Daily Economic Update: April 21, 2025

Less Volatile…For Now

At least we finished last week with less volatility, but it remains unclear to me as to how much progress is being made on de-escalating the tariff induced trade war. Sometimes the headlines seem to veer towards negotiation progress with China and at other times it feels like both the U.S. and China are digging in for a protracted fight.  And let’s face it, it’s really all about China.

We start the trading week with the S&P 500 coming off another losing week ending at 5,282.  While the consensus seems to be that there has been no concerted foreign selling of Treasuries and the bar for Fed hikes sounds fairly high, the path for rates remains unclear. We enter this week with the 10Y at 4.33% and the 2Y at 3.80%.

Powell Rangers’ Arch Enemy

The Powell Rangers are constantly up against economic enemies, but no enemy may be bigger than Trump. While it’s nothing new, Trump has renewed efforts to potentially fire Fed Chair Powell. 

While most legal scholars believe the President cannot simply fire a Fed Chair without cause, some argue Powell’s prior decisions such as holding rates low during the inflation surge could be construed as “cause.”

Of course this raises risk to the Fed’s independence, presumably something investors find a favorable characteristic of the U.S. monetary system. 

I’ve provided my favorite definition on Fed independence, "it's the ability to raise interest rates when the Treasury doesn't want you to. And the Treasury almost never wants you to, because of the cost of the debt".   

Whether or not I believe Powell has done a good job or not, I’m a believer in the importance of institutional credibility as a necessary ingredient to fostering the trust necessary for a stable business environment.

Speaking of Trust…

Which Voices Should You Trust?

I think I’ve seen about a million well researched pieces covering all things macro and while most are exceptional pieces, I’m not sure what anyone is supposed to do with all the research that banks and other strategists are putting out. Are investors just supposed to pick their favorite narrative?  Are they supposed to research the researchers and read the views of those that seem to have the best track record?

A somewhat frequent reminder that providing you with a stream of data and opinion is a business, a business predicated on a demand by investors (including speculators) to be told by someone else what to do, at least according to Ben Graham. 

Rather than try to discern which voices to trust, you can develop a better filter and try to discern what to tune out, how to stay out of the noise.  So what should be in that filter?

• Consideration of the motivations and incentives - do they have something to sell? Are they monetizing your views?  We all know the primary motivation of many commentators is to drive demand, not necessarily to provide the most accurate insights.

• Wariness of those voices offering certainty about the future - the notion that the financial future is not predictable is just too unpleasant to be given any room at all in the Wall Streeter's consciousness and rarely do you get the most difficult of all answers which is simply “I don’t know.”

• A recognition of the limitations of forecasting - as Jason Zweig says, “investing on the basis of projection is a fool's errand; even the forecasts of the so-called experts are less reliable than the flip of a coin."  Place less emphasis on predictions and more on understanding risk and reward. Uncertainty is a much more accurate representation of the world than that of any prediction.

• An ability to distinguish between investing and speculating - as Robert Hagstrom says, “An investor thinks foremost of the asset first then the price of the asset afterwards...“A speculator thinks foremost of price first and then the asset later or not at all.”  So much of financial debate is just people with different time horizons.  Find voices aligned with your own time horizon.

• Identifying blind parroting with no critical thinking - charlatans use vague, simple messages often wrapped in a well crafted veneer to make their messages alluring.  If you can’t find or understand the reasoning behind their advice it’s probably not worth following.

After some solid filtering hopefully you are left with finding the voices that can share timeless principles.

Principles like…

Sticking To A Sound Process

Stay the course or react to a changing opportunity set?  This is where the often glossed over step of forming capital market expectations comes into the picture.  Forecasting is extremely difficult but there are numerous techniques that can be employed to develop expected returns for equities and bonds, including looking at historical returns, volatilities and correlations.

If this is a topic you’re interested in, NYU Professor,  Aswath Damodaran provides his estimates on his website and shares them on X.  His 2025 estimates of the equity risk premium have risen some of late, but remain below the long-term average.

Even if you feel confident in estimates investors might still be confronted with a question as to what to do about it.

Do you try to tactically tilt your portfolio or ride out your strategic allocation? Whatever the answer it should be grounded in objectives, constraints and risk tolerance.

Balancing risk without overreacting to noise.  Repeatable disciplines beat panic.

The Week Ahead

Tariff headlines likely to overwhelm economic data releases. Still, durable goods and Treasury auctions could stir some market reaction. LEI’s will lead the soft data and Fedspeak is well Fedspeak.

Monday: Leading indicators

Tuesday: Richmond Fed and Fedspeak, 2Y Note

Wednesday: Flash PMIs, New Home Sales, 5Y Note

Thursday: Durable Goods, Existing Home Sales, Jobless Claims, 7Y Note

Friday: UofM

XTODs:

XTOD: Mom: How did we get so rich?   Your dad turned 33 just as Ben Bernanke introduced ZIRP and then all the shitco software companies in his PE portfolio generated 4x MoM returns https://pbs.twimg.com/media/Go5v18MWcAA9kK8?format=jpg&name=900x900

XTOD: Scientists claim a new memory chip that’s 10,000× faster than today’s tech, with near-zero power and 100-year retention. If true, this isn’t just a tech breakthrough—it’s a global power play. Thread:

XTOD: Yale is rumored to be selling a $6B PE portfolio. As of June 2024, the endowment was $41.4B, so it’s roughly 15% of the endowment for sale. The last time I can find a disclosure of the portfolio allocation, LBOs were 17.5% and illiquids were 45% with a target of 50%.

XTOD: "Fed cut 50bps in Sept when stock market at record high, Atlanta Fed was forecasting +3% US GDP growth; Fed now determined not to cut rates after 20% market plunge, Atlanta Fed forecasting -3% GDP growth" -  Bank of America

XTOD: Marcus Freeman said, "You waste time daydreaming about an uncertain future. Who cares?"  "The future is uncertain. So focus on being the best version of you today." 

No one wins tomorrow. They win today - one rep, one habit at a time.

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https://x.com/coachajkings/status/1913728818264641552

Daily Economic Update: April 17, 2025

Definitely A Loser

So much for decent tariff vibes in the stock market.  Tech dragged down the major indexes with the Nasdaq falling over 3% and the S&P 500 down over 2%, closing at 5,276.  The catalyst for the decline was chip export controls which caused Nvidia to take a $5.5 billion dollar charge. 

At least bonds were well behaved, with the 10Y yield falling a few bps to 4.28%, the 2Y yield also fell, closing at 3.78%

Bonds will close at 2pm ET today and all markets will be closed in observance of Good Friday tomorrow.

Powell Rangers Can’t Find The Right Megazord

Powell will play wait and see with the rest of us. He acknowledges there may come a time when growth is falling and both unemployment and inflation are rising.  If we reach that time of tension for the dual mandate the Fed will have to make decisions as to which gap they can best fill with their policy tools. With lowering inflation unlikely as tariffs take hold, the Fed doesn’t seem poised to cut rates anytime soon.

For the time being it seems the Powell Rangers aren’t going to be able to morph into the rescuers of the stock market….at least not yet.

Everybody Gets A Car

In data, retail sales rose more than anticipated as consumers looked to take advantage of current prices before tariffs kicked in, with autos being a beneficiary.  Hope they enjoy the ride.

But For How Long No One Knows

Of course we’ve all seen data on auto loan delinquencies and repossession rates, so we’ll see how this mini auto binge ends.

Radical Uncertainty

With heightened uncertainty around tariffs on rare earth metals, pharmaceuticals, and other areas, the data seems to continue to take a back seat to “sentiment”.  Or said in the terms that economists would reference that the hard data and soft data continue to diverge with the impact of tariffs evident in soft data but not yet glaring in the hard data. 

As Keynes well knew, there are times where there is little to know scientific basis for calculating a probability, this is one of them.  Sometimes you just have to embrace the fact that the economy is a complex and adaptive system.  This is a time where the messiness, unpredictability and deeply human nature of the economy are at the forefront of economics as a social science. 

The risk is falling for overly simplistic and purely quantitative approaches to today’s market challenges. 

Combat Uncertainty With Fortitude

Risk refers to all outcomes that can be insured against, uncertainty to those which cannot. Mainstream economics does not recognize this distinction. They believe individuals can accurately calculate the odds of any action turning out one way or the other.  This is because they treat the economy like a closed system.

Fortitude is the courage to face danger and to stick things out under pain. As Nassim Taleb says it’s not delayed gratification that creates an advantage for the investor, it’s the courage to live without promises.

“Under uncertainty, you must consider taking what you can now, since the person offering you two dollars in one year versus one today might be bankrupt."  So what this idea is about isn't delayed gratification, but the ability to operate without external gratification - or rather, with random gratification.  Have the fortitude to live without promises.” - Taleb

Markets can't promise clarity. Neither can policymakers. But maybe that's the point, fortitude isn't about knowing, it's about showing up anyway.  As C.S. Lewis said “courage is not simply one of the virtues, but the form of every virtue at its testing point.”

XTOD’s:

XTOD: Fyre Festival 2 has been "postponed," according to the organizers  But don't worry, your deposit refund is in the mail

XTOD: Q: Is there a Fed put for the stock market? Powell: "I'm going to say no, with an explanation..."

XTOD: Bret Taylor quit as Salesforce’s co-CEO because AI changed everything he knew about success.   Now he’s building that future himself. Bret explains exactly why traditional companies aren’t prepared for AI, why engineers can beat seasoned CEOs, and the surprising insight he gained rewriting Google Maps from scratch.  

Listen—your career depends on it.

XTOD: If you're on the wrong train, get off https://pbs.twimg.com/media/GomBN1SWAAA6cze?format=jpg&name=900x900

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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.

https://x.com/tferriss/status/1911871736733118763

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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