Daily Economic Update: April 25, 2025

More Chicken For Your Stocks Please

You’ll take another 2% gain and say thank you. 

Do Chinese Insults Translate to “Number Go Up” in English?

While Chinese social media makes fun of him, saying he’s chickened out, calling him: “10,000 Tariff Grandpa”, “King Know-It-All” and “Trump The Nation Builder… for China”, Trump says we’re talking with China on trade and that’s good enough for the stock market these days.  Even after hours, Alphabet earnings looked pretty good.  That makes for 3 straight days of wins, so winner, winner, chicken dinner.

We finished the day with the S&P at 5,484, up 2%.  Yields also liked the continued prospects of de-escalation, or maybe they’re worried about growth, nonetheless yields moved lower. The 2Y closed at 3.81% and the 10Y at 4.32%.

While durable goods orders showed consumers and businesses rushed to mitigate the risk tariffs posed to the cost of things like aircraft and auto parts, you have to look elsewhere to remember that the real risk is what you don’t see.

Mounting Risks Don’t Always Make the Front Page

With so much of the geopolitical focus being placed squarely on trade, if you haven’t been paying attention, you might have missed the fact that the next geopolitical hotspot is Kashmir between nuclear armed India and Pakistan.

It’s not about India and Pakistan or any specific geopolitical risk, the point is that risk comes as a surprise. As author Morgan Housel would counsel, it’s better to have expectations that risk will arrive, though you don’t know when or where, than to rely on forecasts.

Forecast, We’re Still Talking About Forecast - Not What’s Realized

As some major money center banks research teams revise down their forecast for where the major equity indexes will end 2025, I can close the week with a forecast of my own, “investment returns are tied to business profits.” 

Sure, valuations can swing, but in the long run, you can't outrun business profits.

Nominal GDP: Your New Weekend Buzzkill

Your weekend thinking can be about deriving expectations for future equity returns. 

So how do you start to figure out what businesses in aggregate will earn?  For a long-horizon forecast, some economists would say to start with Nominal GDP. Why? Because over a longer horizon the proportion of GDP that is captured as corporate profits tends to be pretty stable, a result that is in part due to competition and in part due to it not being politically sustainable to have profits take an ever increasing piece of the GDP pie. 

Most equity valuation models have a growth term, g (look at a Gordon Growth Model for example). The growth in Nominal GDP can be used as a solid proxy for that g term under the premise that over the long-run, expected nominal earnings growth should converge to nominal GDP growth. 

"Of course, that still leaves you with the weekend bummer: how the hell do you forecast Nominal GDP?

Setting expectations in Finance and Economics is hard.

So go ahead enjoy this little equity rally, worry a little about Kashmir, and let Nominal GDP haunt your Saturday. Just remember what Munger said: "The first rule of a happy life is low expectations."  And the first rule of investing? Same.

XTOD’s:

XTOD: Bridgewater's message to those who think that stocks always goes up in the long run and that any slight correction is the generational buying opportunity.  We are facing a radically different economic and market environment that threatens the existing world order & monetary system https://pbs.twimg.com/media/GpPQeJjXQAEP9o0?format=jpg&name=small

XTOD: The annual booing of Roger Goodell is an American tradition that should make us all proud.

XTOD: So Tether, Softbank, and Cantor Fitzgerald are forming 21 Capital with CEO Jack Mallers.  Let's be real:  This is a corporate exoskeleton for Tether's global liquidity machine to operate inside U.S. equity markets and hoard the scarcest asset on Earth without regulatory speedbumps.   It’s like giving a cartel diplomatic immunity, then asking it to do quarterly earnings calls.   SoftBank didn't join for fun. They saw MSTR mint a 2,000+% return on BTC purchases and said, “Cool, now let’s do it ourselves."   This company is launching with $585M in PIPE funding, $385M of it in convertible notes backed by Bitcoin at a 3:1 collateral ratio.  That’s financial LSD for every structuring desk on the Street.   The moment BTC rips, they release collateral, unlock capital, and buy more. Recursive BTC compounding inside a public vehicle. 

This is Saylor with a global stablecoin treasury, a high-frequency derivatives desk, and a Tokyo war chest.  They literally measure success in Bitcoin Per Share (BPS) and Bitcoin Rate of Return (BRR) - not fiat cash flow, not EBITDA, not shareholder yield. Bitcoin. Per. Share. That’s the KPI. That’s the religion.  And here’s the kicker: Tether will own majority control.   That’s like OPEC launching a public oil ETF that owns half the oil and pricing it at NAV.  And Wall Street’s fine with this. Why? Because the fees are good, the volatility is tradable, and the suckers at home still think we’re “early.”   This isn’t the institutional adoption phase anymore. This is the corporatized colonization of the Bitcoin protocol, executed through a Cayman shell and priced in your grandchildren’s tears.  You’re not front-running Wall Street anymore.  You’re being front-fed the illusion that you are.  And the price?  You’ll watch it go vertical while CNBC blames inflation and 7 sovereign ETFs pretend they understand what just happened. Bitcoin’s next leg up won’t be demand-driven. It will be capital-structured. Engineered. Manufactured. Monetized. Mega corporations are now turning Bitcoin it into the new global collateral standard - and selling you the derivative.  Welcome to the great absorption. Hope you brought a chart.

XTOD: Robert Pirsig died on this day eight years ago.  His work has had a profound impact on me, and I wanted to share some words about it along with a few images…The book also led me to adopt a philosophy of life around what Pirsig calls “Quality,” a state where the difference between subject and object fades away. Quality emerges when you care deeply about what you are doing—and it’s where genuine excellence, meaning, and love reside….The best way to honor Pirsig is to read his work. So I’ll leave you with one of my favorite quotes. 

“To live for some future goal is shallow. It’s the sides of the mountain that sustain life, not the top. The only Zen you find on the top of the mountains is the Zen you bring up there.”

https://x.com/GeorgeWegwitz/status/1915103578680676856

https://x.com/mtaibbi/status/1915557819085983996

https://x.com/AdamBLiv/status/1915220871699890312

https://x.com/BStulberg/status/1915380033410998656

Daily Economic Update: April 24, 2025

You’re Not Fired…

So we’re not firing Powell, we just want lower rates. Score one for Fed Independence, for now at least.

And China, You’re Kind of A “Big Deal”

Treasury Secretary Bessent channeled Ray Dalio when he said there’s an opportunity for a “beautiful rebalancing”, a play on Dalio’s beautiful deleveraging. He also highlighted the opportunity for a “big deal” if China wants it, which of course is the million dollar question, where does China stand with respect to de-escalating the trade situation?  

For the day at least, Trump and Bessent both seemed to hint that tariffs will be lowered and soon.

Equities 'Likey'

News on Powell and trade were good enough for 3% gains at one point, but we’ll settle for the 1.7% gain that ended the day, with the index closing at 5,375.

Even bonds got into the action with a solid 5Y auction, though the 10Y yield was little changed at 4.39%.  The 2Y yield moved higher on the rotation into risk and perhaps a sense of less political pressure on the Fed to cut rates, closing at 3.89%.

We’ll see how the dreaded 7Y auction goes today.

Detachment, Day Two: From the Oracle Himself

Yesterday I called “detachment” a super-power of some of the world’s greatest investors and as a reprisal today, I bring you that sentiment directly from the mouth of Warren Buffett, “You can't look around for people to agree with you. You can't look around for people to even know what you're talking about. You have to think for yourself. An ability to detach yourself from the crowd is a quality you need.”

Strategic Detachment in Global Trade

I said yesterday that we should let go of our attachment to things that no longer serve us and for the Trump administration that means trade.

I argued against mercantilist policies last week, but what if we’re just entering an “age of scarcity”.  Even before tariffs, economist William White had been arguing we were moving from an age of abundance to one of scarcity. The reasons: demographics shrinking the workforce, debt levels limiting future maneuvering, COVID shining the light on the fragilities of globalization and other factors.

Scarcity is the New Abundance

In White’s work, detachment from global entanglements is just a rational response to inherent systematic fragilities. The Triffin dilemma is unsustainable for the U.S., market forces alone can’t be trusted to manage strategic supply needs, and we can’t rely on a system of coordination for everything. In other words, tariffs and industrial policy are a somewhat natural reaction to a world where things are becoming more scarce and dependency could be dangerous. An era of precaution that prioritizes “Can you still get this when the world breaks?” over “Ship it from wherever it’s cheapest.”

Said differently perhaps the real risk we’ve been forgetting about in all of the noise could be summarized as the return of limits.

Is this theory correct?

Malthusianism for the Win?  Nah

The original Malthusian economics that population growth would outpace the resources needed to support them has been proven wrong, but perhaps some of the principles are correct?

More likely is technological progress, policy adaptability and further global cooperation win the day. 

Sure it will take tackling some structural issues, but it can be done.

Feel free to share your thoughts in the comments.

XTOD’s:

XTOD: MUNGER: There's a lot to be said for developing a temperament that can own securities without fretting. The fretful disposition is the enemy of long-term performance.

BUFFETT: It's almost impossible to do well in equities if you go to bed every night thinking about the price.

XTOD: In the 1970s Henry Singleton made a move that baffled Wall Street but cemented his legacy, although it would be years before other realized its brilliance.  After aggressively acquiring 130+ companies throughout the 1960s, he suddenly stopped cold. While competitors desperately continued buying at inflated prices, Singleton pivoted completely, redirecting Teledyne's resources to buying back its own undervalued shares and never making an acquisition again. 

This dramatic reversal was purely rational, a hallmark of Singleton's business philosophy: https://pbs.twimg.com/media/GpOcxbBWYAAZ0K_?format=png&name=900x900

XTOD: Looking at incoming vessels to the Port of Los Angeles (America's largest port):

1.) This week we're still in frontrunning mode (57%+ YoY). 2.) Next week we're basically at normal (-8% YoY).3.) Two weeks from now we're in The Bad Place (-44% YoY)

XTOD: X is a swarm of grifters. All those grifting fringe research outlets that surf the podcast circuit and have logos with a veneer of respectability and ETFs to prey on retail, had 7K SPX targets last year when the recession was in motion. They are now touting a regime change.

XTOD: When Charlie Munger was asked, “You seem extremely happy and content. What’s your secret to living a happy life?”  he replied,  “The first rule of a happy life is low expectations. If you have unrealistic expectations you’re going to be miserable your whole life. You want to have reasonable expectations and take life’s results good and bad as they happen with a certain amount of stoicism.”

https://x.com/kejca/status/1914754403338178604

https://x.com/farnamstreet/status/1915048526175777039

https://x.com/Brendan_Duke/status/1914748283622129951

https://x.com/INArteCarloDoss/status/1914619654133240253

https://x.com/SteadyCompound/status/1914998689602609649

Daily Economic Update: April 23, 2025

Markets Rally On Words…so join my Signal Chat?

Have you guys joined my Signal chat? It’s all the rage. Should’ve invited Scott Bessent to it, we could have been first to hear his comments about the need to de-escalate trade tensions, words that boosted stocks yesterday, sending the S&P up 2.5% to 5,287.

Too bad as Treasury Secretary he couldn’t talk the markets into a better 2 year Treasury auction.  Foreign demand looked weak as the auction tailed.  The 2Y yield rose 5bps to 3.83% and the 10Y moved slightly lower to 4.40%.  

And despite the continued yield differential offered in the U.S. over the rest of the world the Dollar is not benefiting at present.

While the Fedspeak slate was heavy, it’s fair to say that none of that can take the emphasis off of Trump’s broader calls for Powell’s removal.

Corporate earnings will continue to be a barometer for the tariff impact and we’ll see how flash PMI data looks today.

Why This Blog Swims In A Different Ocean

When writing this blog, I sometimes feel like a fish swimming in a blue ocean that seems to exist between traditional financial media titans like CNBC and Bloomberg and the myriad of pundits that live all over social media and the blogosphere.  This is by no means to say that there isn’t value in those aforementioned mediums, in fact I find solid value in several economic blogs, X posts, podcasts and traditional news flow on financial media platforms. 

Nevertheless to me, this blog needs to stand out from real-time, often prediction heavy, and sometimes overly serious nature of traditional media and financial punditry.  It’s staying in my swim lane that embraces uncertainty with humility, that attempts to filter out the noise to get to a deeper engagement with financial concepts and make them more accessible through humor and satire.

The Daily Madness Of Mr. Market

One of the challenges of following financial markets daily is that it is easy to abstract securities into simple pieces of paper whose values flash on screens, rather than remembering that equities represent ownership of underlying businesses and bonds are promises from underlying businesses.  A daily focus can easily tilt one towards speculation, losing sight of the underlying asset – the business in the case of equities, or the promise in the case of bonds.

To protect against this I often share the Parable of Mr. Market as paraphrased here:

 
“Ben Graham and Warren Buffett have talked about a charming, seductive manic-depressive gentleman named Mr. Market. Every day he shows up on your doorstep offering to do business with you. When he's manic, he'll offer to buy your stocks or sell you his for absurdly inflated prices. When he's depressed, his prices go ridiculously low. The mistake most people make is answering the door just because Mr. Market knocks. You don't have to let him in. Why should you buy just because he's excited? Why should you sell just because he's down in the dumps? A long-term investor shouldn't care about market prices.” Charles D. Ellis

While I’m not in favor of the detachment that often occurs between quotes on the screen and the fundamental nature of securities and their relationship to underlying businesses, I do think we can all learn deeper lessons from the concept of detachment. 

Attachments: The Hidden Threat To Investors

Sticking with wisdom from Jesuits (like Pope Francis), Jesuit priest, psychotherapist and author Anthony de Mello, offers excellent insight on the problems that stem from “attachments”. 

There are various attachments we can find ourselves enslaved to, things that we falsely believe we need to be happy or secure, but because of our emotional investment we continue to cling to these things even when they no longer serve us. 

In behavioral economics we see a similar behavior known as the sunk costs fallacy. We continue to invest time and money into certain investments simply because we’ve already invested a lot, even when it’s clear continuing this investment is irrational and likely to lead to further loss.

For many of these attachments, the world is a constant threat to what we’re holding onto or attached to, so we think the answer is that we can rearrange the world and we otherwise view things in terms of how they threaten what we’re attached to.  We operate out of fear, fear of loss. 

The trouble is this framing doesn’t leave us clear-sighted, it leaves us with clouded vision that impairs our otherwise sound judgment.  

We would be better suited to drop things, to drop illusions, drop errors and overall reduce negative leverage in our lives and investments.

Reality is what it is. What is the wisest action now?

When you’re not attached to your past decisions, your hope, fear, pride, and ego, you can invest in businesses and your career with greater clarity, flexibility and peace.

When Emotional Baggage Costs Real Money
It’s a reminder to review your behavior.

Am I emotionally attached to this investment?

If I had no prior investment in this today, would I still buy it?

What is the real value of this asset based on the present facts, not my hopes?

Is my decision based on rational analysis or emotion?

Losses are part of investing, remember you’re free to change your mind when new information arises.

Detachment: The Investor’s Superpower

In fact if you study investing legends like Munger, Buffett, Marks, Sleep, you will actually find they use “detachment” as an investing philosophy. These are investors who are able to detach themselves from the often bipolar nature of markets, being willing to change their minds and overall being heroically inactive.

Clarity over comfort. Reality over fantasy. Freedom over attachment.

XTODs:  

XTOD: The system is designed to keep you comfortable, not wealthy.  This financial autopsy of a 36-year-old couple earning $350k proves it….You feel rich. But you're just a well-paid tenant of your own life.  Big salary today, nice dining chairs tomorrow, and before you know it...

You need every penny of your paycheck just to maintain your lifestyle…That’s why you need ownership….

XTOD: Nothing says its "Main Street's Turn" like dishing out market moving information early to rich clients and employees at JPM private meetings

XTOD (super long thread by someone on Dollar Milkshake Theory): Let’s briefly review the Dollar Milkshake Theory by Brent Johnson. Since the almighty greenback is the Global Reserve Currency (GRC), it is widely for a variety of purposes, including: https://pbs.twimg.com/media/GpGNXYTa4AE1Bo6?format=jpg&name=900x900  To summarize the DMT, according to @SantiagoAuFund  , the global financial system can be imagined as one giant milkshake made up of liquidity, debt, and capital. The United States holds the largest straw, allowing it to "drink" capital from the rest of the world….Anyways, what’s going on with the DXY? Well, in the last 3 months, we’ve seen a continuation of dollar weakening that is due to the market’s reaction to the trade war that Trump kicked off on Liberation Day back in early April  (Less trade means less short-term demand for dollars). This relatively cheaper dollar will actually enforce the Milkshake- I know that sounds paradoxical, but it’s true. Here goes:....when the DXY is lower - meaning the U.S. dollar is relatively weaker compared to other major currencies - it becomes easier for foreign companies to service their dollar-denominated debts…Not only can they more easily pay off existing dollar liabilities, but they may also feel confident enough to take on even more dollar debt to fund growth, expansion, or speculation…This is where the feedback loop begins. As more companies around the world borrow in dollars during periods of dollar weakness, the overall size of the dollar debt system expands. While dollar bears point to rising U.S. debt or de-dollarization efforts as signs of the dollar’s decline, the reality is that the global hunger for dollar liquidity is still very much alive, and in many ways, it’s growing, not shrinking.

XTOD: For a company that sells a product with zero volatility, Blackstone sure is volatile

XTOD: Pretty tough to have a good swing outcome from a poor swing decision.

https://x.com/Codie_Sanchez/status/1914674185512575407

https://x.com/FriendlyBearSA/status/1914720657331638623

https://x.com/peruvian_bull/status/1914461509360738702

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Daily Economic Update: April 22, 2025

And We’re Back…it was a “Major Loser”

Market Sell-Off headlines returned to screens to start the week with major indexes falling to start the week.  The S&P closed down more than 2%, at 5,158. 

It was another one of those equity sell-offs where your fixed income holdings failed to help you, as yields rose. The 10Y closing at 4.41% and the 2Y at 3.78%

I guess China warning other countries not to side with the U.S. in this trade war and blasting your central bank don’t engender confidence in the future.

If/When This Is All Over Who Will be “Mr. Too Late”

The setup is there to see history is going to judge as “Mr. Too Late”.  Will it be Trump viewed as acting too late to quell the likely deleterious effects of his tariff policy, or will it be Powell who was slow to act against inflation and risks being slow to respond to what might be coming for the U.S. economy?

I don’t know the answer, but I wrote yesterday about the need for filtering out noise and finding timeless principles. 

Timeless Wisdom From Pope Francis
With the passing of Pope Francis, I thought I would share some lessons that might be useful to everyone, irrespective of their faith. 

In late 2023 and early 2024, Pope Francis shared a series of lectures under the title Cycle of Catechesis on Vices and Virtues in which Francis walked through the seven deadly sins (vices) and the opposing seven holy virtues. 

There is something timeless in these lectures that can apply not just to personal moral growth, but to professional growth and even to investing.

Acedia (Sloth) vs. Fortitude:  while acedia is commonly thought of as “laziness”, it is also a desire to escape from reality. For investors the lesson is to face reality as it is, setting goals that can be reached and to endure and persevere even when results are not visible.

Pride vs. Humility: the proud man always wants to see his own merits recognized and despises others as inferior. “Of all the vices, pride is the great queen.”  When it comes to investing, overconfidence and delusions of omnipotence can lead to taking unwarranted risks.  The lesson is to cultivate humility, acknowledge uncertainty, seek the counsel of others and make prudent decisions.  “Humility is the gateway to all the virtues.”

Envy vs. Gratitude:  As legendary investor Charlie Munger said, “Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun.”  We all fall victim of comparing ourselves to others and at times the resultant feeling that we are more deserving of success than others.  When it comes to investing we see investors' comparison games turn into their own dissatisfaction, which can lead to impulsive and self-destructive decisions. The lesson is to embrace gratitude, to be thankful for what we have and to be comfortable with our own definition of success.

Wrath vs. Patience:  Wrathful people always see the other person as the problem and never admit their own defects. Our anger at some real or perceived injustice can cause us to stew on things in our mind and reject reason.  The worst part is that time magnifies wrath.  When it comes to investing, wrath can manifest in impulsiveness in decision making and losing sleep thinking about whatever market fluctuations have upset us.  While wrath is magnified with time, patience is our ally and antidote.  It’s starting from a place of being slow to anger, reacting to market fluctuation with composure, patiently adhering to long-term strategies and thoughtful decisions we made when our heads were clearer.  "Patience is the virtue of the journey, the virtue of those who are on the move, not those who sit in an armchair and wait for time to pass."

Gluttony vs. Temperance:  Gluttony is overconsumption in all forms, it’s about our relationship with material things: consuming not to live, but living to consume.  “We have abjured the name of men, to assume another: “consumers”. Today we speak like this in social life: consumers.”  When it comes to investing, we fall prey to being over-consumers of financial news and we also fall prey to insatiable appetites for risk taking. We can do better, we can temper our desire for more with discipline, to know when enough is enough, to seek sustainable returns, and respect risk limits.

Lust vs. Chastity:  On its face this topic doesn’t seem applicable to investing, but lust is about possession and seeking shortcuts to obtain what we want.  In investing lust results in behavior that is seen in short-term thinking, chasing profits, engaging in speculative investments and lapses in ethics. In the financial context chastity is translated to exercising self-control in a manner aligned with ethical standards and a genuine concern for others. Fostering trust, striving to contribute to the broader well-being.

Avarice (Greed) vs. Generosity: An excessive desire or attachment to things, especially money, and a pathological desire for accumulation and compulsive hoarding. “Some rich men are no longer free, they no longer even have the time to rest, they have to look over their shoulder because the accumulation of goods also demands their safekeeping.” Our possessions often possess us when we forget that we cannot take property with us when our time on this earth is up.  In investing the consequences of greed are obvious, the unrelenting selfish pursuit of profit setting aside the consequences on relationships both personal and broader.  We can counter greed with generosity.  Investment professionals can share their knowledge, putting client interest first and acting with transparency. 

To summarize:

1. Walk humbly before markets you cannot control.

2. Celebrate others' gains without comparing your worth.

3. Be steadfast in storms; impulse is the enemy of wisdom.

4. Act with courage when action is called for.

5. Let generosity, not greed, define your pursuit of wealth.

6. Feed your mind with wisdom, not noise.

7. Master desire; invest for what is true and lasting.

We need all the wisdom we can get to navigate today’s financial turbulence.  We’ll get some earnings today and see how the 2Y note auction goes.

XTODs:

XTOD: Even if you  buy into the arguments for being contrarian, you need a "march to your own drummer" mindset, a time horizon that you control and a strong stomach, to put it into practice. https://bit.ly/3GdfVsv

XTOD: Ricardo offered a clean logic: do what you're good at, and let the market take care of the rest.  But Hamilton saw through it. He didn't argue.  He dismantled it, quietly, with precision. 

He understood that if left to Ricardo’s compass, America would become the world’s farm, 

a colony of commodities dressed as a republic. Hamilton looked out and saw Arrakis. 

Trump, perhaps, too.

XTOD: Blackstone is now down 40% from its November highs, and is right back at its post-Liberation Day lows.  Remember, this is probably the best run manager of private assets in the world, so just consider how your run of the mill PE or VC shop is looking right now.

XTOD: The reason France (and other countries) care, is bc despite all the arguments to the contrary, they need access to USD liquidity provided by the Fed in a Eurodollar crisis. And a new Trump loyal Fed Chair would be less likely to provide it.

XTOD: Kids are surrounded by social forces they don’t know how to name. The civic literacy of the future will involve showing them, at the earliest possible age, the technological, political, and social forces shaping our lives—and helping them develop real agency to contend with them.

https://x.com/AswathDamodaran/status/1914152172867969171

https://x.com/hendry_hugh/status/1913669843527557594

https://x.com/TheStalwart/status/1914398149323726864

https://x.com/SantiagoAuFund/status/1914456261699280909

https://x.com/lukeburgis/status/1914358694441312729