Daily Economic Update: December 17, 2024

Apollo's Slok warns of higher rates in 2025 and the risk that 2025 will be a repeat of 2022 where both stocks and bonds performed poorly.  Not everyone agrees obviously, after all differences of opinions make a market.

Yesterday's Empire Mfg survey, which is always volatile in my opinion, was weaker than expected with falling new orders, shipments and employment.  In S&P PMI data the services sector looked good and manufacturing weaker...I think the U.S. is described as a service based economy, so I guess this is good.

Stocks mostly up, at least the techy ones that matter, market breadth is terrible and the Dow is on an eight day losing streak.  Yields were up too. The 2Y is 4.26%  and the 10Y is 4.40%.

What does the data matter anyway when Bitcoin is around $110K and Microstrategy is you know doing some arb (or con?).   China's economy seems broken, or broke, I'm not sure.  Brazil appears to be in bad shape too. Does anyone even temember BRICs anyway (it was coined by Goldman in 2001) ?  And we still don't know much about these drones, are they sniffing for nuclear material, who knows.  Drones aren't stopping Masa Son from reportedly looking to invest $100 billion in the U.S. over the next 4 years.

On the day ahead it's Retail Sales, Industrial Production, 20Y Auction.

XTOD: Powell is (again) trying to find the right gear for monetary policy amid signs the labor market is less wobbly and inflation is a touch firmer than they appeared in September.   He faces misgivings from some colleagues over continuing to cut and less conviction from others who strongly backed those first two moves.   Given current market expectations of a cut, the path of least resistance would be to cut by a quarter point, and then use new economic projections to strongly hint that the central bank is ready to go more slowly on the reductions.  Full story (no paywall in the link) has more details on the delicate steps officials took to arrive at this point: https://wsj.com/economy/central-banking/fed-interest-rate-cut-outlook-2025-657e718a?st=U6AjWz&reflink=desktopwebshare_permalink

XTOD: The way I like to put it is that my job is to say the same few things 50-100 times a year, but do so without either my editors or my readers noticing that I’m repeating myself.   It’s harder to do than it sounds, though.

XTOD: You must understand the following: In order to master a field, you must love the subject and feel a profound connection to it.  Your interest must transcend the field itself and border on the religious.

Daily Economic Update: December 16, 2024

FOMC week starts with the major indexes on a losing streak and bond yields having recently crept back a little higher off their lows.  Nonetheless the cake is baked for a 25bp cut this Wednesday.  We'll get BoE and BoJ in the mix as well to make this week truly a holiday treat.  In less of a holiday treat, S. Korea impeached their president following the recent attempted maritial law debacle. 

Of course investors are still excited about a deregulatory push, low taxes, and generally pro business policies, along with a Fed that is likely to have their back in 2025.  There is seemingly less concern about "frothy valuations" despite valuation metrics putting the current market on par with other "bubbles" in hisotry.  Time will tell.

Beyond that drones and nobody watches the NBA this year.  

On the week ahead:

Monday: S&P PMI's

Tuesday: Retail Sales, Industrial Production, 20Y Auction

Wednesday: Building Permits, Housing Starts and FOMC

Thursday: BoE,  3Q GDP Final read, Jobless Claims, New Home Sales

Friday:  PCE, UofM

XTOD: Michael Saylor's $MSTR is added to the Nasdaq on December 23rd.  Meanwhile, Interactive Brokers CEO is warning about a massive margin call on Bitcoin loans...  This is the perfect storm.

XTOD: ZIRP and “passive flows” are I think the two most overrated phenomena of the last 15 years. I think basically any story about markets since the GFC has to start (and probably end) with the extraordinary realized earnings growth of a handful of gigantic tech companies.

XTOD: Starting a company is awesome if you want to feel like a piece of shit one day and king of the universe next day and just keep alternating back and forth forever and ever

XTOD: In any case, the idea that spreads matter more than levels seems like an important idea. Same idea holds for the yield curve. A Friedman rule for the yield curve would likely argue for a flat yield curve most of the time.

XTOD: Love this insight from John Bragg on keeping costs low.  "It’s a fact that a low-cost producer can become a great marketer. The easiest profits come on the cost side. A dollar saved in expenses goes directly to the bottom line. We have a saying that goes like this: “You cannot sell your way to prosperity.” By this I mean—don’t try to fix the problems by sales alone. Get the operations fixed and then work on sales."   My episode on The Knowledge Project Podcast with Bragg is one of the most listened to in 2024!

XTOD: “When you go through life with preferences but don’t let your happiness depend on any one of them, then you’re awake.” — Anthony de Mello

Daily Economic Update: December 13, 2024

I wrote this entry while trapped in a NYC subway, contracting bird flu, while examing pictures for evidence of unibrow or no unibrow, while checking the value of my Hawk Tauh coins and being spied on by a drone. 

Central banks cut rates cause that's what central bankers like to do: the ECB cuts 25bps as expected, with Lagarde signaling future cuts, but with no major urgency while growth is forecast slower. SNB surprised with a 50bp cut bringing their rate to 50bps while indicating further cuts could be possible.

Stateside PPI comes in at 0.4% MoM, double the consensus estimate, while the "core" was lower, things like goods and food remained hot and the trend in PPI isn't going the direction the Fed wants.

Jobless claims came in above expectations.

Heading into a near holiday Friday we had stocks down and yields up.  The 10Y reclaimined 4.30% up to 4.33% while the 2Y hit 4.20%.

XTOD: Ackman: "We're stepping into the most pro-growth, pro-business, pro-American administration I've perhaps seen in my adult lifetime."

XTOD: Watch Steve Liesman squirm as he realizes the BLS is finally publishing catch-up inflation data now that the election is over:

XTOD: OH: "We were promised flying cars, and all we got was a large-scale alien drone invasion in New Jersey."

XTOD: I’m so glad that I made the right financial decision in 2018 and ditched my $89/mo cable package so that I can now pay $83/mo for YouTube TV, $23/mo for Netflix, $16/mo for Disney+, $13/mo for Paramount, $15/mo for Prime, $10/mo for AppleTV, and $21/mo for HBO

XTOD: He was contented because he was wealthy, and wealthy because he was contented. 

- Russell Herman Conwell (Acres of Diamonds)

Daily Economic Update: December 12, 2024

Yesterday's inflation print was described with terms like "warm" and "sticky".  Lodging and used car prices were the risers while OER finally showed some signs of softening and the markets initial reaction was to send yields lower and stocks higher.  The 10Y Auction went swimmingly with the highest bid to cover in history reportedly, though yields eventually backed up some post auction.  We head into today's PPI print with a 2Y at 4.16% and the 10Y at 4.27%.  Probability of a 25bp Fed cut next week hover around 90%.

Nasdaq 20k for the first time as quantum computing propels Alphabet and AI propels everything else. Bitcoin crossed 100k again as I guess quantum computing breaking encryption isn’t a concern, although as some have pointed out it’s equally concerning for traditional finance…problems for another day I suppose.

Up in Canada they cut 50bps bringing their benchmark rate down to 3.25% while signaling they may not be cutting much more and of course some concern over the impact of the incoming U.S. adminstration.  We'll see what the ECB has to say today as they are expected to cut 25bps.

On the day ahead it's the ECB and PPI.

XTOD: Inflation came in a touch above expected, with core CPI at an annual rate:

1 month: 3.8%

3 months: 3.7%

6 months: 2.9%

12 months: 3.3% 

The last mile is proving very, very stubborn.   Core CPI up 3.7% (annual rate) over the last 3 months. That is at the 98th percentile of performance from 1992-2019.  You can make excuses about noisy factors. But there were a lot of 3 month periods during those decades with noisy factors too--but only 2% got above this.

XTOD: Nomura Securities, for example (Japan's stock brokerage Goliath) issued a report just before the market peaked on Christmas day 1989 explaining how Japan's insane PE ratios were perfectly rationale. Then "pop!": The Nikkei took over 30 years to regain that peak.....So be warned: "commeth the hour, commeth the man". Or in our current financial market asylum: "commeth the bubble, commeth the bullshit". Most Wall Street practitioners are well-paid tarts. If you want to feel better buying Nasdaq up here, they will help you with that.  But be warned: having slept with these Wall Street tarts, one morning--in the not too distant future--you will wake up full of remorse, self-loathing and a financial STD.

XTOD: It’s still beyond unfathomable to me that these NFL teams are voluntarily passing on the greatest football coach to ever live because he has a method that works better than theirs and they can’t learn it or choose not to try to. UNC’s gain.

XTOD: Text a coworker at a random time “are you joining this meeting?” as a fun holiday prank

XTOD: Do not confuse things that are hard with things that are valuable.  Many things in life are hard. Just because you are giving a great effort does not mean you are working toward a great result.  Make sure that mountain is worth climbing.

Daily Economic Update: December 11, 2024

Inflation data begins with CPI today, with estimates for YoY core inflation at 3.3% and headline ticking up to 2.7%.  Stocks have been little changed to down ahead of CPI.  Small business seems opitimistic adding to post-election data sets that show solid expectations for 2025.  The 3Y note auction tailed slightly with weak indirects.  Heading into CPI, the 2Y is 4.16%, the 10Y is 4.22%.

In Asia, Chinese record low yields are in place despite Monday’s stimulus announcement. The stimulus headlines kind of remind me of Evergrande headlines that were seemingly recycled for 2 years (more?) as the real estate market collapsed.   Also in APAC, the RBA held rates, though indicated a case for cutting rates in February, of course dependent upon the data.

You don’t have bird flu yet, so that’s good.

CPI is the highlight and the 10Y auction is also on the docket.  If you're into Canada we get a BoC decision too. 

XTOD: A smaller share of Americans moved in 2023 than ... ever.  New from @uscensusbureau

 at https://census.gov/data/tables/2023/demo/geographic-mobility/cps-2023.html

XTOD: "SpaceX Share Sale Values Company at About $350 Billion  Tender offer includes $1.25 billion of stock at $185 a share. " Bloomberg  Employee liquidity FTW!

XTOD: US TREASURY SECRETARY YELLEN: I AM CONCERNED ABOUT FISCAL RESPONSIBILITY, DEFICITS NEED TO BE BROUGHT DOWN......a parting gift? You can't make this **** up!

XTOD: Bitcoin has totally lost its way. The purpose of Bitcoin "A Peer-to-Peer Electronic Cash System" as Satoshi Nakamoto designed it was for a stateless, decentralized, permissionless payment mechanism that was capable of scaling to VISA-level transactions that were cheap enough to support both sub-cent micro-payments as well as large payments. This is the true value proposition as widespread adoption of payments through this system would literally free people from both the banking system and some degree of government coercion while it's fixed scarcity would also limit the #inflationary monetary malfeasance common with central banks. Nowhere in the Bitcoin whitepaper is it mentioned that Bitcoin was intended to be HODLed by a very few in order to drive the price up so that then, financial con-artists like @saylor  could bamboozal the world through reckless financial engineering. Nowhere in the whitepaper was it mentioned that it would be really great for Bitcoin to "go to the moon" after retail investors used  @BlackRock  ETFs to access only the price of Bitcoin without any possibility of custody of their own Satts. Nowhere in the whitepaper is it mentioned that there was no real way for it to scale (because of artificial block size limits) and therefore in order for Bitcoin to actually empower transactions for all, we would need some diminutive technology ignorant anarcho-gobblin like @jackmallers  to come along and create a new layer that somehow, magically would make good on the promise of global cheap transactions at scale. All we are seeing today is a massive speculative orgy with almost no real adoption and certainly no hope for the true vision of Satoshi Nakamoto.

XTOD: Stop trying to be spectacular. Start being consistent. https://pbs.twimg.com/media/GecX55RXUAARhIQ?format=png&name=900x900

Daily Economic Update: December 10, 2024

Today's post was written while large unidentified drones surveilled my laptop...add that to your 2024 bingo card.

Equity markets traded lower as news of Nvidia being under investigation for monopoly by China seemed to dampen the mood.  Bond yields rose slightly as oil continued to trade higher on the back of middle east instablity.  The 2Y is 4.13% and the 10Y is 4.20%, both relatively range bond as we approach inflation data and major central bank decisions over the next week. 

With Nvidia in the news, relating to AI, I thought this was an interesting take from Marathon Asset Management's podcast The Capital Cycle Podcast. The guest, Kai Chen, provided the following: 

"I always think in the technology world, in the semiconductor world, there is Moore's law and then in AI there is the scaling law.  And at Marathon we have the law of capital cycles, which suggest excessive investment is often followed by poor returns.  And I think this is kind of what we are observing.  There is a huge amount of investment fueled by the idea that the scaling law will continue.....but if the scaling law starts to slow down, then what we are going to end up with is massive overcapcity."

In economic "data", the NY Fed SCE was out and generally showed optimistic consumers who are increasing their inflation expectations at all horizons.  While inflation expectations rose, so did uncertainty about inflation.  In general consumers think they'll keep their jobs and get paid more in the coming year.  These two summary points might tell you all you need to know about where we are in terms of risk perception in the economy:  The share of households expecting a better financial situation in one year from now rising rose to its highest levels since February 2020, while the share expecting a worse financial situation fell to its lowest level since May 2021. The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 1.3 percentage points to 40.4%.

Within economics, I always enjoy economist Allison Schrager and her latest piece she expresses concerns that the economy might not fully grasp what a prolonger period of higher interest rates after such a prolonged period of low interest rates.  She calls out recent homebuyers using ARMs and Private Credit as two areas of potential concern.  She concludes her section of concerns with this: 

"On a related note, the push to get more retail investors into private assets needs to stop. I’m not against private markets—they provide value and have a role in institutional portfolios. But private equity and credit have likely grown beyond optimal size, another byproduct of near-zero rates. Shrinking them back to size might create challenges."

Away from markets, though tangental I suppose, there is a suspect in custody in the murder of the United Healthcare CEO Brian Thompson.  The suspect is a 26 year old as was reportedly carrying a three-page document which suggests, “He seems that he has some ill will toward corporate America,” police said.  In addition it appears he was a fairly recent graduate of UPenn.  The closest historical account that comes to mind as a parallel to this sort of vitriol toward corporate executives is the attempt on the life of "robber baron" Henry Clay Frick of Carnegie Steel back in 1892.

Further afield you have Jay-Z now firmly entangled with Diddy via allegations filed in court...just mentioning so you don't have to hear about geopolitics in this post.

Speaking of entanglements, have you ever heard of "quantum entanglement"?  It's over my head, but quantum entanglement is the backbone of quantum computing.  Google made some announcements in quantum computing with a chip called "Willow"  I don't know enough but does this mean crytpo won't really be secure?  

3Y Note sale is the highlight today.

XTOD: Me waking up my 8 year old son tomorrow at 4 am to hit the batting cages after Soto got $750 mil.

XTOD: Luigi Mangione, the champagne antifa loser who attended Penn and the $40k-a-year private Gilman prep school before murdering Brian Thompson in New York last week, appears to be a beneficiary of the vast Mangione family real estate empire in Baltimore founded by his grandfather.  Among other Mangione family assets in Baltimore that supported Luigi's expensive private education were the Lorien Health Services chain of nursing homes, the Turf Valley Resort, the Hayfields Country Club, and numerous other holdings of real estate, hotels & radio stations.

XTOD: A record $140 billion pumped into US equities since the election, dwarfing any other time (Source: FT).  Huge incremental demand (this money must be used to buy stocks) + Limited supply (few are selling) = Stock prices go up. Ceteris paribus, it’s just how it works.

XTOD: If you're hungry but too lazy to prepare healthy food, you'll consume junk food. If you're hungry for knowledge but too lazy to seek out the truth, you'll consume misinformation.

XTOD: Time is money but money is not time.

Daily Economic Update: December 9, 2024

"I survived the Hawk Tuah meme coin crash of 2024".  If you're interested in a T-shirt, feel free to post a comment.   

Will Buffett and Munger's critiques of Bitcoin and other cryptocurrencies which they variously described as "rat poison squared", comparing them to "some venereal disease" and "trading turds" while lamenting that the whole industry is "disgusting and contrary to the interests of civilization", prove valid?  I guess time will tell, but I'm pretty confident Hawk Tuah's coin won't be the last collapse (fraud???) we'll see this cycle.

Friday's Payrolls headline was +227k, with October and September both revised higher.  The unemployment rose to 4.2% largely driven by new entrants to the labor force.  Average hourly earnings rose and remained robust at 4.5%.   Debate still exists around the impact of immigration and the birth and death of businesses in the data. Nonetheless the data seemed solid.   Away from jobs data, the UofM was very strong with a surge in the current conditions component along with some increasing in inflation expectations.

With labor data out of the way the focus will move to this week's inflation data as the Fed enters blackout before their meeting next week. 

Away from economics, the Tik Tok ban was currently upheld creating some uncertainty for the future of ownership of the platform and operations in the U.S. by mid January.  As of the time of this writing the shooter of the United Healthcare CEO remained at large with search shifting to Atlanta due to tips. In geopolitics, Syrian President Assad resigned and fled the country.  Trump has urged the U.S. to stay out of Syrian affairs.  You generally know the other major geopolitical and political topics, so no need to rehash.

On the week ahead the highlights are:

Mon: Inventories, RBA rate decision

Tue: Small business optimism and productivity

Wed: CPI,  Bank of Canada Rate Decision

Thur: ECB Rate decision, PPI, jobless claims

Fri: Import Prices

XTOD: Bottom line: another unclear report w/ strength in one survey & weakness in the other. I would make wage growth the tie breaker and it has unambiguously been strong. Some may be catch up from poor performance earlier but also bolsters case for last mile / no landing scenario....Back to the big picture, employment  and jobs remain well above pre-pandemic forecasts. This is mostly the inflow of immigrants.

XTOD: The almost 400k decline in household survey employment came from private sector. The 785k boost in government employment from September which we trace to election has not yet reversed. That is to come.

XTOD: Weekly hot takes:

1. Whoever was short mid cap SaaS got blown out 

2. Risk is mispriced -> I was really close with Eric Sheridan when he was at UBS and no one knew him. We use to have a “hot tub scale”. How many people were in the hot tub? I can firmly say … this markets hot tub is completely full 

3. We are no where near prior cycle highs in Bitcoin vs MAG7. Something to watch. Different this time?

4. AI continues to split into subsections. AI Datacenter. AI Energy. Now… AI Agenttech factor needs to be added to risk models 

5. APP is now $150bn cap 

6. ACHR is up +140% in 20 days 

7. ARKK smoked Value 

8. People ignored all FED talk this week

9. I got pitched degenerate meme coins in the gym by some anon (to be fair they didn’t know what I did) which makes even funnier 

10. Levered ETFs are at historical high inflows and capital while puts and skew at 100 yr lows

XTOD: Former Milwaukee Bucks owner Marc Lasry says he is actively trying to buy college football and basketball teams. Lasry says certain colleges could sell a 51% stake in their teams at a $500M to $750M valuation and then use that money for NIL and facility upgrades.  Crazy times.

XTOD: Bitcoin was also created out of thin air.  Here's an old post (also created out of thin air): https://andolfatto.blogspot.com/2011/03/out-of-thin-air.html

Daily Economic Update: December 6, 2024

Jobs Day in 'merica.  Markets estimate 214K increase in the headline number, but the end of strikes and waning imapct of hurricanes seem to be justifying a higher "whisper number".  

BTC 100K is all the rage.  Remember when about two months ago the HBO's documentary "Money Electric: The Bitcoin Mystery" was going to unveil Satoshi and change the world?  Maybe it did.  Anyway it still feels somewhat incongruent to me that people measure Bitcoin wealth in Dollars and still largely go through large intermediaries to transact and exchange their Bitcoin back to spendable currency.  I don't know if I'm correct, but when it comes to crypto I find it paradoxical that so much of crypto is reliant on systems it allegedly seeks to disrupt, including large intermediaries, even moreso now with crypto ETFs.  We also tend to overlook the fundamental reliance cryptocurrencies have on stable electrical grids, internet and much of the modern technology infrastructure, including compute. Human behavior seems be largely timeless, greed, fear, etc. and it will be interesting to see if crypto can defy the odds that prevail in history, such as the fact that when large institutions start to profit massively from something, that tends to led to centralization, rarely decentralizing.  Time will tell if this time will be different and the original aspirations of Bitcoin can come to fruition.

In data, jobless claims rose, but remain benign. Away from data we got a new post from Roaring Kitty on X, with some fake Time Magazine cover picture that some speculate might be related to Google. Major stock indexes fell and bond yields were little changed.  We head into Jobs with a 2Y at 4.15% and a 10Y at 4.18%

In international news, Macron faces calls for resignation, as the government collapses, but he vows to stay in office and name a new PM soon.  However, with both ends of the political spectrum largely aligned against Macron is likely to make for an interesting next several days and weeks.   We also still don't know what happens next in S. Korea.

Closer to home we had an offshore earthquake that originally sparked short-lived tsunami warnings for parts of northern Cali and Oregon, there were no initial reports of major damage.  As of the time of this writing, the assassain of United Healthcare's CEO remains at large, with the police providing that shell casings contained the words “deny,” “defend” and “depose” which are phrases associated with criticism of the health insurance industry's reputation of denying services and payment.

On the day ahead it's all about J.O.B's.

XTOD: “Hawk Tuah girl released a shitcoin and scammed her audience? That could never be me, I’ve got my money in low cost mutual funds and T-bills earning a stable coupon”

XTOD: JOHN WALSH: "I don't think the shooter was a pro. I never came across a really good pro, because if they were a good pro, you wouldn't know. A real pro would have worn sunglasses. His gun was half-assed probably built off of YouTube. Someone may have paid him, but you never know when people are hurting. This company hurt a lot of people, so it may be someone out of control who knows someone who died."

XTOD: There ain't no such thing as a free Strategic Bitcoin Reserve free lunch: the BITCOIN Act's plan for financing such a reserve will actually add _more_ to our nation's debt burden than if the Treasury financed the purchase through outright borrowing.

XTOD: Jeff Bezos: “Thinking small is a self-fulfilling prophecy” 

Bezos is asked where he gets the confidence to even attempt to build companies of such massive scale, like Amazon and Blue Origin.

He responds:  “I think it’s generally human nature to overestimate risk and underestimate opportunity. And so I think entrepreneurs in general would be well-advised to try and bias against that. The risks are probably not as big as you perceive, and the opportunities may be bigger than you perceive… You say it’s confidence, but maybe I’m just accepting that human bias and trying to compensate against it. The second thing I would point out is that thinking small is a self-fulfilling prophecy.”  Video source:  @nytimesevents  (2024)