Daily Economic Update: March 17, 2025

We’re All In the Fed’s Family

It’s going to be a busy week with your ‘highlight’ being the FOMC meeting on Wednesday. Let's face it, the FOMC meeting is likely to be a snoozer with a bunch of non-answers on topics like tariffs, rising inflation expectations and just about everything else.

Besides, you’ll be spending all week filling out your March Madness brackets and then pretending to work on Thursday and Friday as you watch tournament games.

As we’ve done before we’re going to take a break from all the noise.  

Stepping back from the noise: 5 days, 5 book passages on the Fed & markets. Guess the books, join the discussion. No Fed pivot required.

Starting with today and for the balance of this week you’ll get one quote/passage from a book that I think could be relevant to the Federal Reserve. Each day’s passage will be from a different book. Your job is to identify the book and post your answer along with any thoughts you have related to the passage in the comments. Sure, go ahead and use your favorite AI or search engine if you want, but bragging rights for those who don’t.

Today’s Quote/Passage:

Given so much uncertainty, he was convinced that the Federal Reserve should not try to make itself and arbiter of equity prices….Drawing a rather stretched analogy between the Federal Reserve and its various and conflicting objectives for the economy and a family burdened by many children, he ruminated, “Must we accept parenthood for every economic development in the country? That is a hard thing for us to do. We would have a large family of children.  Every time one of them misbehaved, we might have to spank them all.”

Daily Economic Update: March 14, 2025

So... we’re not popping bottles this Friday?

200% tariffs on champagne was enough to send the broader market into a technical correction. The S&P 500 is now down 10% at 5,521.  The small cap, Russell 2,000 index is looking like it’s on Ozempic, almost touching bear market territory.

Wine, champagne, tequila, all subject to tariffs, it’s getting hard to have a happy hour this Friday.

If you’re looking for answers, don’t ask your iPhone

Apple isn’t helping you out here, it’s market cap is down almost 20%. So much for writing my blog post on my Apple VisionPro while dictating to Siri AI and driving an Apple self-driving car…darn.  

Speaking of Vision

I’ve been doing some research on leadership and transformation (no, I’m serious). If you think the U.S. is going through a period of transformation, there is some literature by Noel Tichy that describes the transformation process at older organizations as a “Three-Act Drama”.  

I’ll lay out the broad strokes and you can decide for yourself what act in the transformation of the U.S. economy (if indeed transformation is the plan) is in and if it’s going well.

• Act I - Waking up the organization to the need for change and dealing with resistance.  Making the case and convincing everyone at all levels that things can’t continue as is, and people need to face reality. 
  
  

• Act II - Crafting a new vision and aligning people to it. The vision for the future must be communicated in a way that is so compelling that people will want to attain it. The leader must move quickly getting people onboard with the vision.
  
  

• Act III - Re-architecting the organization. Removing the old structures that don’t support the vision and replacing them with new values and working relationships.

The goal is supposed to be something like sustainable value creation, staying ahead of the competition by having people who are aligned, energized and smart. The kind of place where information flows and turns into usable knowledge, where everything gets better and everyone gets smarter.

In older organizations some of the challenges to transformation tend to be individuals holding onto power within structures that have become bureaucratic, hierarchical and that foster an attitude that because we’ve been here forever, we’ll survive.

Is it possible the current administration is trying to complete all Acts simultaneously?  

When you see things like: “The U.S. doesn’t have free trade. We have stupid trade." That sounds like Act I. 

Perhaps Act II is “the U.S. will shortly place a 200% Tariff on all WINES, CHAMPAGNES, & ALCOHOLIC PRODUCTS COMING OUT OF FRANCE AND OTHER E.U. REPRESENTED COUNTRIES. This will be great for the Wine and Champagne businesses in the U.S.” - You catch the line where things will be great. That’s vision! 

And Act III, I think that’s just firing everyone who doesn’t agree with you.

Done!  Wait, you weren’t sold on the tariff idea, you didn’t get it - did you not see the word “great”.

If you can’t sell your vision then other people will make it up for you

Don’t believe me, how many posts have you seen that imply that the current vision for economic transformation is as follows (courtesy of Kayla Scanlon):

Crash the market and reap the benefits.  How?  Create so much chaos that investors flee to treasuries, pushing down yields, at which point you refinance the entire national debt and simultaneously the U.S. starts producing everything.

The narrative has a hint of the previously bantered about ‘Mar-a-lago Accord’.  

I suggest you click the link, not because you care about any of the political chaos above, but because that is also the post with highlights from the most recent Berkshire Hathaway shareholder letter and we can all use more wisdom from Warren.

Enough dunking on politics - it’s not March Madness yet

O.K., I lied, sticking with politics, Germany may not want to spend that massive amount of Euro’s on their military and Russia may not want to stop their military from fighting in Ukraine. 

The Day Ahead

Even though PPI was lower than forecast, with core PPI rising just 3.4% YoY vs. expectations for 3.8%. 

Even with softer CPI and PPI, PCE doesn’t appear to be budging—so neither is the Fed. We head into Friday with 2Y at 3.98%, 10Y at 4.27%, and UofM inflation expectations as today’s main course. Tariffed guacamole optional.

XTOD’s:

XTOD: Every one job in Canada in the Aluminum industry supports 13 jobs in the United States. When you see the loss of a Canadian job in Aluminum - America loses many, many more.  There’s a reason the WSJ calls this “The dumbest trade war in history.”

XTOD: Overheard at #CERAWeek:  “China will probably burn more coal this decade than the US did in its whole history” — Judson Kroh, President of Robindale Energy

XTOD: Video has surfaced of the Chinese barges tailor-made for allowing easy ship-to-shore transfer of supplies to a location without proper docking facilities. The barges, first noticed in a Chinese port a number of months ago, are commonly compared to the “Mulberry Harbors” during follow-on operations after D-Day.

The barge’s military applications are obvious and would allow for follow-on forces and sustainment efforts in a Taiwan invasion scenario once a deep beachhead was established by any Chinese invasion force. However, given the nature of Taiwan’s available beaches and the susceptibility of the barges to precision strikes, it still remains to be seen how effective these barges might be in such a scenario

XTOD: WTI crude oil is down for 8 consecutive weeks (longest streak since 2015) and it hardly ever comes up in market/eco conversations.

XTOD: TRENDING: MARSHALL FAULK’S 1ST SPEECH AS THE COLORADO RB COACH HAS GONE VIRAL.  “I'm new. For those of you that don't know me, I'm Marshall Falk. I don't want to get into stats. If you want those, I'm Googleable. Check me out” 

“Effort requires no talent” https://x.com/i/status/1899633895693287810

XTOD: The Process: 1. Decide what you want to achieve.   2. Try different ways of achieving it until you find one that works for you.  3. Do more of what works. Do less of what doesn’t. 

4. Don’t stop doing it until it stops working.   5. Repeat.  It is both this simple and this hard.

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https://x.com/i/status/1899633895693287810

https://x.com/JamesClear/status/1900227234075484365

Daily Economic Update: March 13, 2025

Still a 3-handle, but it didn’t stink too bad

CPI came and went. It was a little softer than expected—2.8% headline, 3.1% core. Unfortunately, some of the biggest declines, like airfares, don’t pass through to PCE.  This is a good summary of some of the major differences between CPI and PCE.  

Bottom line: A softer CPI makes today’s PPI report more important. Areas like financial services and healthcare could move the needle for PCE, which is what the Fed watches.

And since this CPI data dropped before the “T” word hit, it was, as the kids say… mid.

Speaking of the “t” word..

Tariff Tiff 

Tariffs are already weighing on Canada.  Bank of Canada Governor Tiff Macklem (yes, really) said, “The pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence.”

The BoC cut their policy rate by 25bps to 2.75%.

And the hits keep coming: The EU and Canada both slapped retaliatory tariffs on U.S. goods after the U.S. put 25% duties on steel and aluminum.

So, does a unified front from U.S. trade partners make it harder for the administration to negotiate one-on-one? Probably. Maybe that was part of the plan… or maybe not. Something to chew on.

While the rest of the world hates U.S. tariffs, on the brightside…

But Hey, No One Boycotted The Treasury Auction

10Y Auction was solid - strong bid to cover, solid indirects (foreign demand). So there’s that.

Despite positive inflation news and a solid auction yields rose, with the 2Y treasury closing at 3.99% and the 10Y at 4.32%.  

Over in equity land…

Continuing the 2000s Greatest Hits Tour:

Yes, stocks bounced. The S&P rose for the first time this week, closing at 5,599. Your favorite tech names had a good day. Fine.

But the 2000s nostalgia is more fun. So, here’s today’s throwback: 
Michael Saylor, founder of MicroStrategy, rode the internet bubble to a $13.5 billion net worth. In 2000, he told Noel Tichy, “The only people who think we’re in a bubble are the ones who don’t get it.” One week later, MicroStrategy restated earnings. The SEC charged them with fraudulent revenue recognition. Saylor was fined $10 million and lost control of the company. The stock dropped 62%.

Some things never change?

On Deck for Today: 

PPI, Jobless Claims, 30Y Auction. More fun awaits.

XTOD’s:

XTOD: What the @bogleheads  know:  If you have a sane asset allocation and a portfolio of low-cost investments, you can pretty much tune out the current nonsense with tariffs, market gyrations, etc.  I've got to say, it's incredibly freeing.

XTOD: Breaking: People close to @WhiteHouse  believe  @JoeBiden  increased federal spending by as much as $300 billion in his final months of his presidency to juice the economy and markets and help @KamalaHarris  get elected. That combined that with rolling over short term debt in order not to force rates on the all-important 10 year note (which consumers rates are priced off of) to spike higher, has left a balance sheet mess of epic proportions. They say this spending spree provides an insight into the mountain of debt and deficits that Trump must start to eliminate. Story developing

XTOD: The Atlanta Fed's sticky-price consumer price index (CPI)—a weighted basket of items that change price relatively slowly—rose 3.1% (on an annualized basis) in February, following a 4.9% increase in January. On a year-over-year basis, the series is up 3.5%. 

On a core basis (excluding food and energy), the sticky-price index rose 2.9% (annualized) in February, and its 12-month percent change was 3.5%.  The flexible cut of the CPI—a weighted basket of items that change price relatively frequently—rose 2.4% (annualized) in February and is up 0.8% on a year-over-year basis. 

https://atlfed.org/4hwPL0O

XTOD: Nearly everything awesome takes longer than you think. Get started and don't worry about the clock.

XTOD: When Kobe Bryant said his insane level of confidence came from knowing he’d done all he could to prepare, it taught me that anytime I feel nervous, it meant I didn’t prepare enough.

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Daily Economic Update: March 12, 2025

Jolted

At one point I thought parts of the country were going to lose electricity and I didn’t even know we got electricity from Canada. Then I realized we were negotiating something..about electricity, or aluminium, or steel?  Honestly, I have no idea what's going on. But I’m willing to admit it. Most people aren’t.

While we were all distracted by the lights flickering, I almost forgot—

JOLTS Data dropped. That data showed that job openings rose by 232K, to 7.74mm in January.  Interestingly the federal government hiring rate increased by a 1/10th in that period. 

Speaking of data..Remember that whiff…

Will the inflation report today stink? Setting aside the fact that the YoY rate will continue to have a core CPI rate with a 3 handle (remember the target is 2%), everyone’s watching internals. Car prices, car insurance (wildfires and maybe a hint of the “t” word), and housing—always housing

As important as CPI reports tend to be, I don’t know if the data will matter that much as markets are focused on the impact of potential trade wars on both inflation and growth going forward.

Speaking of wars…maybe not everything stinks:

Reports are that Ukraine has agreed to terms outlined by the U.S. for a 30-day ceasefire. Now it’s up to Russia. Sounds like minerals are on the table. That should be a positive development.

The Early 2000’s Called… And They Want Their Narratives Back

Equities did rebound off the lows of the day,which saw the S&P touch a correction (down 10%) on that news… But the S&P still closed down 0.7% at 5,572.

But let’s zoom out:

Remember a world of massive uncertainty? Post-9/11. Dot-com bubble burst. Enron. India-Pakistan military standoff (no one remembers this). AIDS fears. Geopolitics.

And the digital revolution accelerating under it all.

Despite all that, if you zoom out… things worked out.

But only if you…

Listened to the Advice of A Decade Earlier

“I know that there is pain, but you..Hold on for one more day…Don't you know, things can change…Things'll go your way…If you hold... on for one more day…Can you hold... on for one more day? Things'll go your way”  - Wilson Phillips

“Sometimes everything is wrong…If you feel like letting go (hold on)...And everybody hurts sometimes…So hold on, hold on…Hold on, hold on, hold on” - REM

Or take it from actual investing legends

Take Charlie Munger for example - "It's waiting that helps you as an investor, and a lot of people just can’t stand to wait."

Or Peter Bernstein's advice that  "The more uncertain the outcome, the greater may be the value of procrastination"

Or a different kind of investor who said "Often we tell ourselves, "Don't just sit there, do something!" But when we practice awareness, we discover something unusual. We discover that the opposite may be more helpful, "Don't just do something, sit there!" We must learn to stop from time to time in order to see clearly. At first, "stopping" may look like a kind of resistance to modern life, but it is not. It is not a reaction; it is a way of life. Humankind's survival depends on our ability to stop rushing." -Thich Nhat Hanh

Can We Stop And See Clearly?

Or Will Tomorrow’s Noise Suck Us Back In?

We’ve got CPI, a 10Y auction, and the Bank of Canada on deck.

Is there a signal in all of this? Or are we just reacting to noise?

XTOD’s

XTOD: Charlie Munger's 5 investment skills to develop:  1.) The ability to keep raw irrational emotions under control. 2.) Patience. 3.) Discipline. 4.) An ability to take losses and adversity without going crazy. 5.) The ability to not be driven crazy by extreme success.

XTOD: We have three currencies in life:

• Money

• Time

• Health

The cruel irony?   They're rarely abundant simultaneously:

Young: Rich in time and health, poor in money.

Middle age: Rich in money and health, poor in time.

Old age: Rich in money and time, poor in health.

XTOD: The private equity names are now all down 30-40% from the highs (!!!) so I think it's time for another juicy thread on the threat to capitalism as we know it.Let's begin:....Much much more to post in this thread but Twitter is cutting me off. We're all screwed, if that isn't apparent from the stock market today. This is just a taste.  Visit http://shortprivateequity.com for more.

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Daily Economic Update: March 11, 2025

Can you smell what The Rock is Cooking?

The Rock is a precipitous fall in equities, and the smell? That’s the whiff of stagflation. You caught it in the latest NY Fed SCE report::

•  “Median inflation expectations increased by 0.1 percentage point (ppt) to 3.1 percent at the one-year horizon”, 

• “The share of households expecting a worse financial situation one year from now rose to 27.4 percent, its highest level since November 2023.” 

•  “The mean probability that the U.S. unemployment rate will be higher one year from now—jumped up by 5.4 ppt to 39.4 percent in February, its highest reading since September 2023.”

A real feel-good story. And that smell might make you puke.

Worst Day of The Year For Equities

Not a banner day for growth investors, especially Tesla bulls. TSLA is now down nearly 50% from recent highs.

T-Bill and Chill seems to be the winning strategy so far this year.

Not Investment Advice but - “This too shall pass”

According to legend, the wise men finally boiled down the history mortal affairs into a single phrase, 'This too will pass’.  

What’s an investor to do?  

• Keep a long-term perspective focused on your personal goals.

• Understand that downturns are normal—and history favors the patient.

• Focus on underlying value and build in a margin of safety rather than chasing price action. 

• Remember: nobody can predict the future. 

• Adopt intellectual humility—be wary of anyone claiming certainty.

This has been the stance of this blog since the beginning. Warren and Charlie said it best:

“In order to succeed, you must first survive.”

“Never interrupt compounding unnecessarily.”

Smart.

With the Fed on blackout, we’ll see what leaks out of the Administration mouthpieces and what the JOLTS data brings next.

Do Central Bankers Run the World?

Imagine the U.S. public electing a former Central Banker to be President. In Canada, they basically did—granted, Mark Carney was head of the Bank of England, not Canada.

Still…

Central bankers should be easy targets in any campaign after the last 20 years.

Do Inflation Expectations Matter?

Quick history lesson:

Back in 2021, Jeremy Rudd at the Fed wrote a paper trashing the New Keynesian idea that inflation is driven by expectations. Rudd argued that “anchored expectations” became an excuse to adopt policy mistakes.

He suggested that real-world factors—like actual inflation and economic conditions—might give a better understanding of inflation dynamics.   Something to chew on while you read every inflation survey this week.

The Only Honest Answer:

“I Don’t Know.” It’s the right answer to just about everything in the markets.

Since I don’t know, I’d be happy to hear your takes in the comments - have at it.

I’d write more about the day ahead, but my blog experienced a “massive cyber-attack”.

XTOD’s:

XTOD: In our view, the market is discounting the last leg of a rolling recession, which will give the Trump Administration and the Powell Fed many more degrees of freedom than investors expect, setting up the US economy for a deflationary boom in the second half of this year!

XTOD: The S&P 500 just erased 9 months of gains in only 12 trading days...Markets can handle bad news, but not uncertainty.

XTOD: Plan appears to be more government at the border (trade and immigration) less government inside the border (doge and taxes). Rebalance the economy from the public sector to the private sector.   There’s obviously a price to pay for that. How big? I don’t know. How much pain are they willing to tolerate? More than people thought.

XTOD: I think it’s obvious that Twitter’s problem is Elon Musk working remotely and being too focused on DEI issues.

XTOD: Your ultimate success is governed by your ability to tolerate the uncertainty on the path to get there. The one who can tolerate the most uncertainty is the one who will eventually win.

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