Daily Economic Update: November 20, 2024

The news that Ukraine struck targets inside Russia using U.S. weapons and that Russia would consider responding to an attack considered to be backed by a nuclear power by using nuclear weapons did little to dissuade equity investors on the day.  In equities Walmart earnings provide some indications that the U.S. consumer is doing well and poised for a healthy holiday season.

In data, housing starts fell by more than forecast largely due to the impact of weather in the south.  Buidling permits fell by more than expected as well but the deline seemed to be driven by a decline in multi-family permit component which tends to be volatile.

Away from data, Trump cabinet nominees remain a hot topic.  Kevin Warsh is the increasing betting favorite for Treasury Secretary.  In Fedspeak, KC's Schmid expressed confidence in lowering rates, and a belief the Fed can offset fiscal deficits through higher interest rates.

The dollar, gold and Bitcoin all traded well, while the Euro is a currency that has steadily declined post Trump election.

The word of the day is DePINs, you may already be familiar with this term, but it was new to me. DePIN is the acronym for Decentralized Phyiscal Infrastructure Networks that are based on blockchain.  Somewhere in that acroynm is the idea of using tokens to fund physical infrastructure somehow.  I'm not 100% sure what problem it solves, but figured I'd share in case one day it leads you to lead a massive DePIN project.

On the day ahead, all eyes are on NVDA earnings, but there is UK inflation data out in the morning if you're into that.

XTOD: My journey from energy to crypto comes full circle with DePIN. Scaling decentralized infra demands novel financing models rooted in credit, cash flows, and decentralized coordination 

XTOD: French farmers continue protests as union threatens food supply disruption http://reut.rs/3OepXun

XTOD: Didn’t expect Ben Affleck to have the most articulate and realistic explanation where video models and Hollywood is going https://x.com/i/status/1858211286066073922

XTOD: Special Forces Vet. Evan Hafer & Joe Rogan on Trump Declaring War on the Cartels: 'It Is Going to Get Wild Come January 20th'  "If we declare war on the cartel, these dudes are not gonna understand what the f*ck is going on. They are in for a world of ultra-violence they've never actually felt before ... They have f*cking no clue if we organize these Tier 1 units against them ... What I would be doing if I was down there ... I would be getting ready to retire right now because if Delta Force is hunting me, bro I would be so terrified."

XTOD: “Companies that focus on their stock price will eventually lose their customers. Companies that focus on their customers will eventually boost their stock price. This is simple, but forgotten by countless managers.”   — Morgan Housel

Daily Economic Update: November 19, 2024

Concerns over NVDIA blackwell chips overheating weighed on their shares ahead of their earnings this week, but other tech names performed well with Tesla continuing a Trump bump.  A little under the radar shares of dental related companies were rising as investors consider what a removal of flouride from drinking water might mean for dental health.  Overall the S&P 500 rose.  

Treasury Secretary pick remains a hot topic with list of candidates seemingly growing and Polymarkets now sees former Federal Reserve board member Kevin Warsh as the favorite, with the other contenders now including Marc Rowan (Apollo) to go along with Bessent and Lutnick.   

Yields rose with a steeper curve. as the 10Y rose to nearly 4.47% before trading back to 4.42% while the 2Y remains around 4.30%.  Bitcoin and crypto continues to trade well.

Israel says last months attack hit some part of Iran's nuclear capabilities and Biden approved the use of U.S. long range missiles by Ukraine to hit further into Russia.  On geopolitics in general, reports of attacks on underwater internet cables, and some production shutdowns in Norway, all lead to rising oil prices.

On the day ahead it's Housing Starts.  

XTOD: BetMGM says that Tyson-Paul was its most bet combat sport fight (MMA & boxing) in its history.  The fight had 3 time the bets and 4 times the money vs. any other combat fight in its history.

67% of the money was on Tyson.

XTOD: Scoop: @BlackRock’s Larry Fink and at least one senior  @BlackRock  exec has been contracted by Team Trump as they search for  Treasury Secretary,  @FoxBusiness  has learned. 

@realDonaldTrump  has had a long relationship with Fink, who is one of the best risk managers in the business and has often leaned on him for his views on the market etc. Fink will not be a candidate for Treasury but it tells you something about  @realDonaldTrump  that he has a big tent idea on how to run economic policy. Refreshing

XTOD: Texas is the energy capital of the world.  We’re ready to be #1 in advanced nuclear power. Today, we released our plan to build that industry in Texas.  By utilizing advanced nuclear energy, we’ll enhance the reliability of our state grid & provide affordable, dispatchable power.

XTOD: In September, Russian President Putin said if the US were to lift the ban on long-range missile use it would be seen as NATO's "direct participation" in the war.

He added: "This, of course, will significantly change the very essence, the very nature of the conflict."

XTOD: Eliminating the unnecessary is more powerful than automating the unimportant.

Daily Economic Update: November 18, 2024

The dissappointing spectacle that was Tyson v. Paul only added insult to a week that ended with an equity sell-off.  The downward move in equities was perhaps a response to a growing sense of “higher for longer”. Retail Sales data did little to dissuade an attitude that more rate cuts might not be as necessary.  Other data was decent, including a really strong Empire Mfg report.

There's still a good bit of discussion and debate around possible Trump economic policies, including tariffs.  John Cochrane had an interesting post reminding people that while he doesn't defend tariffs as a policy, he argues they do not, in and of themselves, cause inflation.  He poses this statement which is worth thinking about:

It is curious that many economists who bemoan Trump’s tariffs for their inflationary effect also want to raise corporate taxes. Corporate taxes are also passed along to consumers though higher prices. If tariffs raise inflation, so do corporate taxes! And if the revenue from corporate taxes (if there is any, after long-run Laffer effects) lowers inflation, so does the revenue from tariffs.

Sales taxes are paid by the seller. Yet everyone understands that sales taxes are passed along entirely to consumers in the form of higher prices. That tariffs work the same way should not be too hard to understand.

We start the week with the ATL Fed GDP estimate for the 4Q at 2.5%, at 10Y at 4.44% and the 2Y at 4.33%.  

The Trump pick for Treasury Secretary remains hotly debated in the media and social media, that will possibly be resolved this week.

I was going to summarize the week ahead but El Erian wrote this on X: This week, corporate earnings will attract a lot of attention in the global economy/markets, including Nvidia’s, Target’s, and Walmart’s releases. In a relatively light week for economic data, watch for  PMIs, UMich consumer sentiment, and existing home sales;   UK inflation, retail sales, and October budgetary gap; and  Eurozone PMIs and consumer sentiment. On the central bank front, expect many Fed speakers, the ECB’s financial stability review, and closely watched comments from Bank of Japan Governor Kazuo Ueda.

XTOD: His metaphor for what happened:"The left became like Imperial Stormtroopers—identical, programmed, no individual thought." "We became the ragtag Rebel Alliance - diverse, messy, but real.".....But Thiel warns: The real challenges are just beginning.

• Blue state bankruptcies loom 

• Student debt crisis exploding 

• Border chaos intensifying 

• Foreign threats multiplying

"The problems are harder than 8 years ago."

XTOD:  Correct. Economic theory predicts that tariffs will change relative prices. They will not create a persistent increase in the rate of change of prices, aka inflation. The puzzle, to me, is why the government budget deficit — currently running at 7% — has not — at least not yet — been reflected in domestic inflation.  The answer, I suspect, is because 30% of the dollar assets created by the Treasury are being soaked up by the rest of the world — largely China — and stoking a current account deficit. 

The 60k dollar question, is how much the Yuan/$ exchange rate will react to a 60% tariff. We have promised to repay China with pieces of paper. In exchange we have received a flow of consumer goods. That is about to end.  @JanJekielek @jeffreyatucker  @michaelxpettis  is worth following for anyone interested in this issue.  

If U.S. companies respond to the tariffs by repatriating manufacturing, and if the promised mass deportations of undocumented aliens occur, American workers may well end up better off. Wages may rise more than the cost of the consumption basket of the average worker contrary to recent claims from the Peterson Institute  @PIIE

XTOD: We live on a thin crust of solid rock, beneath which is vast ball of molten rock.   Earth’s core, which generates most of our magnetic field is ~85% iron and moves independently from the surface plates, which is why the magnetic pole changes position.

XTOD: Life hack - always be the one at work who sets up the meeting. That way if you completely forgot to prepare slides for the touch base in 45 mins, you can just say ‘pushing to next week to accommodate schedules’ and no one will question you. I do this like 3x a week

Daily Economic Update: November 15, 2024

Stocks fell yesterday.  The likely catalyst of the next market move is of course tonight's Mike Tyson v. Jake Paul fight.

In Fed-land.  Fed governor Kugler says Fed needs to pay attention to both sides of their mandates, implying inflation hasn't been firmly defeated.  Powell said he doesn't think "we need to be in a hurry to lower rates", which of course leads to questions as to why they started this rate cutting cycle with a 50bp cut.  When asked how and when we'll know if we hit the neutral rate, he ambigiously answered that the best way to find the neutral rate is by moving carefully and possibly slowing the pace of cuts.  He was asked, "why are we cutting rates?", his response was to "look at the labor market", that it's cooling and he stll still sees inflation's downward trend intact.  Overall Powell comments appear to be taken by the market as somewhat "hawkish".   

Powell combined with the data discussed below lead to a higher front end of the curve, the 2Y is 4.36% (up about 10bps on the week) and the 10Y up to 4.46% (up about 15bps on the week).

PPI came in line with expectations with services leading the way and core PPI slightly exceeding expectations. I’m always amazed when portfolio management services rise 3.6% as "Over one-third of the rise in the index for final demand services can be traced to prices for portfolio management, which advanced 3.6 percent."  The BLS definition of portfolio management is: 

"Price movements for this index are based on changes in the amount of revenue a mutual fund manager receives for providing investment advice. To track price movement for the index, data on management fees are collected. The management fee is most often based on a percentage of assets under management or a certain number of basis points."

Does this imply that rising portfolios are inflationary?  In other words if people are paying AUM fees and asset prices are rising, it seems like this portfolio management component rises.  Whether or not that has follow through to inflation, I guess is debated, but it touches on the "wealth effect" and "financial conditions". 

Irrespective, it reminds me of one of my favorite Charlie Munger talks on the "Febezzle":

Munger’s “febezzle” occurs when an investment manager earns compensation from the rising value of the assets under management during periods of rising asset prices. In his example, the asset manager receives the “wasted” asset management fees and other stock compensation from the investors as income, making them richer, and the investor, despite paying the asset management fees, also feels richer. Both parties believe they are “virtuously earning income” and can sustain spending from what they believe is income but is in reality spending from a “wealth effect,” which dissipates if asset prices decline. Munger went on to bemoan the impact “febezzle” can have on the misallocation of capital to unproductive projects and foolish spending which cannot support the continued increase in values, the fall of which led to real and long-lasting macroeconomic consequences once the “febezzle” starts to unwind. Munger’s advice: “when the financial scene starts reminding you of Sodom and Gomorrah, you should fear practical consequences even if you like to participate in what is going on.” 

In other data, despite continued announced layoffs the jobless claims data remains super benign. 

On the day ahead it's retail sales data as the highlight.

XTOD: I doubt Fed Chair Powell will do another interview like this anytime soon.  He struggled with some of the smart questions, often deflecting with historical explanations, and he confused the economics of different possible scenarios. His response to the question on a new monetary framework will likely leave many perplexed.

XTOD: Donald Trump picks Blackstone’s entire Real Estate Private Equity team as Secretary of Housing and Urban Development  

XTOD: US Investment Grade Credit Spreads have moved down to 0.77%, their tightest levels since July 1998.  US High Yield Credit Spreads have moved down to 2.61%, their tightest levels since June 2007.  Investors are reaching for yield and behaving as if there will never be another default cycle again.

XTOD: Charlie Munger: "No matter how wonderful [a business] is, it's not worth an infinite price. So we have to have a price that makes sense and gives a margin of safety."  "The reason that our ideas have not spread faster is they are [so] simple."

XTOD: "Each year Buffett is asked what’s the main difference between himself and the average investor, and he answers: 'Patience.'"  — N. Sleep

XTOD: This hits different in today’s hustle culture. Burnout isn’t about working long hours or pushing hard. It’s about working in systems that drain your soul. Quote by @adam_chal https://pbs.twimg.com/media/GcRJ-wyWIAAXGNO?format=jpg&name=900x900

Daily Economic Update: November 14, 2024

Inflation comes in right on the screws, but lest we lose track that with this reading, the YoY inflation rate is higher than it was a month ago, with food and shelter remaining sticky.  Airfare and used car prices were in the category of larger risers this month.  Initial reaction was lower yields as odds increased for a December rate cut, but yields ended up mixed on the day.  The 2Y is 4.29% and the 10Y is 4.45%.    Stocks were mostly flat with the S&P up slightly and Nasdaq lower, Bitcoin of course was higher.  

The NY Fed quarterly report on consumer and household debt was out and the conclusion drawn by NY Fed researchers is that while debt levels are at all time highs, the debt to income levels have been falling and deliquency rates all are indicating these debt values are manageable

.

In Fedspeak, Lorie Logan, cited risks around fully acheiving their dual mandate goals as: 

"But I am paying particular attention to three that, in my view, pose the largest potential challenges for monetary policy in the months ahead.

One, unexpectedly strong demand or negative supply shocks could keep inflation above the FOMC’s 2 percent goal.  Two, tightening financial conditions could trigger a rapid deterioration in the labor market. Or, three, financial conditions could ease too much if the neutral interest rate, the theoretical level that would neither slow nor accelerate the economy, proves to be higher than expected."

To me two of Logan's three concerns point to risk around higher inflation, not lower.

In politics you have Team DOGE, whose actual status and ability to do anything within the government remain a bit vague as Trump continues to round out his appointments.   Howard Lutnick, the Cantor Fitzgerald CEO is a name that is rumored to be in the mix now for Treasury Secretary.  Lutnick is apparently fond of crypto as Cantor acts as custodian for Tether's UST portfolio.  And Republicans officially retained control of the House.

We'll get PPI and more Fedspeak, including Powell on the day ahead.

XTOD: My only crypto take is that if you don’t find some of it incredible you’re not paying attention, and if you don’t find most of it absurd you’re not paying attention, and you could say the same thing about most new industries.

XTOD: The idea that Trump's program -- cumulatively bashing the Fed, raising tariffs, sending workers home, bloating budget deficits -- the idea that it is a highly inflationary program generates about as much consensus among people who follow economics as any proposition I can remember in the past 40 years.  @CNN @KateBolduan https://youtu.be/vUpudX_cFoo?si=HTJDKTf9OGEI191V via 

@YouTube

XTOD: The FBI seized the Cell Phone and other Electronic Devices of Polymarket CEO Shayne Coplan today, during a Search Warrant on his Home in New York City. Coplan was not Arrested during the Raid, with a Source close to him calling it “Grand Political Theater at its Worst.”

XTOD: The business community is giddy with excitement about the @realDonaldTrump

 administration. I am hearing this from everyone, including from people who didn’t vote for Trump. 

Business confidence is a self-fulfilling prophecy. Business leaders are becoming more confident about the country and the economy. This means they will be making more investments in our future which will drive the economy and the stock market, reducing the cost of capital and bolstering confidence further, catalyzing more investment and more growth in a self-reinforcing, virtuous cycle. 

Merger and acquisition activity is about to explode as there are an enormous number of deals that have been deferred pending a more favorable regulatory environment for transactions. M&A will drive efficiency, greater profitability and growth. It will also enable the return of capital to investors who will seek to redeploy their profits and proceeds in new investment opportunities. 

The DOGE and deregulation will drive government efficiency and make America a vastly better and lower-risk place to do business efficiently and effectively. 

I am also hearing about non-US companies that are desperate to immediately create a presence on U.S. soil. They are frightened to be locked out of the most important economy in the world. They will build factories and make new investments here to avoid the risk of tariffs and because they don’t have a better place to invest capital. 

China’s economy is in trouble. Europe’s is a mess. The U.S. has now become by far the best country for investment. 

Growth is about to explode.

XTOD: The irony of ‘work-life balance’ is that you spend all your work time thinking about life and all your life thinking about work.

Daily Economic Update: November 13, 2024

Some of the Trump trade rally took a breather yesterday as yields rose after returning from the day off.  It was the first down day for equity indexes since the election.  The dollar continued to rally, nearing a 2 year high with tariffs and rising yields cited as the catalyst for the move.  The 2Y yield rose to 4.35% and the 10Y to 4.43%.

We learned yesterday that former NBA great Scottie Pippen is a psychic, having predicted back on September 3 via a dream in which Satoshi appeared to him, that Bitcoin would cross $84K on November 5th.  Of course the move in Bitcoin of late has led to a treasure trove of comments and memes of late.  I've seen more than a few images of copies of The Intelligent Investor getting thrown in the trash and of investment bank analyst working 90 hours only to be surpased by crypto degens, etc.  We'll see how Pippen's latest comments age: "Bitcoin in 2024 is giving me flashbacks to the Bulls in ’91… a dynasty just starting. Get ready for what’s next."

In Fedspeak we had Barkin described the economy as "in a good place" buoyed by a discerning consumer and productive labor force.  He believes policy is restrictive and the Fed is well positioned to respond to any challenge that may come along.   Gov. Waller's speech and Q&A was focused on fintech and didn't expressly touch on anything related to monetary policy.

In other Fed tangent news, the NY Fed Survey of Consumer Expectations showed very slight softening in inflation expectations, with the year ahead inflation expectation falling to 2.9%, the first time below 3% since late 2020 I believe.  Labor market conditions continued to be faily well regarded in the survey. 

Much focus also remains on Trump appointees with the pick for Treasury Secretary expected soon, an appointment where hedge fund billionaire, John Paulson, has pulled his name from consideration.  Scott Bessent, an investor involved in George Soros and Stan Druckenmiller's famed GBP short trade that "broke the BoE" back in 1992 is currently considered the most likely appointee, but we'll see.

CPI is the highlight of the day ahead, consensus expectations are for a YoY increase of 3.3% on the core inflation component and 2.6% YoY increase in headline.

XTOD: “Hey, that Bitcoin sure is climbing fast!  Me? No I can’t buy into it, I have all my money parked in low cost index funds and a high yield savings account earning 4.20% APY”

XTOD: imagine putting in 16 hour days doing research only to underperform scottie pippen trading off visions that came to him in a dream

XTOD: MSTR borrows money and issues shares to buy more #Bitcoin. As a result, the price of Bitcoin goes up, which causes the price of $MSTR to increase, allowing it to borrow more money and sell more shares to buy even more Bitcoin. Wash, rinse, repeat—what could possibly go wrong?

XTOD: Accumulating Concerns.... Bottom Line So we have an overbought on the S&P Oscillator (near 3.5%), a Woodstock-like drug festival in Tesla  ($TSLA)  and Nvidia  ($NVDA)  0DTE call options, sky-high price-earnings multiples, near universal investor bullishness, evidence that the post-election breadth thrust might be over (look at today's 2-1 negative breadth),  ($RSP)  (equal weighted S&P) -0.86% and  ($IWM)  (Russell Index) -1.67%)... and now bond yields starting to break out to the upside.  Not a word of these concerns on the "shows."  What, me worry?

XTOD: The things that matter most never come with a price tag. If lost, no amount of money in the world can restore them.

Daily Economic Update: November 12, 2024

It’s all about the digital benjamins I guess.  Wonder if Diddy can remix “digital” in from the slammer? 

Crypto and all things Tesla continue to look like clear post-election winners. Away from the obvious "Trump Trades", private prisons had a nice pop following Trump naming Tom Homan as his “border czar”. Meme stocks also rallied because why not. Must be that restrictive Fed policy that needs further loosening.

Outside the U.S., Chinese data continues to stink and there has been little in the way of fresh news out of the Middle East.

In the background the debate rages on regarding U.S. debt levels, taxes, growth and the like, but for now optimism in structural reforms and growth are taking the lead in markets (or at least it seems).

On the day ahead it's Fedspeak led by Gov. Waller.  Remember record highs on stocks, record highs on Bitcoin, the Dollar is actually performing well and 2Y at 4.25% and 10Y at 4.30%, you're all caught up.

XTOD: Somewhere some hedge fund is justifying to their LPs why they’re down 10% while the market is ripping

XTOD: “total dollars spent on compute will exceed spend on crude oil in the next 10 years,” he said. “Does that mean that compute becomes the largest commodity in the world? I think that reasonable.” https://t.co/sxkhxRyN5d

XTOD: Bernstein ($800 billion AUM) just put out their Monday morning note to clients:  “Welcome to the Crypto bull market. Buy everything you can. Don’t fight this – add crypto exposure asap.”  Stage 3 really is upon us.

XTOD: What you’re feeling isn’t a temporary high - it’s the relief from the crushing burden of the state, which was getting heavier by the day.

XTOD: The amount of cash flowing into ETFs is ridiculous, about $12b/day for the past week (normal is $3-4b). And it's basically all risk-on: $SPY, $QQQ, $IWM, $MTUM, $HYG, $XLF, $IBIT..  Also +$154b in 1M is unprecedented. YTD now $881b, 97% of way to breaking record, $1T in sight..

XTOD (conclusion from good thread on trade): I would argue however that we have very little experience in the world of free trade because in that world, countries have balanced trade accounts as they export products in which they have comparative advantage in order to import products in which they don't.  The system in which we live today, however, is almost a classic beggar-thy-neighbor trading system in which countries compete by preventing the income of workers and households from rising in line with productivity. It is a formula for rising inequality.

XTOD: Steve Jobs on the most important job of a CEO 

“The greatest people are self-managing. They don’t need to be managed. Once they know what to do, they’ll go figure out how to do it… What they need is a common vision, and that’s what leadership is. Leadership is having a vision, being able to articulate that so the people around you can understand it, and getting consensus on a common vision.”

Steve continues:

“We wanted people who were insanely great at what they did… and the neatest thing that happens when you get a core group ten great people is that it becomes self-policing as to who they let into that group. So I consider the most important job of someone like myself is recruiting.”

Daily Economic Update: November 11, 2024

Stocks at fresh all time highs, coming off the best week of the year. We start the week with the bond market closed for Veteran's Day.  As we start the week, #endthefed gained some traction on social media with endorsement from Elon.  

I'll keep it short.  To start the week the 2Y is 4.25% and the 10Y is 4.30%.  Despite Powell not being willing to speculate on policies that haven't yet been enacted, Minneapolis Fed Pres Kashkari expressed some concern around tit for tat tariff wars having an impact on inflation.

On the week ahead we get a CPI report on Wednesday and retail sales on Friday. 

Today: no data

Tuesday: Fed Waller and other Fedspeak

Wed: CPI, Fedspeak

Thur: PPI, Powell speech,  Fed Williams

Fri: Retail Sales

XTOD (long thread on the Fed): But Wall Street has an addiction to speculative investments and demands lower rates, while the narrative is that the economy is doing well. When no average worker can afford a home without going deep in debt, this is an elite, high inequality economy. 7/n..The Fed is the main actor fueling the speculation, and inequality, and the proof is in their "transitory" narrative a while back. 9/...The current Fed scheme is outdated and elitist. It assumes that the objectives of banks and large corporations match those of labor. 10/n...Conclusion: I don't expect a shift to pro-labor policies but instead a continuation of pro-capital policies and higher inequality until workers realize they have been fed hopes and dreams by political actors from all sides. The Fed must be reorganized to focus on labor. 12/12

XTOD:  "It’s a race between technology-driven abundance and government-driven poverty." 

• Governments rarely make things better  • They're terrible at spending • And they go into huge debt

The government isn't going to save you. Save yourself.

XTOD: Let's start with my long term basic point that should be where you stop reading this thread and go about building your wealth through your profession.    Owning a long only diversified portfolio of assets (what I call beta) is free money.  And should be your ONLY investment strategy to build your savings   That is MY CALL.  It will always be my call and anything I write on Twitter or at DampedSpring or 2GrayBeards is an order of magnitude LESS important that this CALL 

Why?  Because any deviation from this plan requires market timing or identifying those who can. It requires an investor to underweight or go short or overweight and leverage in order to outperform MY CALL. 

XTOD: The money supply is not currently in the hands of the central bank, for those unaware of this fact....They set the overnight interest rate. They do not in any way control the supply of money. Textbook nonsense. 

XTOD: Zen and the Art of Motorcycle Maintenance, what a paragraph...https://pbs.twimg.com/media/Gb37hLdWgAAixZC?format=jpg&name=900x900