Daily Economic Update: February 7, 2025

Jobs Day in ‘merica.  Consensus estimates call for a headline over somewhere around +170K with the unemployment rate remaining at 4.1%.  The report will also provide benchmark revisions.  Closely watched will be weather, including wildfire related impacts.  Anyway, always good to remember that the headline number comes from the CES/Establishment Survey while the unemployment rate and labor force participation rate come from the Household Survey which is derived from census data.

Jobless claims rise slightly to 219K, increasing the 4-week average to over 216K.  The nonfarm productivity data was largely in-line with estimates, but showed some increases in per-hour compensation in Q4 relative to Q3, despite overall unit labor cost falling slightly below estimates.

Well, the Old Lady, the BoE, cut 25bp to 4.50%, though it wasn't unanimous as Mann and Dhingra wanted to go bigger with a 50bp cut. Seems like they're going to take it slow and steady with a "gradual and careful" approach to easing, but with some different views on the outlook, so who knows.

In markets the S&P 500 ended up at 6,080. The 2Y is 4.22% and the 10Y is 4.44% heading into Jobs day.  After the bell Amazon’s earnings were considered solid, but the guidance was considered disappointing as they sided headwinds due to FX. Like other major tech companies they are planning to spend a ton on capex related to AI.

The start of the year reminds me of “How To Look For Bird Poop”.  You don’t know how to look for bird poop? 

How To Look For Bird Poop is the title of Chapter 11 of Nassim Taleb’s book “The Black Swan”, it is a chapter that criticizes rigid planning because it fails to capture that so much of the world is random, serendipitous and ruled by the impact of events that compound in unfathomable ways.  Taleb would advocate in favor of flexibility and adaptability in order to navigate an uncertain world. Here is one of my favorite passages from that chapter:

“In the summer of 1998 I worked at a European-owned financial institution. It wanted to distinguish itself by being rigorous and farsighted. The unit involved in trading had five managers, all serious-looking (always in dark blue suits, even on dress-down Fridays), who had to meet throughout the summer in order “to formulate the five-year plan.”  This was supposed to be a meaty document, a sort of user’s manual for the firm. A five-year plan? To a fellow deeply skeptical of the central planner, the notion was ludicrous; growth within the firm had been organic and unpredictable, bottom-up not top-down. It was well-known that the firm’s most lucrative department was the product of a chance call from a customer asking for a specific but strange financial transaction. The firm accidentally realized that they could build a unit to handle these transactions, since they were profitable, and it rapidly grew to dominate their activities.

  The managers flew across the world in order to meet: Barcelona, Hong Kong, etc. A lot of miles and a lot of verbiage. Needless to say they were usually sleep-deprived. Being an executive does not require very developed frontal lobes, but rather a combination of charisma, a capacity to sustain boredom, and the ability to shallowly perform on harrying schedules. Add to these tasks the “duty” of attending opera performances.

The managers sat down to brainstorm during these meetings, about, of course, the medium-term future - they wanted to have “vision.” But then an event occurred that was not in the previous five-year plan: the Black Swan of the Russian financial default of 1998 and the accompanying meltdown of the values of Latin American debt markets. It had such an effect on the firm that, although the institution had a sticky employment policy of retaining managers, none of the five was still employed after the sketch of the 1998 five-year plan.

Yet I am confident that today their replacements are still meeting to work on the next “five-year plan.” We never learn.”

So why is the Chapter about bird poop? Well there is a story about Bell Labs and the discovery of cosmic microwave background radiation—essentially the afterglow of the Big Bang.  Penzias and Wilson were working on a radio antenna at Bell Labs when they kept encountering an unexplained noise in their data. They initially thought it was interference caused by pigeon droppings (bird poop) on the antenna. After cleaning it multiple times and ruling out other sources, they eventually realized they had stumbled upon a major scientific discovery.  

With so many pundits and strategists constantly talking about their predictions about Trump policies or about AI or other technology, it’s a good reminder that most predictions fail, most plans prove to be illusions. History shows that the outliers and unexpected tend to shape the world. 

For your weekend homework, I would recommend you give Morgan Housel’s latest podcast episode “All The Different Ways Your Life Could Have Turned Out”.  It’s a good reminder about the role of minor events in shaping the future and an appreciation of uncertainty.

XTOD: JUST IN: Over 40,000 federal employees have now accepted President Trump's buyout resignation offer - WaPo

XTOD: This chart from @Brian_Riedl  really makes it clear that unless there is major fiscal reform, fiscal dominance is inevitable. Source:https://manhattan.institute/article/2024-chart-book-examines-spending-taxes-and-deficits

XTOD: Wow. Trump wants to eliminate tax breaks for "billionaire sports team owners" and close the carried interest tax deduction loophole for hedge fund managers.

XTOD: One of the best ways to spend money is to buy time.

XTOD: "The principle is this: that in everything worth having, even in every pleasure, there is a point of pain or tedium that must be survived, so that the pleasure may revive and endure. The joy of battle comes after the first fear of death; the joy of reading Virgil comes after the bore of learning him; the glow of the sea-bather comes after the icy shock of the sea bath; and the success of the marriage comes after the failure of the honeymoon. All human vows, laws, and contracts are so many ways of surviving with success this breaking point, this instant of potential surrender."

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Daily Economic Update: February 6, 2025

I had my AI-agent write this post while streaming Disney+ from the riviera that used to be Gaza.  I think that sums up all the recent headlines you need to know.

In data, ADP payrolls beat estimates, while ISM Services missed expectations coming in at 52.8 vs. 54.2 estimates.  The ISM miss was attributed to a decline in new orders and some commentary pointed to weather as a factor.  

The Treasury Quarterly Refunding Announcement was largely in-line with expectations and did not appear to have anything that spooked bond investors.  Heading into the announcement there was some concern that the Bessent treasury would look to term out more debt, which could pressure long-end yields, however the announcement indicated they would keep nominal coupon bond sizes largely the same as prior quarters, making this a largely non-event.  This coupled with the ISM miss seemed to increase demand for bonds, lowering yields.

In Fedspeak, Jefferson has advocated a period of holding policy steady in the face of continued policy uncertainty.  Barkin mentioned business optimism at the broad based Trump agenda, but also highlighted the uncertainty around the specifics of policy implementation.

All-in-all stocks rose, with the S&P at 6,070 and yields fell with the 2Y back down to 4.20% and the 10Y down ~8bps to 4.43%.

I briefly mentioned international trade yesterday, outlining the high-level benefits and costs. For good measure, I’ll throw in a few tools countries used in an attempt to protect domestic industries, protect new industries, protect strategic industries, increase domestic employment, raise revenue or boost exports.  Some of the primary tools used are:

• Tariffs (obviously) - these are taxes on imported goods, they can raise revenue, reduce trade deficits and protect domestic industries, but at the potential cost of “deadweight loss” due to inefficient producers to gain a surplus at an expense that outweighs the benefit the consumer gains from previously accessing the world price.
  
  

• Quotas - what they sound like, they are limits to how much a country imports. Generally this risks a loss to the consumer as supply may not be sufficient to meet demand.
  
  

• Export Subsidies - payments from the government to exporters in an attempt to increase exports.  The general impact is the foreign consumer benefits at the expense of the exporter.
  
  

• Voluntary Export Restrictions - this could be used to protect a sensitive industry, like chip design.  

Anyway, I throw these out there because they all have and continue to be used from time to time and are part of the complexities of negotiating trade.

On the day ahead it’s BoE rate decision and jobless claims are the highlights.

XTOD: “You have a beautiful voice and a beautiful accent. The only problem is I can’t understand a word you’re saying.”   Maybe the funniest Trump quote of all time. Instant classic.

XTOD: Super Bowl 59 betting: Report says record $1.39 billion to be legally wagered on The Big Game

XTOD: I’m increasingly convinced that there are only four attributes worth screening for when hiring:  1. Curiosity  2. Persistence  3. Humility  4. Sales  

They are, unfortunately, incredibly difficult to discern in an 30 minute interview (how most people structure interviews)

XTOD: Thinking about that C. S. Lewis quote about how courage is not just one of the virtues but the spine of every virtue, and how brilliantly/brutally it frames how virtuous we like to think we are.    You're kind, but are you kind when it's hard to be kind? Or just when it's easy

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Daily Economic Update: February 5, 2025

 I found out I’ve been tapped to run the U.S. sovereign wealth fund.  Don’t worry I’ll continue to write this blog for free.

I was wrong about China’s tariff strategy. I thought they would wait until additional tariffs were put in place before they retaliate, but they went ahead with 10-15% tariffs on certain U.S. goods. China will also investigate Google and targeted Calvin Cline.  

Speaking of Google, shares of parent company Alphabet traded down on a revenue miss, with some of the miss coming in cloud services. They also mentioned they will be investing $75bln over the balance of the year in AI capex.  And speaking of AI infrastructure, AMD doubled their data center revenue, but maybe not enough to meet sky high investor expectations.

And speaking of data, but not data centers, the JOLTs data showed job openings of  7.6 million, which was below estimates. Job openings are now 1.3 million lower than they were a year ago. The hirings and separations remained largely unchanged.  All of which plays to a “Great Stay” theme. 

Trade remains a key topic this week, and probably for a while to come.  

The textbooks teach us that some of the  benefits of trade are:

-trade leads to efficiencies by allowing firms to specialize based on their comparative advantage

-trade creates an overall more efficient use of resources and allows for a larger basket of global goods that improve overall welfare

-trade can increase the flow of ideas and increase productivity

The textbooks also point to some potential drawbacks:

-trade can create winners and losers in different sectors

-trade can cause a loss of jobs in developed countries

The idea of tariffs, aside from the espoused border security topic, is generally to reduce trade deficits, which should increase domestic production. Whether that deficit reduction remains a key focus for the administration is still an open question.

On the day ahead we get ISM data and a treasury refunding announcement. 

XTOD: Nothing drains a high performer faster than realizing their reward for excellence is cleaning up someone else’s incompetence.

XTOD: For those who can read cash flow statements, you'll see below that $PLTR doles out more cash in stock comp than it generates in net income to the tune of hundreds of millions each year. The entire business is a scheme built to move money from shareholder pockets to the company insiders, who systematically dump their issued shares onto retail bagholders Good thing the bulls can't read cash flow statements, or the insiders might have a problem on their hands

XTOD: Anyone can talk about themself. Even a child knows how to gossip and chatter. So what is scarce and rare? Silence. The ability to deliberately keep yourself out of the conversation and subsist without its validation. Silence is the respite of the confident and the strong.

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Daily Economic Update: February 4, 2025

I was going to write more but some 19 year old from DOGE showed up and demanded access to my server. The good news is this blog is going to be 1,000x more efficient from here on out and I stopped sending wires to random people.

The first trading day of February was an eventful one with tariff news front and center.  We learned that this is a “drug war” not a “trade war”.  Already the tariffs on Mexico are on pause for one month in exchange for Mexico agreeing to put 10,000 of their soldiers on their border.  Following the news of at least the temporary halting of the tariffs on Mexico was viewed positively by markets, allowing the S&P 500 to significantly reverse earlier losses.  At the lows of the day the S&P was down nearly 2%, but it managed to finish down ~0.75%, at 5,994.

The 2y was up a few bps to 4.26% and  the 10y is 4.55%.

After the bell, Canada also announced steps to secure their border against illicit drug flow including the addition of 10,000 personnel and a fentanyl czar all backed by $200mm.  The result is also a 30-day pause on tariffs.

Speculation remains that China may be looking at a broader negotiation ahead of potential April tariffs.

Irrespective of whether or not tariffs are designed to increase American manufacturing, yesterday’s ISM Manufacturing index posted 50.9, an expansionary reading and solid internals including a fourth straight month of higher prices.

Away from tariffs, the Trump administration seemed to secure a “win” with Panama as the President of Panama indicated they were ceasing their involvement with China’s belt and road initiative and will consider voiding other agreements.

And I guess the Fed can take a win on the day as well, as Trump said he agreed with their decision to hold rates.

Of course we also got some AI news, with OpenAI’s deep research model.

JOLTs on the day ahead.

XTOD: The real tax is society forcing otherwise productive people to pay attention to politics.

XTOD: Too many things happening right now, but there's a decent chance the most important announcement in the last 48 hours is confirmation that the frontier AI labs have taken significant steps toward building autonomous digital workers that can "navigate the web, process information across all modalities, and take meaningful action in the world" (

@emollick ).   So, a disembodied silicon brain that can accomplish complex multi-hour, or multi-day research projects—search on the Internet, read, synthesize, write, and even PowerPoints—in a matter of minutes.  If you're still on team "AI is a waste of time," I genuinely don't know what you think the white-collar economy is.

XTOD: "If you do average work for average pay, AI is going to be able to do it cheaper than you."  — Seth Godin

XTOD: Agustín Carstens discusses how central banks can apply lessons from the recent inflation surge to their monetary policy frameworks during the current round of reviews 

@stlouisfed  https://bis.org/speeches/sp250204.htm

XTOD: Our levels of desire, patience, persistence, and confidence end up playing a much larger role in success than sheer reasoning powers. Feeling motivated and energized, we can overcome almost anything. Feeling bored and restless, our minds shut off and we become increasingly passive.

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Daily Economic Update: February 3, 2025

Starting off your February with tariffs. It’s like your Spotify DJ – you know it finds one song you like, that’s not your favorite song, but it decides to play it a lot, too much, to the point you don’t want to hear it, but you still know it was coming in rotation at some point.  Trump told you tariffs were on his favorites list, Trump campaigned partly on tariffs, then we are shocked when he implements them?  And many still think he won’t go through with tariffs or leave them in place for long, but for now it’s 25% on Mexico and Canada, and another 10% on China starting on Feb. 4.  There is also a retaliatory clause that could escalate the situation further.

Now it gets fun to think about how the burden of the tax gets born. Imagine you’re a retail company in the food industry, you import a major ingredient in your dip from your factory in Mexico. You now pay an $3+ tax on your $15 food item.  Immediate question, can you raise the price such that consumers absorb it? If not, can you absorb the cost in your margin?  Let’s assume you raise the price, but now you sell less quantity, is the knock on effect that importing less from Mexico leads to Mexican unemployment and political pressure on Mexico to act to secure the border, etc.?  Is that the mechanism by which this accomplishes Trump’s border goals?  Or does the exchange adjust to offset some of this tax?  I think the policy goal is that potential for tariffed countries to see less U.S. demand which will pressure employment in those economies. The potential exchange rate implications like a weaker Peso is a double edged sword, it could keep exports competitive but could cause local inflation. How everything adjusts and whether Trump adjusts policy will be major question marks.

Speaking of inflation, Friday’s PCE data were in line with expectations, printing 2.6% YoY on headline and 2.8% YoY on core.  We talked about some differences in CPI and PCE back on January 15th and it seems like some key questions remain around the direction of housing.  That said, the real key question for inflation from here is around tariffs.  While I don’t believe in the tariffs cause inflation story, I do believe that policy responses to tariffs can cause inflation and perhaps that even just the expectation of higher inflation can be potentially impactful to the economy. 

We’ll start the week with the Dollar rising on the tariff news, DXY up at 108.50, USD:CAD up over 1.45, USD:MXN ~20.68.   The S&P 500 sits at 6,040.  The 2Y at 4.22% and the 10Y at 4.54%.

On the week ahead, Friday's jobs report is the data highlight, but will probably take a backseat to Trump’s policies. We also get a few important tech earnings reports in the mix and monetary policy from the BoE (likely to cut 25bps).

Monday: ISM mfg, Fedspeak

Tuesday: JOLTs, factory orders

Wednesday: Treasury Refunding Announcement, ISM Services, fedspeak

Thursday: BoE, jobless claims, 

Friday: Jobs Day in ‘merica, UofM

XTOD: Honestly very patriotic of the Mavs to make sure Trump wasn’t responsible for the worst trade decision of the weekend

XTOD: Axios reports that U.S. Secretary of State Marco Rubio presented the President of Panama, José Raúl Mulino with an Ultimatum while meeting yesterday, that if Panama does not take “Immediate Action” to remove Chinese Influence from the Panama Canal, “then the United States will take measures necessary to protect its rights under the Torrijos–Carter Treaties.”

XTOD: I don’t know what’s most disconcerting: (1) that anyone should imagine the Trump gang capable of hatching so elaborate a plan; (2) that anyone should think the plan capable of accomplishing its end of de-dollarization; or (3) that someone might consider that end worthwhile.

XTOD: Nobody who’s actually good at making money needs to sell you a course on it.

XTOD: The ability to tolerate pain and long hours is the most dangerous thing you can have.

XTOD: “I thought fame and fortune would bring me happiness. But one day you wake up and realize they don’t. I still felt the same emptiness — only worse, because I couldn’t say, ‘If only I had this.’” -Madonna

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Daily Economic Update: January 31, 2025

Yesterday, the ECB cut rates by 25bps as expected, bringing their key deposit rate to 2.75%.  This is their 5th cut since the start of last year.  Earlier in the week GDP reads from some EU nations fell on the weaker side.

Speaking of GDP, the U.S. GDP data showed the slowest growth in the last few quarters, but still printed 2.3% YoY.  While below estimates, consumption was very strong, leading some commentaries to pin the miss on the more volatile inventory and fixed investment components, which may rebound.  Consumption is what we do in America, we earn income from our labor and consume goods and services and invest the difference. At the end of the day the focus ultimately goes back to productivity.  GDP is productive capacity and it ultimately depends on labor, capital and the raw materials for production combined with the discovery of new applications and technologies that allow us to produce more with the same inputs.  This week certainly seemed to highlight a question around whether AI will be a massive unlock for continued productivity and growth or whether it will suffer diminishing marginal returns. 

We made it through the week with a mixed bag of mega tech earnings and more to come in the week ahead. The S&P ended at 6,070, up on the year, while the 2Y is 4.22% and the 10Y is 4.52%, both of which are down on the year.

PCE is the big stone on the day, although most research on PCE is pretty well honed in from CPI readings, but I guess we’ll see.  We’ll also be waiting to see if Trump follows through with Feb 1, 2025 tariffs at the 25% level.

It’s hard to believe January is coming to an end, but let’s be real, we already don’t remember most of what happened this month anyway. 

I had AI summarize the January we shared together on this blog.

Alright, buckle up, because January 2025 was a wild ride, and if you blinked, you might have missed it. Here’s a humorous look at the top 10 things we learned, or maybe just stumbled upon, during this chaotic month:

1. AI is either the future or a total sham, or maybe both. DeepSeek apparently built a ChatGPT killer for pennies, and Nvidia might just be the next Pets.com. It’s all very confusing, but hey, at least it's not boring. Also, Zuck says "America" should be spending a ton on AI Infrastructure. 

2. Trump's back, and so are the tariffs. The man loves tariffs more than his own children, apparently. He's also bringing back "animal spirits" to CEOs, whatever that means. Also, apparently, Melania has a memecoin now. And a good way to make headlines is to demand lower oil prices and lower interest rates.

3. The Fed is still a thing, but maybe not a very good one. Jay Powell is still trying to figure out the inflation thing while Trump is calling them “boneheads”. The Fed is expected to hold rates steady, but who knows what will happen when the tariffs start flying. Also, apparently, the Fed has been spending too much time on DEI and green energy, according to Trump. Oh, and also, watch out for "fiscal r-star" – it's a thing now.

4. Bonds are still trying to be a safe haven, but they’re having an identity crisis. Sometimes they go up, sometimes they go down, and sometimes they do the opposite of what they’re supposed to do. Also, some people say to just buy "safe equities" instead of bonds. What's a poor investor to do? 

5. Bitcoin is still a thing too, but it’s basically just a levered bet on the Nasdaq. Also, you can now get a "Protected Bitcoin ETF," which is guaranteed to get you 100% of your money back if Bitcoin drops by 50%. Sounds like a steal, right? And speaking of steals, if the government comes to confiscate your Bitcoin, you are SOL.

6. The stock market is a casino, but with more spreadsheets. It goes up, it goes down, sometimes for no reason at all. Also, there's a lot of talk about whether we're in a "bubble," especially in AI and tech sectors, and whether "trees grow to the sky". Also, you should probably consume investment info according to your time horizon.

7. The "Great Stay" is in full effect. You can't get fired, but you may not be getting hired either. Also, maybe college isn't all that great anymore.

8. It's always something. Whether it's DeepSeek, tariffs, Trump, inflation, job numbers, or a bunch of other stuff, there's always something to worry about. And of course, don’t forget the fires in California and the ice storms in the Southwest.

9. The human condition is still a mess. People are still greedy, fearful, and easily manipulated. Also, the "smart money" is trying to convince the "dumb money" to "buy the dip," so they can liquidate their positions to the bagholders. And apparently, people are spending less time with friends. Sad.

10. Nobody knows anything, and that's okay. Economic forecasts are a coin flip, and the future is inherently uncertain. But, that’s okay because you don’t need all the answers right now.

There you have it, folks. January 2025, a month of head-scratching, nail-biting, and maybe a little bit of head-shaking. Tune in next month, when we’ll probably be dealing with some other completely unpredictable thing. And remember, blame Canada.

No, but we really did talk about some real things, remember:

1. Theories of inflation

2. The business cycle

3. The credit cycle

4. Asset bubbles

5. Valuation Metrics (CAPE, Buffett Indicator, Term Premium)

You didn’t remember these?

Here’s a Top 5 XTODs of the Month of sorts.

1. “You have a part that only you can play; and your business is to play it to perfection, instead of trying to force fortune. Our lives are not interchangeable. Equally by aiming too high and by falling too low, one misses the path to the goal. Go straight ahead, in your own way.”
   
   

2. "A man asked a gardener why his plants grew so beautifully. The gardener said: “I don’t force them to grow. I remove what stops them.”
   
   

3. "With DeepSeek, investors are (re)learning that those who come up with an innovative idea are almost never those who will make money from it."

4. "The investing info that you pay attention to should roughly correspond with your own time horizon. In other words, if you're investing for the next 10+ years, you have zero need to consume info and "insights" about daily market action."

5. "Real payoffs vs. no payoffs. If you are frightened of debasement of your currency, you probably should reduce your currency holdings, or holdings of any nominal assets that yield fixed payoffs in your currency and buy real assets, claims to 'real' payoffs that increase with inflation. You probably should not stock up on securities that yield no payoffs."