Daily Economic Update: April 16, 2025

Flat Stocks Feels Like A Win

A low volatility day that saw stocks end relatively flat, feels like a win.  Treasuries and the dollar were well behaved with yields falling and the dollar gaining ground.  We ended yesterday with the S&P at 5,396, the 10Y at 4.33% and the 2Y at 3.85%.  

China May Not Fly Boeing

There were some tariff headlines with China reportedly stating they will not take on more Boeing made planes.  Stateside the Administration intimated that they are negotiating with 15 countries on trade deals. 

Silence > Noise

In the absence of meaningful news or data you don’t have to drown in noise.

The data will pick up today with retail sales and we get to hear from J-Pow (1:30pm ET). 

You never know what might be said to cause a big uproar, but in the meantime we’ll talk about bigger picture ideas.

John Stuart Mill on Civilized Trade

Today I am going to remix a January 2024 post I made about “influencers” and try to spin it to the current discussion around trade. Back in 2024 I referenced John Stuart Mill’s essay “Civilization” which posited that a consequence of being civilized is that the power of the individual is surrendered to the masses.  A ramification of which is that “a state of society where any voice, not pitched in an exaggerated key, is lost in the hubbub.”

When it comes to discussion around trade, tariff and policy it’s difficult for any individual to discern the voices that will improve and enlighten their thinking from those that have been corrupted or are simply amplifying public sentiment.

Setting aside the “media” or “influencer” discussion, the core of Mill’s essay is defining what it means to be “civilized”.  A key criteria of being civilized is cooperation, it’s the ability to sacrifice some portion of individual will for a common purpose. Inability to cooperate is what defines savage populations.  It is nearly impossible to find any enterprise that doesn’t require the cooperation of many individuals.  Commercial enterprises, military enterprises, all require many hands to work as independent parts of a complex whole.

Trade As a Civilizing Force

What does this have to do with trade? I think the simple message is cooperation is good, without it we veer towards savage outcomes that are bad for commerce. 

One of the right questions to ask might center on how best to create the conditions necessary for cooperation in trade, one that perpetuates a continued realization that these conditions can be beneficial to all. How to negotiate agreements that have the proper incentives to realize that a division of labor and comparative advantage can be mutually beneficial. 

I don’t have the answers, but Mill’s world in 1836 is not terribly different from ours, the human condition remains intact. 

XTOD’s:

XTOD: It’s easy to forget just how many 20% drawdowns we have had just in the past 5 years. We had the 28% decline in 2022, the 35% decline in 2020, and a 20% decline in 2018. In other words, every two years the market suffers a large drawdown, and it has come back every time (sometimes quickly and sometimes slowly).

XTOD: 60% of general admission ticket buyers at Coachella used Buy-Now-Pay-Later to finance their tickets, per Billboard.

XTOD: SCOTT BESSENT: “If we measure uncertainty by the $VIX, I don’t want to make market calls but it seems that the VIX has spiked and likely peaked.”  Bull. Freaking. Ish. 

I’m reading this as Bessent saying: “We’ll get tariff deals, we need some time, more progress is coming.”

XTOD: Think about this: When you avoid discomfort, you’re taking on a debt. You get the short-term benefit of the discomfort avoided, but the long-term burden of the repayment (with interest). Applies to hard conversations, procrastination, skipping workouts. Choose your debts wisely.

XTOD: Our greatest regrets are rarely failures to reach our goals. They're usually failures to uphold our values.  Few people wish they'd been more ambitious. Many wish they'd been more courageous and generous.  Success lies in building a career. Fulfillment lies in building character.

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https://x.com/AdamMGrant/status/1912177209378525369

 

Daily Economic Update: April 15, 2025

Even Every Loser Hits a Winning Streak

Yesterday was a second straight session of gains for equites. The S&P 500 is now back up to 5,405, still well off the 52 week high of over 6,100, but recovering nonetheless.  Over in fixed income land, Treasury selling pressure eased with the 10Y yield falling back to 4.38% and the 2Y falling to 3.86%, a refreshing decline in yields.  Nevertheless the move lower in the dollar index, DXY, which is now under 100 for the first time in 3 years, has left questions around the future of the dollar’s ‘exorbitant privilege” to linger.

Over in Fed land, we had the NY Fed’s Summary of Consumer Expectations which showed expectations for unemployment rising to the highest since April 2020.  Year ahead inflation expectations increased to 3.6%.  On team Powell-Rangers, Waller did the whole ‘data-dependent’ thing.

On the tariff front, I think word was that we’re going to make auto parts here. Sure. Definitely not mercantilism, right?

Definitely Not Mercantilism For Cochrane

As readers of this blog know, I enjoy reading the work of economist John Cochrane and appreciate his contributions to the Fiscal Theory Of The Price Level.  Cochrane’s latest substack post “Tariffs, Savings, and Investment” is a refreshing addition to the tariff discussion.  

We talked yesterday about mercantilism. Cochrane picks up the thread by reframing the trade deficit not as a failure of trade policy, but as a mirror to a deeper imbalance: a mismatch between savings and investment.

The U.S. consumes and invests more than it saves. China, on the other hand, saves more than it consumes—and doesn’t want to invest all of it domestically.

But hold on, doesn’t China build tons of stuff at home already? Factories, roads, ghost cities? Yes, but maybe it’s not enough to absorb their savings glut. So instead, China saves in the U.S. which pushes up the dollar and leads to a trade deficit.

As Cochrane puts it: 

“China as a whole cannot accumulate US assets without putting goods on boats (proverbially). China, in effect, wants to send us factories. But China doesn’t make portable factories. It’s great at making consumer goods. So China sends us consumer goods so that we can build our own factories without lowering consumption.”

“an increase in foreign demand to save in the US rather than at home will push up the dollar, and cause the trade deficit, which is in effect how foreigners send us factories which they would rather build here than in their own countries.”

The problem isn’t that China wants to sell us stuff and park their savings in Treasuries. The problem is what we do with the money. Instead of building productive capacity, we mail out checks. 

“the federal government is not building a trillion dollars a year of productive investment with the money. The federal government is, by and large, sending checks to its citizens to support current consumption. The federal government saw an amazing opportunity to borrow cheaply, sometimes even at negative real rates of interest. Borrow it did, and sent checks to happy voters.”

It turns out that in the future those who lent money to the U.S. will want to be paid back - ultimately they expect real resources to go back to them. 

The problem as Cochrane sees it is not one to be solved by tariffs, it’s one to be solved at least partly by reforming the U.S. “pro-consumption” policy. 

“Cure the disease, not the symptoms. Reform taxes to tax consumption, not saving and investment. Stop funneling borrowed money to consumption. Cure the nightmarish cost, regulatory, and permitting bloat making investment so difficult, especially public investment.”

A Smithian might nod in approval.

Give Cochrane’s post a read. What do you think?

XTOD’s:

XTOD: Avoid these 9 mistakes 👇

1. Losing sight of dreams and falling into work for work’s sake (W4W). 

2. Micromanaging and e-mailing to fill time. Set the responsibilities, problem scenarios and rules, and limits of autonomous decision-making—then stop, for the sanity of everyone involved.

3. Working where you live, sleep, or should relax. Separate your environments—designate a single space for work and solely work—or you will never be able to escape it.

4. Not performing a thorough 80/20 analysis every two to four weeks for your business and personal life. 

5. Striving for endless perfection rather than great or simply good enough, whether in your personal or professional life. Recognize that this is often just another W4W excuse. Most endeavors are like learning to speak a foreign language: to be correct 95% of the time requires six months of concentrated effort, whereas to be correct 98% of the time requires 20–30 years. Focus on great for a few things and good enough for the rest. Perfection is a good ideal and direction to have, but recognize it for what it is: an impossible destination. 

6. Blowing minutiae and small problems out of proportion as an excuse to work. 

7. Making non-time-sensitive issues urgent in order to justify work. Focus on life outside of your bank accounts, as scary as that void can be in the initial stages. If you cannot find meaning in your life, it is your responsibility as a human being to create it, whether that is fulfilling dreams or finding work that gives you purpose and self-worth—ideally a combination of both. 

8. Viewing one product, job, or project as the end-all and be-all of your existence. Life is too short to waste, but it is also too long to be a pessimist or nihilist. Whatever you’re doing now is just a stepping-stone to the next project or adventure. Any rut you get into is one you can get yourself out of. Doubts are no more than a signal for action of some type. When in doubt or overwhelmed, take a break and 80/20 both business and personal activities and relationships. 

9. Ignoring the social rewards of life. Surround yourself with smiling, positive people who have absolutely nothing to do with work. Happiness shared in the form of friendships and love is happiness multiplied.

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Daily Economic Update: April 14, 2025

The Week That Was (And Wasn’t)

Markets last week were simply insane — the Monday puke, the Wednesday 90-day tariff pause, the Thursday re-reality of Chinese tariffs, and closing with some optimism Friday around negotiations with tariffs.  If you lived in a vacuum and only saw Monday the 7th’s opening S&P level of ~5,000 and Friday the 11th’s closing level of ~5,363, you would simply have said that was a pretty solid week of gains - in fact it was the best week in over a year.

In Treasuries we started last week with the 10Y ~4.00% and the 2Y ~3.66% and despite the global uncertainty we ended with a 10Y of ~4.50% and a 2Y of  ~3.95%.  Not the response many were hoping for from their safe haven asset.

Morgan Housel, The Voice of Reason

Thankfully, Morgan Housel’s recent podcast episode reminded us that tariffs are kind of like refined sugar—everyone knows they’re bad, but we keep reaching for the bag anyway. Housel notes that while there may be reasons to use tariffs selectively (national security, critical goods, the occasional political saber-rattle), the widespread application of tariffs rarely helps the people they’re sold to help.

He brought the receipts, too. Like the fact that U.S. manufacturing output has gone up while manufacturing employment has fallen—a product of automation, not China. Steel production in Gary, Indiana, is the poster child: more tons, fewer hands.

It turns out, most of the decline in jobs wasn’t due to someone else doing the work—it was due to no one needing to do it anymore. Machines don’t vote, but they do cut costs.

And then there’s the nostalgia trap. We pine for the 1950s, but as Housel points out, we forget that the U.S. manufacturing dominance back then came from the fact that every other factory in the world had just been bombed to rubble. That’s not a business model. That’s luck wrapped in tragedy.

What Would Adam Smith Say About All This?

Probably something along the lines of, “You’ve forgotten the point of the whole system.” Smith’s Wealth of Nations laid out how we all benefit when we each do what we do best. That’s the principle of comparative advantage—and the idea that the baker should stick to baking, the brewer to brewing, and the government to not fouling things up.

Comparative advantage isn’t about being the best at everything. It’s about being smart with your time and resources. If I’m a mediocre plumber but a great economist, and you’re a decent economist but a fantastic plumber, we should swap services and stop pretending we’re saving the world by overpaying for our own mediocrity.

In The Wealth of Nations, Smith torched the mercantilist mindset—an old-school belief that nations prosper by hoarding gold and protecting domestic industries through tariffs. That doctrine assumed that wealth was finite, nations got rich by amassing gold and silver, and trade was a zero-sum game. Sound familiar?

Smith argued that real wealth came from productive labor, specialization, and voluntary exchange that benefited all parties. In fact he saw tariffs and protectionist trade regimes as morally suspect, likely to favor certain politically connected industries at the expense of the public.

But we all know that in the real world things are messy, political, geopolitical and geoeconomic. Not every economy in the world shares the same beliefs about free trade.

I think Smith would argue that temporary protection and the imposition of countervailing duties should be in the toolbox and used in a measured, targeted way that is aimed at bringing about free trade.  In my read, Smith is also “pro-consumer” and would likely not want to harm consumer interest while trying to get to freer trade. My guess is Smith would acknowledge that allowing other countries to use policies to effectively crush competition is also less than ideal.  

A Smithian view of how to manage the current international trade system would probably be something like it’s foolish to abandon the path to open trade just because others stray from it - rather we should build trust in our institutions and play the long game investing in things like education, infrastructure and innovation.

The Week Ahead: Still Waiting for Clarity

The week ahead is part earnings, part data and mostly geoeconomics. And with data and earnings don’t get your hopes up—none of that data is tariff-adjusted yet. The real headline risk remains geopolitical: will the tariff pause stick? Will it escalate? 

Monday: Fedspeak

Tuesday: Export and Import Prices, Empire State Mfg, more Fedspeak

Wednesday: Retail Sales, Industrial Production, BoC Decision, 20Y Auction

Thursday: ECB Decision, Housing Starts

Friday: Take a Break

XTOD: IMO — This weekend’s news is not bullish.   The market covered most shorts and some went long Friday as the skew to weekend headline risk was clearly bullish. So microstructure set up not bullish.  Now you have more evidence that there is no plan. More uncertainty. Plus electronics and semis might get tariffed separately anyway.  And if you think White House picking winners is bullish Apple… Check out TSLA after inauguration, ORCL after stargate, or ETH after all the clownish White House pumps.  Apple is not a good short but my guess is we close negative Monday on all major indices even if Apple’s up 6 percent on relief.

XTOD: The hard numbers: The Republican tax plan includes approximately $1.5 trillion in new tax cuts beyond the $3.8 trillion extension of the 2017 Trump tax cuts.

XTOD: A new kind of geopolitical risk premium – Canadian and Danish institutional investors are, umm, reconsidering the extent of their exposure to the United States. An alternative headline would be that Canada and Denmark are thinking of hitting America where it really hurts (PE industry fees and compensation) …

XTOD: One of sports' greatest traditions. 🙌  Rory McIlroy receives the Green Jacket from Scottie Scheffler

XTOD: Stephen Vogt said, “Learn the lesson. Leave the event.”  “You made what you thought was the best decision in the moment. Then you leave it behind.”  Growth comes from reflection, not rumination.  Mistakes don’t define you. They are part of the process - choose growth.

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Daily Economic Update: April 11, 2025

Not Another Volatile Day

I just couldn’t bring myself to write about another volatile day.

Yes, the S&P dropped ~3.5% to 5,268. Yes, the CPI report came in weaker than expected. And yes, the 30-year Treasury auction was strong. The 10Y yield settled at 4.35%, and the 2Y at 3.82%.

But rather than dwell on the usual headlines, I’d rather focus on something that doesn’t expire faster than a Bloomberg notification—something timeless. Dare I say, something wise.

The Coachman of the Virtues

Let’s talk about prudence. Not the same thing as caution. Prudence is a cardinal virtue—literally a hinge that other virtues swing on. It’s been dubbed “the coachman of the virtues,” and for good reason.

Prudence isn’t passivity. It’s a creative, thoughtful, grounded process of decision-making. It’s how we act with both intelligence and freedom. The prudent person can see the angles, seeks counsel, avoid being swept up in emotion, and gradually moves toward the good—even if the path isn’t linear.

The prudent person knows what they want, understands tradeoffs, and avoids self-inflicted disasters. Not a bad role model when markets are spinning like a roulette wheel.

Timeless Tools for Volatile Times

Prudence is more timeless than anything I’ve ever written, but to recap a few messages we’ve talked about multiple times this year - areas of “timeless wisdom” that might help you weather extreme market volatility:

• Acknowledge uncertainty: Recognize that predicting short-term market movements is often impossible.

• Maintain a long-term perspective: Focus on your long-term financial goals and avoid making rash decisions based on short-term noise. Real goals aren’t met on a single day’s returns.

• Practice patience: Resist the urge to constantly trade or react to market fluctuations.

• Focus on underlying value: Remember that you are investing in businesses, and their long-term earnings potential is what ultimately matters.

• Manage risk: Be mindful of leverage and understand your risk tolerance. 

• Be aware of emotional biases: Avoid making decisions based on fear or greed.

• Think beyond immediate reactions: Consider the second-order effects of market events. Reaction is easy. Reflection is wiser.

The Secret to Risk Management? Look in the Mirror

The best-kept secret of good risk management? It’s mostly about managing ourselves.

John Coleman wrote it well:

“It’s about managing our ego, our arrogance, our stubbornness, our mistakes. It is not about fancy quantitative techniques but about making good decisions in the face of uncertainty, scanty information, and competing demands.”

Risk management isn’t a spreadsheet problem. It’s a human one.

Coleman references a fantastic passage from Staying Alive in Avalanche Terrain by Bruce Tremper, in a chapter aptly named “The Human Factor”:

“There are two kinds of avalanche accidents. First, an estimated two-thirds of fatalities are caused by simple ignorance... The second kind of accident... is when the victim(s) knew about the hazard but proceeded anyway... Smart people regularly do stupid things.” (p. 279)

Sound familiar? Replace avalanche with some asset class and you’ve got most of financial history.

Want To Get Smarter? Study Stupidity

The good news is we’re not doomed to repeat the same mistakes—if we’re willing to learn.

There’s real value in studying past financial disasters, in listening to the stories markets have already told us. History doesn’t just rhyme—it sometimes yells warnings we’d be wise to hear.

Risk Management Isn’t Just Playing Defense

The second secret of risk management is this: it’s not just about limiting the downside—it’s also about positioning yourself to capitalize on the upside.

We can’t control everything. But we can control our exposure, manage unwanted risks, and stay away from excessive caution. We can tilt toward opportunity, when the odds are good and the crowd is panicking.

Final Thought (and a Toast)

None of this is a recommendation. I don’t know what you should do today. I really don’t.

This is just food for thought while your drink is getting tariffed.

XTODs:

XTOD: “Rare, ugly and worrying”. That is how Krishna Guha, vice-chair at Evercore ISI, described the market moves today. In the last 30 yrs he said there are only four other times that the U.S dollar index depreciated more than 1.5% with the yield on 30-yr Treasuries up more than 10bps.

XTOD: Usually when gold moves like this, the BIS steps in to slam it. This time, they aren't even bothering

XTOD: Ignoring the change in stock prices is there an industry group that has experienced an improvement in fundamentals since the January earnings season?

XTOD: Culture is what you allow. Mike Vrabel setting the tone on day 1. The little things matter. 

Culture WINS

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Daily Economic Update: April 10, 2025

Did You Have +9.5% on Your Bingo Card?

Markets ripped higher on the back of a 90-day tariff pause, with the S&P logging its biggest gain since the Covid era—finishing the day at 5,456. Apparently, everything announced last week was just a ceiling, and according to Bessent, 75 countries now want to negotiate. It’s all about China—again. The new “clarity” is that the 10% tariffs are the base level and negotiable, with China the real target.

The Bond Market Whispered First

Trump acknowledged they weren’t thrilled with the recent move in yields and it was a factor in his tariff reassessment. Yesterday’s 10Y Treasury Auction showed that foreigners are not the problem in the bond market - it’s the directs, the funds - they were notably tepid, fanning the flames of concern. The direct bid weakness may suggest deeper stress.

Despite the tariff pause, yields rose again: 2Y ended at 3.94%, 10Y at 4.35%. That’s not what “everything’s fine” usually looks like.

Powell Rangers Need To Film A New Episode

FOMC Minutes dropped and—spoiler alert—it’s still a rerun. Solid economy, “somewhat elevated” inflation, “elevated uncertainty,” and the always-popular “proceed cautiously.” Same script, different day. Feels more like "Waiting for Godot" than monetary policy.

I Don’t Know - Nobody Knows

Since I don’t think anyone really knows a whole lot about what to expect in this market, I was thinking of writing about something along my usual line about how often we get detailed answers to questions about the unknowable financial future, rather than the most difficult of all answers “I don’t know”.  Thankfully Howard Marks did the writing for me.

Marks has dropped a new memo titled "Nobody Knows (Yet Again)". Reading it feels a bit like déjà vu all over again, or as Marks himself might say, echoing Mark Twain, history often rhymes.

This time around, Marks is looking at the current economic shenanigans and getting a distinct 2008 vibe. Remember Lehman? The dominoes falling? Yeah, he’s getting that feeling again, especially with the way global trade norms have been tossed out the window like a bad reality TV contestant (too soon for an Apprentice reference?).

And like back in '08 or March 2020, Marks argues that most of the time, the world doesn’t end. He invests accordingly.

Just like back in the early days of the Global Financial Crisis and then again during the COVID-19 pandemic (which he titled "Nobody Knows II"), Marks is throwing his hands up and admitting the obvious: nobody really knows what’s going to happen. Trying to "analyze the future," he argues, is about as useful as trying to find a rational take on LinkedIn these days – it's an oxymoron. There are no facts or past experiences to reliably guide us through the potential trade war landscape. So, all those "experts" yapping on TV? Take their predictions with a grain of that tariffed tequila.

What about our pals at the Fed, the Powell Rangers? Well, Marks says nobody knows what they'll do either. Will they cut rates to save us from a recession, or will they keep them high to fight the inflation that tariffs might just stoke? It's a real "choose your own adventure" novel out here. He even points out that the usual rate hikes might not be the magic bullet for inflation caused by slapping tariffs on everything.

In a nutshell, Marks is channeling our inner "I Don't Know" mantra. The future is murky, the experts are guessing, and the Fed's got a tough job. It's all a bit unsettling, but as Marks concludes, echoing his post-Lehman thoughts, we’ve probably got to assume things will eventually sort themselves out.

Maybe CPI Will Tell Us Something. Or Not.

We get CPI and jobless claims today. Will they matter? Only if they already reflect the looming tariff reality. But hey, at least it's data—remember that stuff?

XTODs:

XTOD: Trumps tolerance for market pain is a lot higher than you think. Because there is a plan. 

It might not be a good plan. But it is a complex plan that anticipated a crash.  Not because they want a crash. Not because they are dumb enough to think equities down -50% is good for the yield curve.  Because the only way to coerce a full global decoupling from China is to play max hardball and move quickly.  Because the first counter-attack was always going to be financial - because China correctly understands the West is over-financialized - and most people in Washington know China thinks that because Xi has been saying it loudly and proudly for years.  

So sequencing matters.  Bessant is being rushed to Japan & likely Saudi next to attempt to stabilize the yield curve. That is priority number one.   Priority number two? Game theory.  

Ensure you provide sufficient incentive for the first big pieces to flip your way.  Coerce Japan to agree to put up massive tariffs not just on China imports. But also on imports from countries who in-turn trade with China.  Establish a pattern for network effects where if you’re left out of the new sphere you lose out not just on trade with the U.S. but also on trade with the early adopters of the new accords.  Again economic coercion alone will be insufficient to cause the desired cascade.  Which is why Rubio and Hegseth will be heavily involved and why starting with Japan makes sense.  Japan is terrified of what a China-led sphere would entail.  Again, not saying it’s a good plan. But more pain has been anticipated and has been embraced.  Economic Blitzkrieg. Position accordingly.

XTOD: Where things stand, one week after Liberation Day

• Tariffs on China will go to 125% from 104% on Wednesday and from 20% on Tuesday.

• Tariffs on all other countries (except Russia, North Korea, and Belarus) will be at 10% for the next 90 days

• Tariffs on steel and aluminum are 25%

• Tariffs on imported cars are 25%

• Canada and Mexico face tariffs of 25% on goods that aren't eligible for USMCA

XTOD: Trump is predictable if you understand that he basically insists that his every week resembles a Harvey Specter episode arc. 

- Be faced with a problem 

- Freak everyone the hell out 

- Talk about winning a lot even while he's freaking you out 

- Close the deal and win.

XTOD: Annual reminder that no phones at the Masters is the best fan policy in all of sports.

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