Daily Economic Update: February 18, 2025

As we recover from Valentine’s Day and a President’s Day lengthened weekend, we enter the week with the S&P at 6,114, the 2Y Treasury yielding 4.26% and the 10Y Treasury yielding 4.48%.  

Over the weekend SNL celebrated 50 years with some incredible performances and skits. While this blog will likely never make it to the 50 year mark (let alone 5 year mark), it has almost made it to the 50 day mark of 2025 and that’s a feat worth celebrating.  I couldn’t get Sir Paul McCartney to guest write today and Bill Murray wouldn’t do a top 10 for me, so you’re stuck with my best attempt to make a mildly entertaining list of topics or narratives that define the first 50-days of 2025.
T - tariffs, duh. You can add “reciprocal” in front to make it more fun too.

A - A.I., remember DeepSeek?

R - r-star of course.  I know the Fed forgets it, but I don’t.

I - inflation, did it ever really go away?

F - Federal Reserve, that last meeting, useless.

F - fiscal policy, unsustainable?

I guess Tariff is one of the best words in the dictionary.

We concluded last week’s economic data with a weak retail sales data point, which is already forgotten.  The real narratives of the last week are twofold (and I’m using “everyone” the way my kids use “everyone”).

First, everyone is now an expert in the GDP equation. So current narrative number 1 is centered on how reduced government spending and reduced government employment will “automatically” reduce GDP…because math, duh…G goes down.  Of course most of the thinking you find related to the current narrative stops at this first order and gives no consideration to what comes next, or in other words how the private sector responds.  A person laid off from a government job, do they collect unemployment (a government spend) or do they get a job in the private sector?  The bottom line is there is a lot to think through in terms of the impact on GDP.  Could there be demand side contractions due to government layoffs?  What does private sector absorption of those people look like?  What about increased entrepreneurship as a possibility?  What about the possibility that the laid off employee is way more productive in the private sector?  Ultimately productivity is a major factor in Real economic growth.

Second, everyone is mapping the current inflation prints to the inflation prints of the 1970s and writing their own opinions as to whether we’ll get a second inflation spike or not.  It’s fun, but since you can get the best economist in the world together in a room and it’s likely they will disagree about what caused inflation in the first place and what policies are most effective at curing inflation in the second place, the whole discussion just seems like media fodder.  I say that not to dismiss the risk of inflation rebounding, but to reiterate that the whole narrative should likely be couched as a discussion about risk, not simply passing around charts that overlay two time periods on top of each other as many are wont to do.

The week ahead in data is a slow one, so you’ll have to look to the Administration and DOGE for entertainment....and they probably won't dissappoint.

Today: Empire Mfg. Fedspeak

Wed.: Housing starts, building permits, FOMC Minutes, 20Y Bond Auction

Thur: Jobless claims, Fedspeak

Fri:  S&P PMI’s, Existing Home Sales, UofM Feb (final)

XTOD: NBA Player- “I can’t play in the back to back because my knee is a little sore 😖” 

NHL Player- “I am willing to die for my country in this exhibition”

XTOD: 'll admit I am not sure what @riteshmjn's (or Luke's) "second derivative" is here. I will, however, point out that if the USG suddenly stops paying X% of GDP into the economy, it does not mean the US GDP is instantly and permanently downsized X%.

XTOD: Zero chance the Dimon audio "leak" is unintentional. Zero.   It's the recruitment ad for the people who will replace the people who are huffy about it

XTOD: Meta stock has yet to have a down day since Zuck got caught starring at the cleavage

XTOD: “The universe wants you to be typical- in a thousand ways it pulls at you. Don’t let it happen.”

https://x.com/bigcontentguy/status/1890950449232011407

https://x.com/bauhiniacapital/status/1891075003203920039

https://x.com/HedgeDirty/status/1890263635274133550

https://x.com/allstarcharts/status/1890849977192022115

https://x.com/ImadeIyamu/status/1890628283865186717

Daily Economic Update: February 14, 2025

I was going to send chocolates to all my readers for Valentine’s Day, but when I saw cocoa prices at 50 year highs and married that with the fact this blog currently pays me $0, I just couldn’t swing it…come to think of it, you should be sending me chocolate.  

PPI rhymes with CPI and comes in hotter than expected as well with the headline at 0.4% and the YoY headline at 3.5%.  The ex-food and energy measures were still hot as well.  There was some optimism that the medical care categories of PPI declined, which might bode well for the read through to PCE, but we’ll see.  In labor data, jobless claims remain benign, falling to 213K. 

The 30Y Treasury auction was not very inspiring for a country that has a lot of debt to sell, particularly if that country is interested in terming out that debt.  A tail of 1.2bps, with a relatively low bid-to-over and weakness in indirect demand.  On the day the 2Y yield moved back down to 4.30% and the 10Y yield gave back to 10bps moving back down to 4.53%.  The narrative tied to the move lower in yields is increased tariff uncertainty leading to a bid for safe havens, whether or not that’s true is hard to know.

In equities, stock indexes moved higher with the S&P 500 trading up to 1% to 6,115.  If you weren’t paying attention it probably wouldn’t feel intuitive that a foreign indexes like the FTSE or STOXX are outperforming the S&P so far this year.

Tariffs in the headlines again, with Trump announcing reciprocal tariffs as had been mentioned yesterday.  The devil will be in the details as the messaging is that they’ll essentially be going line by line and country by country to put tariffs in place. The other wrinkle to the tariff news is that the administration will be thinking about tariffs in terms of broad factors, including the impact of VAT taxes, currency devaluations, and any other policies the U.S. trade representative deem to be unfair.  Trump also mentioned that tariffs on autos might still be on the come.  

On the day ahead we get Retail Sales and Industrial Production data. Then we get a 3-day weekend!

XTOD: “The Big One” - Reciprocal Tariffs would likely increase US tariffs from $75 B in 2024 to ~ $1 T in 2026.  Reciprocal includes anything that taxes or discriminates against US business.  Market shrugging off as largely a negotiating tactic despite the words to the contrary.

XTOD: As mentioned on @CNBCFastMoney  The summer easing of financial conditions and aggressive fiscal spending in 2H of 24 is impacting data the last few months 

The tightening of financial conditions in bond yields and Fed pause and the government expenditure cuts and tariffs will cause the data to slow in 2Q

XTOD: Because the PPI components that feed into the PCE index (financial and healthcare services) were soft in January, the core PCE index is estimated to print well below the big 0.45% increase in the CPI.  A 0.27% increase in core PCE for Jan would drop the Y/Y rate to 2.6% from 2.8%

XTOD: Even under low interest rates, interest becomes the largest federal expenditure in 17 years, and will consume half of all annual taxes within a few decades.  Voting to add even more debt and interest costs is wildly irresponsible.

XTOD: Hats off to the Apollo associate that made this chart  https://pbs.twimg.com/media/GjqxP7cXYAEE0Bh?format=jpg&name=900x900

XTOD: We’re prone to asking “What should I do?” but less prone to asking “What shouldn’t I do?” Since what we don’t do determines what we can do, I like asking about not-to-do lists.

https://x.com/altcap/status/1890115417638908229

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Daily Economic Update: February 13, 2025

 The CPI report came in hotter than expected and following the report the market now just has one rate cut priced in for the remainder of the year.  The pain points in the report were really everywhere, but eggs, rents and car insurance all remain trouble spots.  In Powell’s second day of testimony his message was much the same as the day prior, that there’s no rush to move the policy rate. The 2y yield moved up to 4.36% and the 10y treasury yield backed up to 4.64%.  The 10y treasury auction was about average.

Stocks managed to do ok, all things considered, ending the day off the early morning lows  The S&P 500 finished at 6,050.  The earnings picture has been strong and Trump headlines about working on de-escalation in Ukraine seemed to help sentiment.

The topic of reciprocal tariffs remains front and center.

On the day ahead we get PPI, jobless claims and the 30y auction.

XTOD: It was a wild Wednesday in markets news, with Trump demanding lower interest rates, inflation surprising to the upside — and Fed Chair Powell keeping the train on the tracks

XTOD: CPI in 60 seconds: 

1) The rise in commodities is making inflation sticky. That creates some modest upside risk. 

2) But this story remains *mostly* about shelter. And commodities need to rise MUCH more than this to offset the continued shelter disinflation, which I expect to revert to its 40 year average. 

3) This isn’t a second wave. If it is, it’s a sad little wave. SAD. 

4) No rate cuts this year unless the labor market really starts to fall apart.

XTOD: All benefits in life come from compound interest, whether in money, relationships, love, health, activities, or habits. I only want to be around people I know I’m going to be around for the rest of my life. I only want to work on things I know have long-term payout."

XTOD: The most inspiring thing I've read this year. Read it three times, it will change your life. https://pbs.twimg.com/media/Gjjy6B7WoAI6UW2?format=png&name=medium

https://x.com/business/status/1889813360474018296

https://x.com/cullenroche/status/1889724826866348162

https://x.com/NavalismHQ/status/1889633548778480126

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Daily Economic Update: February 12, 2025

Have you heard of DIKW?  It is an acronym for a pyramid of the theory of knowledge.  You start with data as a building block, then you make inferences from the data so that it has some meaning - we call this information, then we place the information into a context where it can be understood - we call this knowledge.  At the top of the pyramid is wisdom, or broadly exercising sound judgment and acting accordingly.  I think about this pyramid from time to time when I listen to financial news, political talk, and the like, you know things like listening to Fed testimony, and I ask myself whether there is anything beyond “data” (and perhaps not even quality data) in what is said.  If the goal is to increase the confidence in your investment or business decision making, does much of what we consume move the needle?

When it came to his testimony, Powell said the Fed is in no rush to lower rates. In other Fed news, Cleveland Fed’s Beth Hammack highlighted the risks to higher inflation that could be the result of government policies.  While Hammack doesn’t believe rate hikes are necessary, she did express the need for further evidence that inflation is sustainably heading back to 2%. NY Fed Williams offered up his view that we should get back to 2%, but for uncertainty around everything in the economy (labor, capital, trade, regulation, etc.). Fed officials - helpful as usual.

The S&P 500 finished up on the day at 6,068. The 2Y treasury remained near 4.30% and the 10Y moved up to 4.53%.

Kind of away from politics, but perhaps closer to politics and having a more direct impact on the economy than anything else, Elon Musk changed his X handle to Harry Bolz. I don’t know if this increases the chances he can buy OpenAI or find trillions of dollars of corruption, but what do I know?

Maybe Elon’s DOGE is on to something and foreigners know it, I mean they seemed to show up to the 3Y Treasury auction yesterday.  The 3Y auction had a strong bid-to-cover, printed through where when-issued was trading, and had strong indirects bidders.  Strong demand for treasuries didn’t stop this headline: “A $RETARDIO whale just bought $4.03K of $DOGSHIT2 at $3.83M MC” whatever that says about the state of the economy.

On the day ahead it’s CPI and Powell in focus.

XTOD: Powell: The neutral rate was "clearly very low before the pandemic" and it is likely that after all of this, "the neutral rate will have risen meaningfully."  "I think it has moved up. And many of my colleagues on the FOMC" also do.

XTOD: Accenture had $1.2 billion in new bookings related to GenAI, and it has 69,000 people working in data and AI.   69,000 people who don't know anything about AI are helping the largest US companies with navigating the fast changing AI world.  One of the biggest grifts in the world.  https://pbs.twimg.com/media/GjdckNHXAAIGm5P?format=jpg&name=900x900

XTOD (it’s really long so if you want to read the whole thing find the link below): Two insightful articles on how AI is making general knowledge worthless, and private, proprietary data infinitely more valuable: 1.  @benthompson : "It is suddenly clear to me how much future economic value is wrapped up in information not being public… Secrecy is its own form of friction, the purposeful imposition of scarcity on valuable knowledge. It speaks to what will be valuable in an AI-denominated future: yes, the real world and human-denominated industries will rise in economic value, but so will the tools and infrastructure that both drive original research and discoveries, and the mechanisms to price it."  2.  @anecdotal : "in the AGI era, the only defensible reason for universities to remain in operation is to offer students an opportunity to learn from faculty whose expertise surpasses current AI. Nothing else makes sense...Universities will retain faculty in three categories: those advancing original research beyond AGI capabilities, those who teach the use of advanced equipment and sophisticated physical skills, and those handling previously undiscovered source materials or developing novel interpretations that outstrip AGI’s analysis.  

XTOD: Thomas Merton, read it twice https://pbs.twimg.com/media/Gjhl79aXYAAoOm5?format=png&name=900x900

https://x.com/NickTimiraos/status/1889351386162155838

https://x.com/rohitdotmittal/status/1889080825318141963

https://x.com/buccocapital/status/1889020292686553329

https://x.com/DylanoA4/status/1889372509000143259

 

Daily Economic Update: February 11, 2025

No more pennies, did you see that news? I’m waiting for someone to launch a penny memecoin to replace the physical penny.  Would you be surprised if ‘Pennycoin’ trades at some insane price? I wouldn’t – especially if Dave Portnoy ends up buying it.  Feel free to X/Tweet Dave this idea or a link to this blog - I think he'd be onboard.

If we can't get Dave, and Pennycoin is a project you are passionate about working on, leave a note in the comments – if Hailey Welch can figure out how to launch a coin, I’m sure we can too - let’s work together to make the penny worth something again.

If we eventually run out of pennies, do we have to stop pricing things such that they end in 0.99?  Is that inflationary?  Nah, who am I kidding, eventually there will be no physical currency that requires change anyway.  

Speaking of inflation, the NY Fed’s consumer survey bucked the UofM trend, showing the median inflation expectations holding steady at 3%, while the 3Y and 5Y median inflation expectations rose by 0.3% to 3.0%.

By now I’m sure you’ve seen some articles pointing to a correlation between Philadelphia sports championships and poor stock market performance. For example, the Phillies won the world series in 2008, the Eagles in 2018, both bad years for stock investors, will this time be different? 

If the Eagles win will spur a sell-off, it didn’t start yesterday as the S&P traded up to 6,066.  Yields on the long end moved up a little higher as news of 25% tariffs on steel and aluminum seemed to cause some questions around inflation.  The 2Y was relatively unchanged at 4.29% and the 10Y yield moved back up to 4.50%.

If you didn’t get a chance to participate in yesterday’s poll, please click on yesterday’s post and vote.  As of now about 60% of respondents expect a lower 10Y Treasury yield come March 31, 2025.

Ahead of us, Wednesday’s CPI report and Powell’s semi-annual testimony, which starts with the Senate today, are the highlights.

Today: Powell Senate, other Fedspeak

Wed: CPI, Powell House

Thur.: PPI, Jobless Claims

Fri: Retail Sales, Industrial Production

Have you been on LinkedIn lately? A few weeks ago I shared a X post comparing LinkedIn to OnlyFans, I mean really, just swap out one type of image for humblebrags and corporate porn. I feel like I’m old enough to remember when LinkedIn was a more straightforward professional networking platform, but now it’s full of engagement-bait posts, personal life stories that barely relate to work, and self-promotional content disguised as "thought leadership." Some people even treat it like a corporate influencer platform, complete with overly polished personal brands.  

As a user of the platform, I would like to see the elimination of engagement bait and more user control over who sees what and what is seen amongst other changes.  As a consumer more broadly, I am increasingly frustrated in so many areas of life where I feel trapped in ecosystems that don’t serve me well, but “network effects” make it hard for people to leave those ecosystems. I have some ideas on solutions, reach out in the comments if you think you might be interested in hearing them.

We’ll see if Powell says anything interesting, or if anyone says anything funny today.

XTOD: Patrick Mahomes was reportedly "distracted" during the Super Bowl, allegedly frustrated and confused over why big tech keeps burning billions on AI capex without a clear game plan, sources claim.

XTOD: Also his company is a 7x since IPO  https://pbs.twimg.com/media/GjYGj9gWYAA3GlB?format=jpg&name=900x900

XTOD: We are in the part of the cycle where Dave Portnoy can make a 2,500,000% return on a memecoin about him going to jail for pumping another memecoin. The Big Short 2 is writing itself as we speak.

XTOD: “If you only wished to be happy, this could be easily accomplished; but we wish to be happier than other people, and this is always difficult, for we believe others to be happier than they are.” - Montesquieu

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Daily Economic Update: February 10, 2025

I wrote this before the Big Game was played, so apologies in advance if I missed any amazing memes that could have been included in XTOD’s today.

Still recovering from your Super Bowl-induced haze? Well, nothing cures a hangover like thinking about bond yields. (Okay, maybe that’s not true, but stick with me.)

Fresh off Treasury Secretary Scott Bessent’s comments about the Trump Administration’s focus on lower 10-year yields, let’s take a quick market temperature check. Do you think the 10-year yield will be above or below 4.50% on March 31, 2025? Vote below and let’s see if our collective wisdom—or Monday morning grogginess—has any predictive power.

Friday’s Jobs Report could have come across as disappointing, if you stopped at the headline of only +143K jobs added vs. expectations for +170K.  However, if you looked just an inch below the surface you would have seen solid upward revisions in the prior months readings, the unemployment rate falling to 4.0%, even while the participation rate was rising, and observed a strong increase in average hourly earnings.  Overall this report is considered strong.

Given the attention to the Jobs report, you might have missed some pretty interesting results in the preliminary results of the UofM Consumer Sentiment Survey. Directly from the release:

• A 5% decline in the overall sentiment measure, reaching its lowest level in 14 months. 

• Year-ahead inflation expectations jumped up from 3.3% last month to 4.3% this month, the highest reading since November 2023 and marking two consecutive months of unusually large increases. 

• This is only the fifth time in 14 years we have seen such a large one-month rise (one percentage point or more) in year-ahead inflation expectations.

Why is confidence deteriorating and inflation expectations rising, it seems like the reason might be found in this statement: “Many consumers appear worried that high inflation will return within the next year.”

The tariff topic doesn’t seem to be going away anytime soon as Trump discussed adding reciprocal tariffs on trading partners.  The week starts with the S&P 500 at 6,205, the 2Y yield at 4.30% and the 10Y yield at 4.50%.   We’ll see what CPI has to offer this week and whether Powell offers up anything interesting in his semi-annual testimony to Congress. 

Like inflation itself, the topic of how investors should invest to insulate their portfolio from the negative impacts of inflation is persistent.  In a recent blog post titled “Did Real Assets Provide an Inflation Hedge When Investors Needed it Most? Marc Fandetti, CFA explored the role of real assets as go-to inflation hedge.  If real assets are supposed to be our inflation buddy, it turns out they were a bad friend during the 2021-2023 inflation search. Despite the hype, broad-market data reveals that real assets mostly moved in the wrong direction when inflation spiked. Only natural resources managed to barely outpace the headline CPI, but commodities were the real winners.  The bottom line is real assets largely failed to protect against inflation when it mattered most.  

Look, we can talk all we want about inflation and macro topics, but the real news of Friday was the return of Hawk Tuah girl Hailey Welch. After investors took a $430 million bath on her memecoin, she emerges from whatever hole she was hiding in to say, "Thanks to my true fans... we're trying to, like, sort things out and make everything right... Oh my God, I'm gonna cry".  So much to read into there, but we’ll save analyzing that statement for another day. Nonetheless, This whole Hawk Tuah coin saga is a microcosm of the degenerate meme coin casino.

Speaking of meme coin casino’s, it’s a good thing that reputable professional organizations like the CFA are doing their part to embrace crypto and tokens.  I can picture Ben Graham throwing his life’s work that was the foundation of the CFA program in the trash now.  In fairness, a recent CFA Research Policy Report titled “An Investment Perspective on Tokenization” states their report “explicitly excludes unbacked tokens native to the blockchain (e.g., cryptocurrencies) from its discussion of tokenization, focusing instead on tokens representing real-world and financial assets.“  The report focuses on the boring stuff: tokenizing real-world and financial assets. They're all excited about fractionalizing assets and opening up private markets to the masses, while I am concerned about a wider range of less sophisticated investors losing their shirts. This all sounds great in theory, but let's not forget the Hawk Tuah investors, who clearly needed a crash course in "what is a business" before throwing their money at digital trading cards. As the CFA notes investors may have a limited understanding of tokenized products and the report stresses the importance of investor education as financial innovation continues to flourish. At least the CFA acknowledges we're likely handing rubes a loaded weapon and should probably teach them how to aim before they blow their faces off.  I don’t know about you, but I’m waiting for part 2 of CFA’s report.  

While I may remain skeptical and wonder if tokenization is a solution in search of a problem, the report does highlight the potential for real benefits of tokenization.  These benefits generally fall into the category of efficiency and reduction in cost and complexity in our current intermediated processes for clearing, settlement, reconciliation and other areas throughout the investment life cycle. Specific benefits could arise in automating verification of ownership, trade matching, and recording of transactions, making them continuous, transparent, immutable, and nearly immediate.  Tokenization could also be beneficial in reducing operational complexities, such as middle- and back-office costs, data discrepancies and reconciliation, risk controls, and compliance. Whether or not blockchain technology can deliver all these benefits without creating other costs and  risks is still to be determined.  I often find these reports tend to offer little in the cost of economic incentives required to maintain proof of work or proof of stake permissionless ledgers.  And if the answer is “permissioned” or private ledgers, it starts to feel a lot more like the current system than anything new.  In the meantime, I have a sneaky suspicion that the most immediate tokenized assets are likely to remain in the Meme Coin sector.

XTOD: I remember when the “Wassup” Super Bowl commercial first aired, it became a global phenomenon. https://x.com/i/status/1887685039216902502

XTOD: We are in the part of the cycle where Dave Portnoy can make a 2,500,000% return on a memecoin about him going to jail for pumping another memecoin. The Big Short 2 is writing itself as we speak

XTOD: The best test is simply, does it solve real world novel problems? If not then it's not intelligent.

XTOD: In my view, the “white collar workers will be out of a job” doesn’t quite capture it.  Instead, benefits will disproportionately accrue to the most skilled and talented who will do 99% of the value delivery. In other words, AI is/will be a 1-100 amplifier, not a 0-1 creator.  

The rest will be left in an awkward position where a 10x engineer becomes a 1000x engineer and a 1x engineer becomes a 3x engineer, and 1x engineer isn’t economically viable to hire.

XTOD: Maintaining passionate love forever is not only an unrealistic goal, but one that wouldn’t make you happy even if it were possible.   On the contrary, the most joyful, enduring romances are those that are able to evolve from passionate to companionate love—which still has plenty of passion, but is fundamentally based in deep friendship.  

To increase the odds of success, as your romance progresses, don’t ask yourself, 'Is our passion as high as it was?' but rather, 'Is our friendship deepening?' 

Work deliberately to make sure that your romance grows beyond the white-hot flame that characterizes new love.

https://x.com/litcapital/status/1888642272104779993

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https://x.com/ChombaBupe/status/1887782452325716271

https://x.com/Jeyffre/status/1887821492597215292

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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."

https://x.com/EricLDaugh/status/1887285900167856276

https://x.com/matthewstoller/status/1887570936494211199

https://x.com/DavidBeckworth/status/1887199488680607796

https://x.com/MoneyWisdom_/status/1887301637422637422

https://x.com/The_Kyle_Mann/status/1887581332701913092

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

https://x.com/MattWalshBlog/status/1886966377845600416

https://x.com/scotteTheKing/status/1887175604727890054

https://x.com/buccocapital/status/1886929942317031789

https://x.com/DylanoA4/status/1887132170067517514