who has taken on too much debt, America will become de facto bankrupt.  The interest on the debt is trending to rapidly absorb all tax revenue, leaving nothing for critical needs.

XTOD: The speculative public is incorrigible. In financial terms it cannot count beyond 3. It will buy anything, at any price, if there seems to be some “action” in progress. It will fall for any company identified with “franchising,” computers, electronics, science, technology, or what have you, when the particular fashion is raging. --Benjamin Graham

XTOD: Understand: the greatest generals, the most creative strategists, stand out not because they have more knowledge but because they are able, when necessary, to drop their preconceived notions and focus intensely on the present moment. That is how creativity is sparked and opportunities are seized. Knowledge, experience, and theory have limitations: no amount of thinking in advance can prepare you for the chaos of life, for the infinite possibilities of the moment. The great philosopher of war Carl von Clausewitz called this “friction”: the difference between our plans and what actually happens. Since friction is inevitable, our minds have to be capable of keeping up with change and adapting to the unexpected. The better we can adapt our thoughts to changing circumstances, the more realistic our responses to them will be. The more we lose ourselves in predigested theories and past experiences, the more inappropriate and delusional our response.

Daily Economic Update: October 21 2024

As we approach the election, increasingly we are inundated with experts expressing with much certainty their financial views.  This is often done with much confidence, yet generally short of much more than abstracted terms like increased volatility, horrible consequences, game ending outcomes, big down turns, etc.  Sometimes the discussions center around something of a paradox whereby without massive deficits the economy will fall into some disaster, yet with further deficits we are certain to end in disaster.  Other times it is about the yet to be felt consequences of the "lags" of monetary policies or some other topic which again has generally been on the radar for a long time now. 

Whoever the expert and whatever the view there is generally some explicit or implicit message that you must do something now.  Perhaps it's more wise to consider whether there is more wisdom below than what you hear there:

"We will continue to ignore political and economic forecasts which are an expensive distraction for many investors and businessmen." - Warren Buffett

 "Often we tell ourselves, “Don't just sit there, do something!” But when we practice awareness, we discover that the opposite may be more helpful: “Don't just do something, sit there!" -  Thich Nhat Hahn

 "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."  – Mark Twain.

We all know elections occur regularly, often an investor might experience multiple elections over the hold period of an investment.  We also know that the cost to insure against risk is generally not when it's being experienced, you probably want to buy the fire extinguisher before the fire.

The point is not whether the views of the experts are right, or to argue that you should bury your head in the sand, it's not.  The point is to more clearly know the difference between investing and speculating (discussed here and here and here) and to remember that even when experts tell you that you must do something around the election even in the vein of "risk management", that "risk management" is actually a process, one that is generally well served by understanding why you are taking any risk in the first place, a goal. Often good advice is to build a risk management culture.  Perhaps your risk management process coupled with new information that comes to light might lead to action, perhaps not, and likely not in some alarmist way.

With respect to risk management perhaps there is more wisdom here than in all the expert calls to do something you'll continue to hear:

"Taking a risk without a goal is just like getting in a car and driving around aimlessly expecting to wind up in a great place" - Allison Schrager

“[Risk management] is not just in responding to anticipated events but in building a culture and organization that can respond to risk and withstand unanticipated events. In other words, risk management is about building flexible and robust processes and organizations.”  - John Coleman

Of course as Jason Zweig noted:  

"All investors labor in a cruel irony: We invest in the present, but we invest for the future. And, unfortunately, the future is almost entirely uncertain. Inflation and interest rates are undependable; economic recessions come and go at random; geopolitical upheavals like war, commodity shortages, and terrorism arrive without warning; and the fate of individual companies and their industries often turns out be the opposite of what most investors expect.  Therefore, investing on the basis of projection is a fool's errand; even the forecasts of the so-called experts are less reliable than the flip of a coin. For most people, investing on the basis of protection - from overpaying for a stock or from overconfidence in the quality of their own judgment - is the best solution."

Thinking in terms of preparation over prediction, discipline and process over emotion, recognition of the folly of certainty are probably better mental frameworks than the soundbites designed to get clicks.

 In the words of Benjamin Graham in his classic book "The Intelligent Investor", Margin Of Safety is

 "in essence, that of rendering unnecessary an accurate forecast of the future".   

 A prudent way to navigate the inherent uncertainty in the world and economy is by maintaining some flexibility, a buffer, a margin of safety and a level of creativity in planning.  This flexibility isn't free, it's the extra turn of leverage not taken, it's the liquidity not deployed, or other analogous things, but it also provides a valuable option to change course when things aren't working out.  It creates a condition to increase the odds of survival and survival is what allows individuals and businesses to adhere to Charlie Munger's first rule of compounding: "The first rule of compounding is to never interrupt it unnecessarily".

Anyway, that's my speil to start your week. 

We start a new week at new all-time highs, people still loving Netflix, a 2Y at 3.95% and a 10Y at 4.08%.  On the week ahead, it's earnings, Fedspeak, PMI's and Durable goods as highlights.

Mon: Fedspeak

Tue: probably rest

Wed: home sales, Beige Book, Bank of Canada

Thur: jobless claims, home sales, PMI's

Fri: Durable Goods, UofM final

XTOD: The McRib is back. BTC historically goes up >2x after the McRib returns. Don't fade the McRib.   Not financial advice.  https://pbs.twimg.com/media/GaMkC2qbUAAHl9Q?format=jpg&name=900x900

XTOD: From Edelweiss Holdings PLC Owners Manual - Anthony Deden's firm.   Excerpt from "Chapter 7 - Value is not a Number" https://pbs.twimg.com/media/GaLIQ1YW4AAdM4z?format=jpg&name=900x900

XTOD: GOLDMAN: "We estimate the S&P 500 will deliver an annualized nominal total return of 3% during the next 10 years (7th percentile since 1930) and roughly 1% on a real basis."

XTOD: Getting really into finance is bad for investment performance, past a certain point. You're fine with a simple investment program and chilling. You will outperform most other investors over the long run.  But - if you're really into finance you'll get shiny object syndrome.   "Oh, leverage that portfolio up. Oh, futures. Maybe I should hedge. Oh, I heard this guy on a podcast with a great macro take. Perhaps I should act on that. This commodity is at a 50-year low. This merger is gonna go through and the market is wrong. I should short China because demographics. I should go long China because valuation. This s*itco is net cash. Maybe this is the next Monster Beverage." etc.  That's why it's good to have a small account to get that stuff out of your system & scratch the itch so you don't screw up the boring portfolio that's actually gonna work.

XTOD: "Most of what I know about writing I’ve learned through running every day." Murakami

Daily Economic Update: October 18, 2024

Yesterday the ECB cut 25bps to 3.25% on their main deposit facility.  Lagarde commented that they haven't yet reached 2% medium term inflation target, further stating "We're in the process of "breaking the neck on inflation"".   Of course she also said they are going to be data dependent, specifying they are not data point dependent and of course they'll be flexible. The over emphasis from central bankers on phrases such as data dependent always leave me wondering if that means previously they weren't making decisions based on the data?  Perhaps Stanley Druckenmiller (and others) have been correct in stating that central banks were "trapped" by their forward guidance. 

Stateside, headline retail sales increased 0.4% MoM, up from August and above the consensus estimates.  When you strip out the volatile components like gas sales, it was 0.7% on the "core retail sales", the highest in three months.  That doesn't sound like an indication that monetary policy is restrictive.  Jobless claims fell as hurricane related distortions fell out.  Speaking of hurricanes they seemed to have impacted the industrial production data and as did the Boeing strike. 

Yields rose and stocks rose as TMSC restored optimism in the chips sector and NVIDIA hit new all time highs.  The 10Y is back around 4.10% and the 2Y remains a touch under 4 at 3.98%.  The Atlanta Fed GDP Now rose again and is now at 3.4% for 3Q.

On the day ahead it's building permits and housing starts and of course fedspeak.

XTOD: Peter Lynch: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves."

XTOD: Economists who map the CPI and PPI into the PCE think core inflation for the Fed's preferred gauge will be around 0.26% in September, a touch below the Sept CPI (which was 0.31%) but the highest m/m reading since March

XTOD: "Money buys happiness in the same way drugs bring pleasure: Incredible if done right, dangerous if used to mask a weakness, and disastrous when no amount is enough."  — Morgan Housel

XTOD: The year is 2027. Blackstone has raised a $1 trillion fund to invest in Private Government Credit.  They promptly sign a deal with the US Treasury at a 6% yield.

Daily Economic Update: October 17, 2024

Equities had a solid recovery, as big bank earnings season has proved at least the largest financials are able to generate solid returns.  As we are awaiting retail sales and ECB (expected to cut another 25bps) the 2Y is 3.94% and the 10Y is 4.02% ahead of the data.  We had oil dip below $70 on WTI before recovering. Concerns over supply continue to dominate fear of attacks on oil assets that could impact supply (betting markets seem to be pricing in only a 21% chance of an Israel attack on Iran by Friday).  

In other news, there is an increasing narrative coming from betting markets and DJT stock that the market is pricing in a Trump victory.  Away from politics, we're going to use nuclear to power all data centers and unrelatedly, all of Florida is for sale.  There, you are caught up.

Setting that aside, for me the Druckenmiller interview, was the hihglight of the day.  You can find tons of takes on it, including plenty of people who honed in on his comments on politics, perhaps cherry picking some of those comments.  Setting that aside the two things I found most interesting were:

1. "We don't see any restriction whatsoever" (as it relates to monetary policy). He believes the Fed is acting very assymetrically, waiting forever to hike rates (13 months), only hiking 25bps at first and was trapped by their forward guidance, now they cut 50bps and signal they are restrictive, will they be trapped by their forward guiance again?  The risk is if they are wrong and inflation isn't killed, he believes it will have major implications for markets and perhaps the Fed's independence.
   
   
2. "I don't know what very short means, we shorted bonds the day the Fed cut 50".  He views the risk reward related to bonds as one where by being short you can see a scenario where yields rise 100s of basis points, while being long maybe yields fall 50bps.  Why?  He was taught the golden rule for bonds is that the 10Y yield should be equivalent to nominal GDP, which he believes is 5.5%.

On the day ahead it's Retail Sales and ECB action as the highlight. 

XTOD: ever since i was young i wanted to transform unstructured data into actionable business insights

XTOD: Very lucky to have Bethany McLean @bethanymac12  come to speak to us at the @StanfordGSB . One of my favourite sessions of the year. The best investors are able to perform the kind of investigative research she does.  A few points hit home:

1) The worst crimes in history have been committed by those who believe they are doing the right thing - yes, this is more philosophical than investing related, but it did hit me hard.

2) Just because financials have been signed off by auditors or regulators, doesn't make them right. The incentives for these parties just aren't aligned with drawing out the truth.

3) The key to good writing is clarity. The key to clarity is writing. Writing is an iterative process than forces me to face your my own lack of understanding and continue to work until I grasp it.

4) Low interest rates breed greed, and greed breeds fraud. I guess we better be on the lookout!

5) Believing in something that may not be entirely (or yet) true is the mark of a visionary or a fraud. What differentiates the two is often a case of luck or timing. Society needs visionaries and believers, but we need very healthy cynicism to avoid being fooled.

6) The hardest thing is to get started, or to take the first step. After that, the momentum can often carry you forward, even if you remain terrified!

Thanks Bethany for the great session!

XTOD: “You need to know if you're going to set up business in a country, that you can do it quickly, predictably, and that the stuff you produce won't just be taken from you. Venezuela lost that. Many places have lost that. Cuba didn't even allow it to begin with. The places that have really grown, like Japan, Singapore, South Korea, you know if you start a successful business, you'll be allowed to see it through.” -Tyler Cowen

XTOD: Think of it this way: There are two kinds of failure. The first comes from never trying out your ideas because you are afraid, or because you are waiting for the perfect time. This kind of failure you can never learn from, and such timidity will destroy you. The second kind comes from a bold and venturesome spirit. If you fail in this way, the hit that you take to your reputation is greatly outweighed by what you learn. Repeated failure will toughen your spirit and show you with absolute clarity how things must be done.

XTOD: “The game is a process of discovering: who you are, what you’re interested in, what you’re good at, what you love to do, then magnifying that until you gain a sizable edge over all the other people." - Li Liu

Daily Economic Update: October 16, 2024

Stocks fell from an all time high as chips and AI didn't win the day given ASML earnings.  Oil continued to fall on a lessening of concern around Israel's presumed attack agains Iran and increasing concern over China's economy which will dampen demand.  Falling oil prices helped Canadian inflation fall to 1.6% on a headline basis, I guess that's good, even though rent inflation runs at like 8% up there.  In geopolitics Trump called "tariffs" "the most beautiful word in the dictionary" and N. Korea is destroying roads between the themselves and S.Korea.

The NY Fed Mfg Index posted it's worst level since May driven by lower new orders, but it nonetheless posted solid employment component and rising prices paid.

The NY Fed Survey of Consumer Expectations showed an increase in consumers 3Y and 5Y inflation expectations. The survey also showed no major concerns on the unemployment or spending sides.  

We hear all the time from the Fed about the importance of anchored inflation expectations, nothing in this survey shows any unanchoring, but equally the readings continue to remain above target.  Some economist believe that higher inflation expectations can be self fulfilling as people demand higher pay and returns to shield themselves from inflation.

It's a light data day ahead before a full Thursday.

XTOD: How to read recent US-Israel leaks re: oil attacks

1) US-Israel have a deal for limited military strikes

2) Netanyahu says one thing -- but may do another

3) Netanyahu never intended to bomb nuclear / oil sites, but used the threat to get other US concessions

XTOD: Trump: "I've been a very successful businessman. ... I don’t think I should be allowed to order it, but I think I should have the right to put in comments as to whether interest rates should go up or down."

XTOD: Feel bad for any CRE investor/family that 1031 exchanged into one of these Walgreens thinking they were going to have a safe/secure asset for decades... not many could have predicted this a decade ago

XTOD: As bull markets are built up, the large and quick profits shown by common stocks as a whole are sufficient to dull the public’s critical faculty, just as they sharpen its acquisitive instinct.

--Benjamin Graham

XTOD: “A good bet in economics: the past wasn’t as good as you remember, the present isn’t as bad as you think, and the future will be better than you anticipate.” — 

@morganhousel

XTOD: The highest return on investment is in the things you don’t do.