Daily Economic Update: March 10, 2025

Fed Blackout or Monetary K-Hole? You Decide.

The Fed has officially entered its blackout period, which is kind of like K-holing for central bankers—total silence, a dissociative state, and no ability to communicate about what's really going on.  

But before the dissociation kicked in, Powell reportedly locked eyes with a colorful toad (possibly a Stanford economist in disguise) who whispered four mystical words: Trade. Immigration. Fiscal. Regulation.   Powell then delivered his parting prophecy at the U.S. Monetary Policy Forum: "It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy."

And with that, he slipped away into the ether… leaving the rest of us to interpret the signs, read the entrails, and argue over whether the toad was hawkish or dovish.

Markets Puke, Meta-Narratives Laugh

Speaking of blacking out, that might be what was experienced by some investors who checked their 401k statements, after the stock market had its worst week since September 2024.

We’ll start this week with the S&P down 6% from its recent high, trading at 5,770. It’s tempting to blame policy chaos for the recent sell-off. But zooming out, this all fits the two meta-narratives we’ve talked about since January.  Oh, you don’t remember  the two competing “meta-narratives"? One being the proverb that “trees don’t grow to the sky” with the competing narrative that “this time is different” and there are increasingly companies that are not subject to laws of diminishing returns and earn increasing returns from scale.  If you’re newer to this blog or just need a refresher, I recommend going backwards in order to move forward and giving a re-read to some of the post from the start of the year, starting here.

Powell’s Solid Labor Market: Funny How?

Friday’s Jobs Report, posted a headline of +151K and showed the unemployment rate ticked up to 4.1%.  Weakness was seen in government employment and a household survey showing a sharp decline in the number of self-employed workers. And just before slipping fully into the blackout void, Powell reassured us that, "Many indicators show that the labor market is solid and broadly in balance. Smoothing over the month-to-month volatility, since September, employers have added a solid 191,000 jobs a month on average."  And that overall, “The economy has been growing at a solid pace.”

Solid? Solid how, Jerome? Like you’re saying it’s healthy? Strong? Or solid like it’s frozen? Or maybe solid like “cement shoes” solid? You’re telling me it’s “solid”—I’m just trying to understand here. I’m funny how? I amuse you? Solid how?

Speaking of Drugs, Does Someone Need Rehab?

If Powell’s ‘solid’ economy feels like cement shoes, Treasury Secretary Bessent thinks it’s more like an addict hitting rock bottom - “We have become addicted to this government sending, and there’s going to be a detox period.”

Bessent’s comments and the overall uncertainty don’t seem to be helping the market “vibes”.  For as bad as the “vibes” seem, are the vibes right now really all that different from those of last fall?  Am I wrong? Take a look at my post from back on November 1, 2024, when the S&P was trading at 5,716 and decide.

What’s different now appears to be the “t” word (well and about every other major category Powell mentioned above). 

Ben Stein Lectures Us - Anyone?

I told you I gave up the “t” word, but that doesn’t stop me from quoting Ben Stein as an economics professor from the 1986 classic, Ferris Bueller's Day Off.

“In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the... Anyone? Anyone?... the Great Depression, passed the... Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act? Which, anyone? Raised or lowered?... raised tariffs, in an effort to collect more revenue for the federal government. Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression. Today we have a similar debate over this. Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. "Voodoo" economics.”

Let’s hope it all doesn’t go that 1930s direction.

The Week Ahead “Inflationpalooza”:

This week will be all about inflation, both inflation expectations and the CPI report on Wednesday.

Mon: NY Fed Consumer Inflation Expectations
Tue: JOLTS, 3Y Note Auction

Wed: CPI, Bank of Canada, 10Y Note Auction

Thur: PPI, Jobless Claims, 30Y Bond Auction

Fri: UofM Inflation Expectations

Chinese deflation to start the week, will it be U.S. inflation to end the week?  The 10Y treasury yield will start at 4.30% and the 2Y yield will start at 4.00%, where will they end the week is the question.

XTOD: Futures getting hammered to start the week. Bonds crushed. Dollar down. Gold flat.  No safe havens at the moment. Chaos.

XTOD: Bloomberg on China’s negative inflation data — not just PPI, which has been negative for a while, but also core and headline CPI.   These numbers will amplify concerns about the risk of  a self-reinforcing process of “Japanification” of the Chinese economy. https://pbs.twimg.com/media/GlkmCxWXMAEUU77?format=jpg&name=small

XTOD: Our recent GDPNow updates stirred up a lot of conversation about the model’s subcomponents, including a trade deficit spurred on by an increase in nonmonetary gold imports. In an article and the thread below, Pat Higgins, creator of the GDPNow model, provides additional insight with a “gold adjusted” model and accounting for today’s (March 7) labor market report……“The topline growth forecasts also increased today—standard model -2.4% to -1.6%, “gold adjusted” model -0.4% to 0.4%—as data from today’s labor market report came in stronger than the model was expecting based on the limited February data the model received prior to that release.”

XTOD: "Lots of luck if you're an impulsive person who has to be gratified immediately. You're probably not going to have a very good life — and we can't fix you....That demand for immediate gratification is the way to ruin. It may also give you syphilis." 

- Charlie Munger 

Charlie's (younger)  partner, Warren Buffett always said that short term market forecasts are poison. Those that makes these sort of projections only make fortune tellers look good!

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Daily Economic Update: March 7, 2025

Queue Chris Tucker

Ignore the CNBC Market Sell-Off banner, sip your favorite tariffed tequila, buy a U.S. manufactured car - because it’s Friday and you ain’t got no job and you ain’t got shit to do.  

Jobs Day in ‘merica! Estimates peg +160K, unemployment at 4%, with X buzzing about weather rebounds and fed layoffs (DOGE’d or not). Challenger’s 172K layoffs—highest since ’09—scream recession, but weekly claims yawned.   Challenger job cuts this high tend to correlate with recessions, will this time be different?

What’s the French word for “Stagflation”

Our friends across the pond at the ECB cut 25bps as expected, citing slower growth estimates and uncertainty. What is the economic term when you have negative growth and rising inflation - Comment dit-on stagflation?  Anyway, -0.9% GDP growth with 2.3% inflation forecast for 2025…spells “baisses de taux” I guess.

In case you were wondering, they will remain “data dependent”. Nothing beats a “meaningfully less restrictive” policy stance while revising up your 2025 inflation forecast to 2.3% - whatever, long and variable lags, expectations, pick your catch phrase.

Don’t worry, Fed Governor Waller is in no mood to cut rates at the upcoming Fed meeting. He could still see two cuts later this year, but he’s data and the “t” word dependent.

With central bankers seemingly clueless, perhaps we need wisdom from one of the world’s greatest investors.

Ooh, a storm is threatening My very life today If I don't get some shelter Ooh yeah, I'm gonna fade away

While markets puke, the legendary Howard Marks dropped his latest memo, Gimme Credit, presumably a pun on the Rolling Stones hit Gimme Shelter. For Marks, credit’s your shelter when equities’ P/Es are drunk at current levels. 

A big takeaway from the memo is that current expected returns on credit are much better than what the expected return from equities has historically been when P/E’s are at current levels.  Marks also rebukes the concerns over spreads being historically narrow, saying: “The bottom line for me – as I tell anyone who asks – is that you can’t eat spread, or spend spread, or pay pension benefits with spread. For those things, you need returns. Spreads have to be assessed to ensure they’ll be adequate to offset credit losses, but in the end, it’s the total return that matters.”  Despite Marks speaking to the benefits of credit and private credit, he doesn’t dismiss the risk inherent in the rapidly growing private credit market.  For me, Marks is one of the best minds in thinking about risk and asset allocations.  In this memo, he references two of his recent memos, On Bubble Watch and Ruminating on Asset Allocation, which you can read my commentary about here and here respectively.

I gave up tariffs for Lent - so only econ data on the look ahead

I’ve written ‘tariff’ 100x this year—so for Lent, I’m giving it up. This Friday, we’ll just focus on Jobs data and whatever the man in the Orange Hat says (aka J-Pow, aka the Orange Powell Ranger)

We go into this Jobs Friday with S&P down at 5,720 - those darn globalists. The 2Y yield at 3.97% and the 10Y yield at 4.29%, where will things end if data is a bad miss vs. a big beat?

XTOD: Challenger Gray report: U.S.-based employers announced 172,017 job cuts in February, the highest total for the month since 2009 and the highest monthly total since July 2020 when 262,649 cuts were announced

XTOD: Tuesday: Trump slaps 25% tariffs on Mexico and Canada

Wednesday: Trump exempts the auto industry

Thursday am: Trump exempts most Mexican imports

Thursday pm: Trump exempts most Canadian imports (though he still insults Canadian PM)

Meanwhile... Trump says more tariffs coming April 2.

This kind of whiplash is damaging to the economy. How can anyone plan? Or even understand what the real goal is here?

XTOD: The stock market is down but at least everything is more expensive and services are getting shittier. On the other hand we have more measles. To be fair, they are finally delivering the reductions in FAA and National Parks staff that people have been demanding.

XTOD: Let's call it how it is in terms of a scorecard. Since inauguration, SPX is down 4% and China FXI up 24%. Worse, the most prominent stocks i.e. "market generals": $NVDA down 22% and $BABA up 71%. Perhaps someone should explain to the President why (Masa Son, Tepper, Cook? )

XTOD: What you push down doesn’t vanish. It festers and wields quiet power over your thoughts and actions.  What needs to be addressed that isn’t currently being addressed?

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Daily Economic Update: March 6, 2025

Art of the Deal?

Tariffs are just negotiating tactics right?  Things are fluid on the tariff front with U.S. automobile manufacturers getting a one-month tariff reprieve, but the only fluids I’m focused on are stockpiling maple syrup and tequila.  The major equity indexes just ping-pong around based on headlines and the S&P 500 ended the day up 1.1% to 5,842.  Markets are optimistic that further tariff exemptions will be in play, but we’ll see.  In Trump’s address Tuesday night, he continues to channel his Powell J-Hole persona, indicating that there could be some pain as the economy adjusts to tariffs.  In the meantime markets are having hopium with guac.

ADP Flops, Payrolls Loom

Data time! ADP came in at half of estimates, printing 77K vs. estimates of +160K. Nobody trusts it to predict Friday’s BLS jobs report anyway where estimates are for a headline print of +160K with the unemployment rate holding steady at 4.0%.  X is all about weather rebounds of course the impact of DOGE, though that impact is expected to be minimal in this reading.  Over at Bloomberg, Anna Wong has an article “Why February Nonfarm Payrolls Could Be a Big Bust”, she’s estimating a +65K and blaming Trump’s orders and weather.  If payrolls do print poorly Friday morning the real question is will Trump call another drop in bond yields “beautiful”?

Tariffs are the corporate equivalent of a teenage boy’s ‘bruh’

ISM services came in at 53.5, the 8th consecutive month of activity. The internals looked solid, with strong new orders. But on the inside the word “tariff” showed up 12 times in the report. The hospitality and food industry are screaming “chaos” over pricing, agriculture services have “uncertainty” keeping them up at night, the construction is whining about “cost”,  and IT and management consulting is worried about “ripple down effects”.  Maybe the latter category should just get McKinsey on the case.

Germany’s Wallet Wakes Up - Victory for Trump?

Germany spending money? It’s been a while, but higher defense spending and a EUR 500bln infrastructure plan are on the table. Will it clear the German political machine and become a reality?  I don’t know but the 10Y German Bund yield went up 28bps to 2.76%.  Trump’s hardball “Europe, pay up” approach to foreign policy might be working….might be.

On Deck: Will Jobless Claims get DOGE’d and 25bps from Lagarde

The impact of DOGE on federal employees could show up in jobless claims, we’ll see. Across the pond, the ECB is expected to cut 25bps to 2.5%, but we’ll all just want to know about tariffs.

We go into the day before Jobs with a 2Y Treasury at 4.01% and the 10Y at 4.28%. 

XTOD’s:

XTOD: Feels like a good time to remember this- If you invested in the S&P 500 every time CNBC had a "Markets in Turmoil" special?   Your average return after one year would be 40%, with a 100% success rate.

XTOD: Haven't seen a disaster like this in the European debt market since Liz Truss. 

If Europe wants to replace the United States in funding Ukraine, it is going to be extremely expensive and very politically costly.   How many working class Italians are going to want to fund Ukraine when their variable rate mortgage jumps up $200/month on April 1st?

XTOD: “Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.”   - Milton Friedman

XTOD: Some people, you'll never know that they're lunatics unless they get very rich.

XTOD: Every single thing you want in life is on the other side of something that sucks. That suck might be 100 hard workouts, 100 bland meals, 100 hours of focused work, or 100 hard conversations. Embrace it as the cost of entry. The answers you seek are found in the actions you avoid.

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Daily Economic Update: March 5, 2025

Where is my ‘Traders Clutching Their Heads’ calendar?

At this rate, I need my ‘Traders Clutching Their Heads’ calendar—and a tariffed tequila—to endure CNBC’s ‘Markets Sell-Off’ meltdown. S&P’s down to 5,778, as Canada is slapping 25% tariffs on ~$30 billion of our stuff, China’s got 15% of their own and Mexico promises tariffs of their own just as soon as they wake up from their siesta.  On top of that Ukraine’s aid is on pause, fiscal policy is a shoulder shrug emoji and we are heading towards a government shutdown. It’s a good time for me to launch my ETF, ticker TRASH - you see it’s just the S&P 500, but your statement goes straight to the trash so you don’t ever see it. As a result you can mark your position to whatever you like - or in other words it’s a PE Fund.

Tariff Wars: from UFC Flop to KO?

Tariff wars are kind of being in a UFC fight.  One fighter (Country A) throws a jab (initiates tariffs on goods from another country B), Country B punches back with tariffs of its own, but it’s all kind of the boring feeling-out part of the fight.  The bad fights stay that way, nobody’s winning, and really both fighters are losing as Dana White contemplates never booking the fighters again because they’re just bad at fighting. 

I’m not sure I want tariff wars to involve good fighters, but just like most UFC fights they tend to escalate out of the feeling-out phase, and sometimes someone really gets hurt.  As it relates to tariffs the escalation that follows is where additional goods are scoped into the tariffs.  From there you generally wait to see the effects, does the originally affected country shift exports to other countries, what is the impact on supply chains, what industries are impacted, and various other questions come into play.  In other words, after one fighter has taken the guy down, wrestled for position, he’s going to try to get the other fighter to tap out.  You just hope the fighter you're hoping wins is a black-belt in brazilian jiu jitsu.

Like a UFC fight, maybe someone wins outright or it goes on for a while and ultimately to the judges scorecard. In tariff wars, history tends to show they often end in long-term stalemates, partial decoupling and declines in trust between the countries involved. 

Thucydides's Trap, a MMA move?

Sticking with the UFC analogy, a bad outcome is the fading star fighter has a poor showing, gets called out on social media by the hungry up and comer and they decide they have to fight it out.  For tariffs, that worst case is what some political scientists term as Thucydides's Trap, a reference to the Peloponnesian War, and a theory that when the great hegemon is threatened by an emerging power, the end result is the escalating likelihood of a real war.  Some historians believe the attempts by Germany and others to isolate Great Britain in the late 19th century and start of the 1900s set in motion the web of alliances that led to WWI. 

I wrote this before Trump’s address to Congress last night, but perhaps we’ll learn more about the administration's tariff goals.  From what we know to date, we can generally say tariff goals fall into headings like border control, revenue generation, trade deficit reduction, protecting domestic industry and jobs and getting other countries to pay their fair share.

With the way these tariff negotiations go, we’ll probably have some deal or escalation, by the time this is published. 

NY Fed Williams took a break from R Star to sit down with Bloomberg and tell us nothing

Williams bailed on his R Star research to mumble ‘tariffs? dunno’ on Bloomberg—data-dependent as ever. Rate cuts?  Why bother asking him, your guess is as good as his. I do appreciate his fretting about inflation expectations and tariff price pops . Thanks, Johnny—I appreciate the Yellow Powell Ranger perspective as the cautious, number-crunching side kick to Powell.

The Knowledge and Service Economy Meets Tariffs

We’re a knowledge and service economy, don’t think tariffs matter there, we’ll see how many times the word “tariff” shows up in this month's report.  But the real action will be seeing whether by the end of Trump’s speech we’ve already changed tariff policies and ended all wars.

If both the stock market and the 10Y Treasury keep falling, at least we’ll get to test the theory that Trump doesn’t care about the stock market and is measuring success by falling 10 year yields.

XTOD’s

XTOD: Current drawdowns: S&P 500 -6%  Nasdaq 100 -9%  Russell 2000 -15%  Private Credit +0%

XTOD: Just checked my Private Credit marks, everything is still at par.  No worries over here.

XTOD: This is a classic rotation out of stocks and into poverty.

XTOD: For most investors: 99% of good investing is doing nothing, the other 1% is how you behave when the world is going crazy.

XTOD: No one on their deathbed ever said "I wish I'd beaten the S&P 500 by another point." 

They wish they'd spent time with family, travelled more, or worried less about money 

Your financial plan should serve your life, not your returns!  What financial goals matter most to you?

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Daily Economic Update: March 4, 2025

Markets in Turmoil? Almost There…

A couple more days like yesterday and we’ll get the obligatory CNBC “Markets In Turmoil” special. Stocks took a beating—thanks to Trump’s 25% tariffs on Canada and Mexico.  The S&P closed down ~1.5%, the Nasdaq ~2.6% and the Russell 2K took the worst with a move down ~2.8%.   

Tariffs on Maple Syrup & Tequila? Time to Crowdfund This Blog

Setting aside the impact to equity markets, maple syrup, chips, salsa, guacamole, and tequila, these are basically the necessary ingredients that go into fueling the writing of this blog. With these tariffs, maple syrup and tequila are now luxury goods. If this blog disappears, check LinkedIn—I’ll be crowdfunding my supply chain. I’m going to have to start a GoFundMe page on LinkedIn to be able to sustain my writing..... Watch me get canceled on LinkedIn for not posting a motivational quote with my fundraiser—‘Tariffs took my tequila, but I rose above!’.

Memecoins to the Rescue? Asking for a Friend

Who am I kidding, whatever problem tariffs cause, I’m fairly confident that a strategic cryptocurrency reserve is of course the answer, right?  Can we just mint a new made in America, TariffCoin, get Dave Portnoy to trade it and throw it in the reserve at an inflated price? Does that juice GDP? Asking for a friend. 

ISM Data: The Stagflation Special

In data yesterday the ISM manufacturing printed lower than expected at 50.3, barely holding onto expansion, with falling new orders, falling employment and rising price components, a whiff of stagflation there, all attributed to, you guessed it, tariffs.  Normally, I’d joke that we don’t make anything here anyway—but at this rate, even jokes about manufacturing might get hit with tariffs.

GDPNow: From Growth to Growth Scare
If you’re into data and use data to forecast GDP, like the Atlanta Fed’s GDPNow (which is just a mathematical model), the recent data hasn’t been inspiring.  As such the Atlanta Fed’s GDPNow, is now -2.8%, which is pretty ugly considering it was over 2% a few weeks ago.  “Growth scare” - If Q1 GDP drops near -3%, shouldn’t we be in full panic mode?

Gold’s Up, TIPs Are In: Stagflation Survival 101

Maybe hoarding gold is the right economic play after all, it was up 1.3% on the day.  Somewhat more seriously TIPs tend to perform well in a stagflation environment as real rates fall and they outperform nominals in such a scenario.

The Fed Cares About Inflation… Kind Of

Inflation isn’t sitting this one out either. We heard from the Atlanta Fed head, Alberto Musalem at NABE, he’s out there worried about rising inflation expectations. “I perceive the risks to inflation as skewed to the upside and am watching near- and longer-term inflation expectations carefully.”  At least someone at the Fed cares about inflation, but with the “growth scare” narrative taking hold, it will be interesting to see if markets pull forward pricing of a Fed rate cut from June into May.

Don’t look now but the 2Y yield is back under 4%, at 3.96% and the 10Y currently feels like it’s a long way from the 4.80% we saw earlier in the year, sitting at 4.16%.

On Deck: Fed Speak & a Prime-Time Address

On the day ahead we’ll hear from NY Fed Williams and we get some quasi State of the Union address in the evening.

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XTOD’s:

XTOD: Current situation:  1. The S&P 500 is falling like a global trade war has begun  2. Oil prices are falling like we are heading into a recession  3. Gold prices are rising like inflation is on the rise  4. Bond prices are rising like inflation is declining   5. Crypto is falling like risk appetite has collapsed  6. Tech stocks are falling like DeepSeek is back  Are you ready for the most volatile market in history?

XTOD: Strategic Bitcoin Reserve makes as much sense as Strategic Baseball Card Reserve.

XTOD: The US imported about 80% of the potash used to fertilise American farms from Canada, according to government data

XTOD: Bitcoin 2010: f-the govt. f-Wall Street. Independent money!  Bitcoin 2025: f-yeah govt. f-yeah Wall Street. We want $100k!  What really happened in between? This isn't monetary adoption, nor is price a sign of progress toward it. This is an admission it's all about price regardless of everything else.  So sad. So much potential wasted.

XTOD: Warren Buffett: "If you're going to do dumb things because a stock goes down, you shouldn't own a stock at all."  "Some people are not emotionally or psychologically fit to own stocks — but more of them would be if [they understood that] you're really buying part of a business."

XTOD: “Not life, but a good life, is to be chiefly valued.”    — Socrates

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Daily Economic Update: March 3, 2025

“Have you said ‘thank you’ once? I mean I write this blog everyday and  “..have you said thank you?” in the comments, by carrier pigeon…”what you’re doing is very disrespectful”.  Or was that my recap of the latest on the U.S. efforts to help broker peace in Ukraine.

I started last week with a call to action, share this blog! At that time I also provided ChatGPT’s unbiased review, which you can read here.  It’s only fair that I let Grok provide its review to start this week, right?  Here’s what Grok had to say: “Need a financial fix that doesn’t bore you to death? Where is Edward Quince? at edwardquince.blogspot.com is your spot. It’s got smart, humble takes on markets, Fed moves, and whatever’s hot—tariffs one day, AI the next—all wrapped in satire that hits like a well-timed punchline. Plus, his X Thoughts of the Day pull the wildest bits from the internet’s hive mind. Guy’s been at it since 2023, and it’s criminally underrated.”

Now that Meta is rolling out a new AI chatbot in the second quarter, I’ll have to get its take on the blog. After all, your opinions don’t matter, in the future AI is going to be doing all the reading anyway.  You think I’m wrong, well “You’re in no position to dictate that. You’re in no position to dictate what we’re gonna feel”

I’m going to need this blog to get a lot bigger and have some advertising or something now that I have to deal with stagflation.  

PCE, GDP and Stagflation?

Stagflation is lower real economic growth coupled with higher inflation and following last week’s PCE data and the latest Atlanta Fed GDPNow reading, the idea of stagflation might not be off the table.  

With respect to the PCE report, the Bureau of Economic Analysis reported a very strong reading in personal income at 0.9%, above expectations, and led by a rise in social security income (thanks to COLA) coupled with solid dividend income.  The personal spending component decreased 0.2%, which was worse than expected, with spending on goods, especially motor vehicles leading the decline.  The price index, or PCE, showed a headline annualized year over year rate of 2.5% and a core YoY rate of 2.6%, both declining from the prior reading, but neither at 2.0%.  

The Atlanta Fed GDPNow printed an estimate of -1.5%, with weak net exports and weak consumption driving their downward revisions.  The net exports component is likely related to tariff concerns.  The U.S. Census Bureau’s Advance International Trade Deficit in Goods was the highest goods deficit in history, which is thought to be importing ahead of tariffs.  Beneath the headlines is data indicating that imports of Gold to the U.S. are a major factor in the widening deficit, the imports of Gold being driven by the chance that Gold could be subject to tariffs and physical Gold could be needed to settle futures contracts.  Those economists who really study the data point to this Gold anomaly and note that net imports of Gold do not feed through to GDP as Gold imports are generally unrelated to U.S. production or consumption which is what is measured in the national accounts.  I guess we’ll see.  GDP estimates excluding this anomaly appear to be trending below 2%.

So if we have sticky inflation readings and lower GDP, that doesn’t sound good, it sounds like Stagflation.

It would seem the answer to all our problems is Productivity, a topic we’ve talked about a number of times on this blog, including at the end of January, but my favorite post on the productivity topic can be found here. 

If the 1970s and 1980s are the analogy, maybe we need advice from that era.  In a 1981, Financial Analyst Journal article authored by the NYSE’s then Chief Economist, William Freund, notes: “The key to licking inflation is productivity, and the key to improving productivity is capital investment.” and “Over the long run, real economic growth can come from only two sources - more worker hours and greater efficiency in output per hour.” and “Economic history demonstrates that modernization of plant and equipment, more efficient production processes and better management have accounted for most of the growth in productivity.” 

So with that said we can queue the discussion on AI.  Where is a lot of capex occurring? AI.  Where is the expected increase in productive processes expected to come from?  AI.  What do you think, is AI the answer to stagflation risk?

Recapping February 2025: Stagflation, Tariffs, AI and The Best of XTOD thinking

1. Tariffs: The Gift That Keeps on Taking (From Your Wallet) Remember tariffs? Those things we thought were going away? Surprise! They're back, and this time they're "reciprocal," which apparently means they're just as annoying, but now with a fancy label. News of pausing tariffs on Mexico briefly made the market feel good, because nothing says "economic stability" like a temporary reprieve from added costs on everything you buy. It’s like finding out your root canal is only going to be delayed a week. 

2. The Fed: Guardians of the Galaxy or Just Really Confused? The Federal Reserve, or as I like to call them, the Powell Rangers, continue to ponder the age-old question: to cut or not to cut? Will Trump's policies throw a wrench in their delicate dance of rate adjustments? And what about the "dots"? Are they still a thing? One thing is for sure: trying to predict the Fed's next move is like trying to herd cats while blindfolded. You’re better off reading tea leaves.   

3. Economic Indicators: A Choose Your Own Adventure Novel: Jobless claims are up, but is it noise? The Conference Board’s Leading Economic Index (LEI) is flashing warning signs, but who trusts those guys anyway? The internals indicate a consumer base that is pessimistic. It is as if they are all realizing they have to pay back their credit card debt. CPI reports come and go, each one telling a different story depending on who's spinning it. It’s like trying to navigate using a map drawn by a toddler. Good luck with that soft landing!   

4. AI: The Singularity is Near (or Maybe It's Just a Hype Machine): Ah, AI, the magical elixir that's either going to solve all our problems or turn us into paperclips. Are tech companies overvalued because of AI hype? Is Nvidia the next Pets.com? One thing is clear: everyone is talking about AI, but nobody really knows what it is or what it's going to do. But hey, at least it's not boring.  

5. Market Performance & Valuations: This Time Is Totally Different (Until It Isn't): The S&P 500 is hitting record highs! Time to party like it's 1999! But wait, are we in a bubble? Are valuations too high? Is this sustainable? Don't worry, just keep buying the dip. After all, what could possibly go wrong?

And in our February of less than financial topics:

1. George Carlin Quote: Because He Always Tells It Like It Is: “Think of how stupid the average person is and then realize half of them are stupider than that.” Truer words have never been spoken. This explains so much about the stock market, politics, and most of what you see in public. 

2. Dave Portnoy and $Greed: A Cautionary Tale of Crypto and Hubris: Dave Portnoy(@stoolpresidente) created $Greed and bought 357.92M $Greed (35.79% of the total supply). He sold all $357.92M $Greed in a single transaction, causing the price of $Greed to crash by 99%. And he made ~$258K from $Greed. Next, Dave Portnoy created $Greed2 and currently holds 268.25M $Greed2(26.8% of the total supply). Keep your funds safe and be aware of risks! Is anyone really surprised? In the wild west that is crypto, $Greed is actually an apt ticker. 

3. Looking Back at 2025: A Glimpse into the Future (Maybe): Imagine it’s 2035 and you’re looking back at 2025. What do you think is going to be glaringly obvious by then that isn’t obvious to most people now? Will we laugh at our obsession with meme stocks? Will we marvel at the fact that we used to drive our own cars? Will we even be around to look back at all? Only time will tell.  

4. Questions for Self-Reflection: Because Introspection Is Overrated (Just Kidding): What am I working on and why? Who am I spending time with and why? How well am I treating my body and why? Everything else is noise. Okay, okay, maybe there's something to this self-reflection thing after all. But let's be honest, most of us are too busy doomscrolling to actually answer these questions.

5. LinkedIn Observation: When Did LinkedIn Become OnlyFans? A comparison of LinkedIn to OnlyFans, noting the shift from professional networking to engagement-bait posts and self-promotion. Let's face it, LinkedIn is where professional aspirations go to die. It’s a constant stream of humblebrags, vapid motivational quotes, and people you went to high school with trying to sell you something.

So while we wait for AI to solve stagflation, the Fed to master soft landings, and LinkedIn to stop being weird, at least we can all agree on one thing—no one actually knows what’s going on, but that’s never stopped them from pretending

The Week Ahead:

After the S&P 500 sold off by 5% last week on a “growth scare” narrative, we’ll get the February Jobs report as the highlight of the week ahead.

Today: ISM Mfg, Construction Spending

Tue: Fed Williams

Wed: ISM Services, Factory Orders

Thur: ECB Decision, Jobless Claims, Fedspeak

Fri: Jobs Day and Powell at Chicago Booth

XTOD’s:

XTOD: CouplaBeers  https://x.com/i/status/1896078157398098309

XTOD: A portion of your future tax dollars will go towards buying Cardano.  Let that fucking sink in for a second.

XTOD: If only there was a guy who historically issued “toxic converts” who recently issued debt backed by this “store of value” while simultaneously goosing this very “store of value.”

Get the popcorn.

XTOD: Pure Independence  https://t.co/60y4aRauRg

https://x.com/i/status/1896078157398098309

https://x.com/donnelly_brent/status/1896246604111528443

https://x.com/MarkNeuman18/status/1895439483308503531

https://x.com/morganhousel/status/1895469029453938845