Daily Economic Update: May 13, 2025

 “Insidious non-tariff trade barriers.”

Insidious non-tariff trade barriers, that’s the terminology Treasury Secretary Scott Bessent repeatedly uses when discussing some of the challenges with fully getting to fair trade with China.  We talked about certain ways countries support their exports in this post back in February and as of now it doesn’t seem much progress has been made in addressing those issues. 

Nonetheless the 90 day pause on reciprocal tariffs, leaving just the 10% baseline plus the 20% fentanyl surcharge remaining, was welcome news to the market - sending the S&P up over 3% to 5,844.  

Term Premium

Ahead of today’s CPI report, rate cuts are being priced out. We're down to just two cuts for the balance of 2025 and we’ll see if the CPI report changes that.  The reason for the repricing seems to largely be the market pricing out near term tariff induced recession risks.  The 2Y Treasury ended the day reclaiming a 4 handle, ending at 4.04%.  

Out on the curve it’s been a minute since we talked about it, but “term premium” could still be a a topic to key your eyes and ears on, as the bond market continues to reassess the amount of excess yield they need to move out on the yield curve and remember topics like deficits and the loss of U.S. exceptionalism, oh and that whole topic of the credibility of the Fed.  Seems to me there could be plenty of reasons we shouldn’t forget about the fact that term premium can be a time varying variable.

CPI

Even with the U.S.-China reciprocal tariff pause, do we still have to worry about bullwhip effects?  Before we worry about that, the market will be looking for signs of tariff related impacts in the inflation data. Of course market participants also won’t really know what to do with any tariff related inflation data in the coming months because there is little agreement as to whether the inflationary impact of tariffs is temporary or more permanent. 

In the meantime could hotter than anticipated inflation coupled with trade optimism lead to even less certainty of rate cuts in the year ahead?  And what would Trump think about that?

XTOD’s:

XTOD: You’ve got to hand it to President Trump. He has convinced everyone that a 30% tariff rate on China, and a 13% average tariff rate on the world (was 2.5% in 2024), are both normal and manageable. Nothing like a 10-percentage point levy on this $30 trillion beast called Global Trade. The Art of the Deal is working brilliantly.

XTOD: As I predicted in the game of chicken between Trump and Xi it was Trump to blink and chicken out. The tit for tat trade war escalation started by the US would have spiked US inflation, led to massive supply chain disruptions and would have triggered a serious US and global recession that would have doomed the GOP and the MAGA grand goals by the 2026 mid term elections . So Trump had no choice but to blink while receiving almost no concessions from the Chinese side, not even an agreement like the one in 2019 to buy more US goods such as ag goods. Such modest concessions may emerge during the 90 day period where negotiations will take place to “reset” trade but so far Xi is the clear winner of this trade war .

XTOD: NEW TONIGHT: Our reaction to the House Ways & Means and Energy & Commerce bills out today, ahead of tomorrow's markups... or, "A Tale of Two Committees."  

The Ways & Means draft includes trillions of dollars in new and expanded tax cuts – some temporary and some permanent – along with some new savings to offset a small portion of them.  The Energy & Commerce Committee, meanwhile, put forward over $900 billion of offsets. 

Taken together, the two bills are likely to add trillions of dollars to the debt and set the stage for hundreds of billions or trillions more if expiring provisions are extended.  The following is a statement from CRFB President  @MayaMacGuineas : https://crfb.org/press-releases/tale-two-committees.

XTOD: 21 lessons from “A Few Lessons From Warren Buffett” (an 81 page book full of Buffett’s wisdom)

1.  A funny thing about life: if you refuse to accept anything but the best you very often get it. 

2. The truly big investment idea can usually be explained in a short paragraph.

3.  Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.

4.  Loss of focus is what most worries Charlie and me.

5. When a problem exists, whether in personnel or in business operations, the time to act is now.

6.  The roads of business are riddled with potholes; a plan that requires dodging them all is a plan for disaster.

7.  A compact organization lets all of us spend our time managing the business rather than managing each other.

8.  Nothing sedates rationality like large doses of effortless money.

9.  The most elusive of human goals: Keeping things simple and remembering what you set out to do.

10.  Just run your business as if: (1) You own 100% of it; (2) It is the only asset in the world that you and your family have or will ever have; and (3) You can't sell it for at least a century.

11. The right players will make almost any team manager look good. 

12.  Just tell me the bad news; the good news will take care of itself. 

13.  Our managers have produced extraordinary results by doing rather ordinary things—but doing them exceptionally well.

14.  It's difficult to teach a new dog old tricks.

15. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.

16. Charlie and I are not big fans of resumes. Instead, we focus on brains, passion and integrity.

17.  Our experience has been that the manager of an already high-cost  operation frequently is uncommonly resourceful in finding new ways to add to overhead—while the manager of a tightly-run operation usually continues to find additional methods to curtail costs, even when his costs are already well below those of his competitors.

18.  Tomorrow is always uncertain.

19.  The trick is to learn most lessons from the experiences of others.

20.  In allocating capital, activity does not correlate with achievement.

21.  The less the prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.

Download more of Buffett’s ideas into your brain by listening to episode 202.

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Daily Economic Update: May 12, 2025

It’s All About The Benjamins

The Diddy trial starts today.  Can I start a conspiracy theory linking the timing of the apparent U.S. - China trade deal and the Diddy trial just for fun?  Of course I can, this is precisely why the world invented AI chatbots.  Don’t believe me? Read on.

All Worlds Collide: Diddy, Tariffs, and the Sino-American Butterfly Effect

Call it a coincidence. Call it choreography. But tomorrow, two very different headlines hit the tape:

1. The trial of Sean “Diddy” Combs begins.

2. The U.S. and China are reportedly set to announce a major trade deal.

Now, I’m not saying Xi Jinping personally scheduled the trade announcement to distract from the Bad Boy Entertainment saga. But I’m not not saying it either.

Think about it. Diddy was once a symbol of American excess: champagne, private jets, velvet ropes. A walking export of 2000s capitalism. Meanwhile, China was quietly cornering the global supply chain while Diddy was cornering the VIP booth. Two empires rising in parallel—one built on rare earths, the other on remixes.

Fast forward to 2025, and both face a reckoning. Diddy, in court. China, in a geopolitical standoff with its biggest customer. And what happens? Their plotlines converge. Same day. Same news cycle. It’s like Crash, but with more tariffs.

You think this is random? You think some butterfly didn’t flap its wings in Shenzhen in 2004, causing a yacht to be rented for a Diddy party, which triggered a dollar carry trade, which juiced Chinese exports, which necessitated rebalancing, which led to the trade war, which now resolves itself right as Diddy goes on trial?

Please. Wake up.

This isn’t chaos. This is choreography. Or maybe it’s just capitalism doing what it does best: remixing everything—scandal, commerce, culture—into one beautiful, bewildering beat.

Anyway

Markets are optimistic ahead of the soon to be released details of the U.S.-China trade deal details, will the optimism carry the day, we’ll find out soon.

We head into the day with the S&P at 5,659 and the 2Y and 10Y Treasury yielding 3.93% and 4.41% respectively.

The Week Ahead

Features inflation data, retail sales and lots of Fedspeak.

Mon: Trade Deals and Geopolitics (remember India and Pakistan, Ukraine and Russia, Israel and Hamas?)

Tue: CPI

Wed:  Fedspeak

Thur: PPI, Retail Sales, Powell, Industrial Production

Fri: Housing starts and Building Permits, UofM preliminary

XTODs:

XTOD: Years ago in the first edition of "The Ascent of Money" @nfergus  laid out the interdependency brewing.  He called it "Chimerica:.    I suppose now one of the underlying questions is "If China is our lender - have we or have we not become too big to fail?" ; in the same way that a bank with loan out that is a substantial portion of a bank's assets - can't let the customer fail else the bank dies too.     There probably was a time in the not too distant past where "if America sneezed, China caught a cold" due to the interdependence. That is the open question - has that window passed, or not?

XTOD: So you’re telling me we got the rest of the world to do the lowest value, lowest profit margin, most capital intensive, and most cyclical parts of economic activity.  And in exchange, they gave our companies the cheapest priced goods in the world to resell and thrive off of. Which then gave our companies the time to pursue the actual high value parts of economic activity (you know, like Silicon Valley, Wall Street, military R&D, etc).  And all we had to do was give them IOU’s for an imaginary currency unit that we would only ever pay them back in worthless real terms in, if we ever repaid them at all.  And… we were the ones that demanded this system come to an end?

XTOD: So your firm pays $25K per year for your Bloomberg Terminal but you only use it to look at stock price charts and read news headlines all day?

XTOD: Pope Leo XIV explains his choice of name: "... I chose to take the name Leo XIV. There are different reasons for this, but mainly because Pope Leo XIII in his historic Encyclical Rerum Novarum addressed the social question in the context of the first great industrial revolution. In our own day, the Church offers to everyone the treasury of her social teaching in response to another industrial revolution and to developments in the field of artificial intelligence that pose new challenges for the defence of human dignity, justice and labour."

XTOD: If you don't prioritize your life, someone else will.

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Daily Economic Update: May 9, 2025

They’ll Soon Be Driving Ford F-150s in the U.K.

I made that up, but I’m pretty sure F-150’s are not for sale in the U.K., but now that the Trump administration announced a preliminary U.K. trade deal that will open access for American exports,  the Brits can dream big.  Importantly, the trade deal keeps 10% blanket tariffs on U.K. imports, leading some to speculate that this 10% “minimum” may be the best countries can do in negotiations with the U.S. meaning higher tariffs might be here to stay.  Also in the U.K. rates were cut to 4.25%, while citing, you guessed it - “uncertainty”.

Stocks liked the news, sending the S&P up to 5,663.  Yields rose partly on the rotation into risk on the trade news, but possibly also due to the fact that consumers surveyed by the NY Fed continue to push up their inflation expectations, now at 4.8%.  The 2Y ended at 3.88% and the 10Y at 4.38%.

Leo XIV

But the real news of the day was the announcement of the first American Pope, Robert Francis Precost, a Villanova graduate. He has assumed the name of Leo XIV 

The last Pope Leo, was a defender of Capitalism back in 1891.  You probably don’t remember but back in September 2024, I introduced you to the last Pope Leo and his famous encyclical Rerum Novarum in this post.

Lessons In Capitalism From The Vatican

Capitalism has had many critics. The Vatican, however, might be one of its most thoughtful ones.

In 1891, Pope Leo XIII’s Rerum Novarum tackled the “worker question” head-on—before “inequality” was a talking point and before socialists had a PR team. He called out socialism for undermining private property rights which he viewed as fundamental human rights, but he also saw the dark side of unchecked capital: workers stripped of dignity, paid less than a living wage, treated as inputs on a spreadsheet. Sound familiar?

Rerum Novarum didn’t pick sides. It said both capital and labor were necessary, both had duties, and that the State should side with neither but protect the vulnerable. It wasn’t a call to redistribute wealth by force, but a call to justice. Work was a vocation, not just a transaction. Wages were to support life, not merely clear markets.

A century later, Centesimus Annus (JP2’s remix) reminded the post-Cold War crowd not to declare victory just because “real socialism” collapsed. Winning by default isn’t the same as being right. The encyclical warned that capitalism without virtue—or democracy without values—could become a “thinly disguised totalitarianism.”  And that Totalitarianism itself is seen as opposing the Church because it denies the transcendent dignity of the human person and rejects objective criteria of good and evil.  Totalitarianism flattens the person into a cog, denying their inherent dignity. That’s why Centesimus Annus sounds the alarm: a democracy without values is just totalitarianism with better branding. It’s not just about who owns the means of production—it’s about who owns the definition of “good.

The lesson? Markets and enterprise are good—but not gods. Freedom isn’t license. Work isn’t just a paycheck; it’s a path to purpose. Development must be more than GDP. Markets can be messy—but they leave space for initiative, dignity, and surprise. Totalitarianism doesn’t. It promises order, delivers despair, and grinds the person down to a tool. That’s why the Church, as the “safeguard of transcendence,” insists: man is not a means—even for record profits.

XTODs:

XTOD: "To attain knowledge add things every day. To attain wisdom subtract things every day." - Lao Tzu

XTOD: An unsettling investment fact:  Stocks will have half-decade to full decade periods where they underperform cash by a significant margin.  If you aren't mentally prepared for this, you may give up when such times arrive.

XTOD: This is not an SNL skit.  Howard Lutnick: we feel really good about the deal….We started at 10% tariffs and ended at 10% and the market for America is better and this is a perfect example of why Donald Trump produced Liberation Day.

XTOD: So... the digital world has nearly eliminated friction (ChatGPT writes essays, Meta's AI plays your friend). The physical world drowns in it (Newark airport, infrastructure crumbles). And for those who can afford it, friction becomes an optional aesthetic choice (West Village living, curated experiences).   

This is an economic system where frictionlessness is this weird commodity and understanding it is really important. Warren Buffett sees it too. He warned of maintenance coming due as he stepped down this past weekend. The simulation economy can't run without physical infrastructure (as many have said) but we've optimized for short-term ease over long-term resilience. 

We've created three separate worlds operating on entirely different rules - and different levels of friction. link in next post, enjoy! https://t.co/ct5nYA05E3

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Daily Economic Update: May 8, 2025

A Great Deal Of Uncertainty - So Much Uncertainty

We all knew the Fed was going to hold at 4.25% - 4.50%. I skipped the recap out of respect—for your time and your intelligence.

So what, if anything did we learn.  In my opinion, not much. Here were my takeaways:

• There’s no rush to cut rates from their “modestly restrictive” level.

• Risks have risen to both sides of the Fed’s dual mandate and the reality is no one knows whether high unemployment or high inflation will be the more pressing problem.

• Patient Powell: “We’re in a good place to wait and see” “The cost to waiting is low” “Appropriate to be patient”

• “My gut tells me uncertainty about the path of the economy is elevated…the right thing for us to do is await further clarity.

My other major takeaway was that at least 80% of reporters seemed to be begging for rate cuts. I’d have to review the transcript, which I don’t care enough to do, but in real-time, the sentiment of most of the questions seemed to be pressing Powell for an explanation as to why “preemptive” rate cuts shouldn’t occur at present.

Below Is More Value Than Yesterday’s FOMC - You’re Welcome

“In making decisions under conditions of uncertainty, the consequences must dominate the probabilities" - Peter Bernstein.  There, that quote was more valuable than the press conference.  Most of this blog is simply writing about uncertainty. Author Robert Greene once wrote, "The need for certainty is the greatest disease the mind faces."  

And The Source Of Uncertainty - Tariffs (for now)

In response to a reporter's question about exempting certain baby products from Chinese tariffs, Trump indicated that he’s not open to removing the 145% tariffs on China as a means to getting the Chinese to the negotiating table.

We’ll see how the reported talks between Bessent and the Chinese go in Switzerland and in the meantime CNBC have their cameras watching to see if ships are coming into the Port of Long Beach.

But At Least AI Didn’t Destroy the World Today

Unless you were Google that is…Alphabet shares were down 8% as Apple exec said that search is toast as AI answers will replace those blue hyperlinks we’ve all become accustomed to seeing.

Overall the S&P finished slightly higher at 5,631. The 2Y and 10Y yield were little changed with the 2Y at 3.79% and the 10Y at 4.28%.

We’ll see if the BoE can be more exciting than the Fed.  

Utter Boredom
Until then you can reflect on this quote from Dune:  “to know the future absolutely! All of it! What fortunes could be made — and lost on such absolute knowledge, eh?” but “what a hellish gift that’d be. What utter boredom! Every living instant he’d be replaying what he knew absolutely … Ignorance has its advantages.”

XTOD’s:

XTOD: Gem after gem.   1/ Mediocrity is invisible until passion shows up and exposes it.

2/ Time is the best filter. It is the only filter I trust. 3/ Victory is spelled survival.

4/ The hard way is the right way. 5/ What you want is money, but what you really want is meaning.

XTOD: China Slashes Rates and Reserve Ratios: Liquidity Lifeline or Desperation Signal?

China just fired a monetary bazooka. On May 7, 2025, the People’s Bank of China (PBOC) announced a 50 basis point cut to the Reserve Requirement Ratio (RRR) and a 10 basis point cut to key lending rates, unleashing an estimated ¥1 trillion (~$138 billion) of liquidity into the system. This is Beijing’s most aggressive monetary easing since the early COVID era. But don’t mistake this for routine stimulus. This is a signal and it’s flashing red…..Bottom Line:

Don’t let the mild rate cut fool you this is a liquidity distress signal from the world’s second-largest economy. Markets will celebrate short-term stimulus. But underneath, Beijing is bracing for impact

XTOD: The world doesn’t run to growth when things go wrong. It runs to shadows.  Today, two of those shadows — Switzerland and Hong Kong — are screaming.  The Swiss franc, too strong again. A currency not rising on strength, but on fear.  Prices in Switzerland? Flatlining. Demand, evaporating.  The SNB is watching inflation disappear — and with it, its reason to hold.  Zero is coming. Maybe negative. Again.  Half a world away, the Hong Kong dollar slammed into its upper bound.  The HKMA stepped in. First time since 2022. Not because the city’s thriving — but because the capital is clawing its way to safety.   Out of Asia. Out of credit. Out of risk.  These aren’t technicalities. They’re tremors. Tiny economies. Heavyweight currencies. Both surging not on confidence — but on risk aversion.  This is what stress looks like in a world of financial scaffolding.  When the safe havens get crowded, the system is telling you something.  The pipes are creaking. The air is thinning. Risk is rising. Rates are falling. 

Soft landing?  No. This is what remembering how to do worse looks like.

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Daily Economic Update: May 7, 2025

PTJ vs. Skynet

Paul Tudor Jones reminds us that AI is an existential threat to humanity.  He cited a comment in a breakout session at a recent AI conference he attended where a proposition was raised that there is a 10% chance that AI could wipe out 50% of humanity within the next 20 years. While most attendees disagreed, all four leading AI modelers present agreed with the statement, which alarmed Jones.

But Most AI is actually BS

Alex Karp, CEO of Palantir, reminds us that most AI products are “bullshit” and don’t actually provide any real world value.  

Is it either Biohacking Super-Intelligence, Productivity Boom, Or Productivity Bust

I’m just glad we made a bunch of progress on the AI investment thesis yesterday - Ha! 

While AI debates rage on, markets remain tethered to more terrestrial forces—like Powell and the Fed.

Setting Up For The Fed

In the real world, the 10 year auction was solid, but lest we forget the Fed is still buying Treasuries at auction.  We’ll go into today’s Fed decision with the S&P at 5,606, the 2Y Treasury at 3.79% and the 10Y Treasury at 4.30%.

Speaking of the Fed decision, while the outcome of the decision is essentially a foregone conclusion, what might be at stake is further information about where the bar for rate cuts might be.  Of course, no one seems to be of the opinion that further rate hikes might be needed - ever.  No one except Harvard economist Kenneth Rogoff who recently forecasted a significant inflation shock in the next decade.

Will The Fed Or AI Save Or Fail The Dollar?
In case you missed it Rogoff has been making the media rounds in support of his new book, Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance, and the Road Ahead.  While I haven’t read the book, in his media appearances Rogoff has been open about the vulnerabilities to the Dollar’s dominance and the problems facing the credibility of the U.S. in the eyes of the world. 

Will the Fed be able to stabilize the dollar against tariff-driven inflation or exacerbate debt concerns, as Rogoff warns?  Meanwhile AI’s uncertain future, whether it’s our productivity pal, an over-hyped bubble that bursts, or a threat to our existence, each outcome could help bolster the Dollar’s dominance, or accelerate shifts away from it. After all, if someone beats the U.S. to “superintelligence” or AI military supremacy, I would think that might not be the best for the dollar.

Might As Well Buy Everything We Can Now

We all know that changing trade deals and patterns is part of the Dollar narrative, potentially resulting in de-dollarization.

Yesterday’s trade data showed a record trade deficit with an all-time high in imports during April as everyone freaked out (possibly rightfully so) ahead of tariffs.  

Perhaps everyone is well read on their Nassim Taleb and adhere to the theory that he who panics first survives: “The central rule in life is that it is much, much better to panic early than late.” and “If you must panic, panic early. Be scared when you can, not when you have to."

Should that thinking apply to AI regulation? Or perhaps that mindset should have applied to central banking?  What do I know.

The real question for the day is will the Fed get overshadowed by trade or geopolitical news.

XTOD’s:

XTOD: Conclave ready.   Several North American Cardinals who have been staying at the Pontifical North American College during this interregnum period, departed this afternoon with the cheers and prayers of the seminarians and staff of the College sending them off.

XTOD: Big news. According to U.S. President Donald J. Trump, the Houthis in Yemen have communicated to U.S. decision-makers that they will stop the strikes on commercial and naval shipping in the Red Sea and Gulf of Aden. This comes after significant strikes on Sana’a International Airport earlier that rendered it inoperable, according to the Israel Defense Force.

XTOD: Some of the first footage from one of tonight’s strikes by the Indian Air Force against a claimed “terrorist site” near Bahawalpur, Pakistan.

XTOD: Martin Wolf's short and sharp three point summary of why policy makers should care about persistent global imbalances is well worth reading https://t.co/XqiLemdSpJ

XTOD: "There are times when chasing the things money can buy, one loses sight of the things which money can't buy and are usually free."

XTOD: The unique relief that comes from doing what you love.

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Daily Economic Update: May 6, 2025

 So Buffett Retiring Was A Bearish Signal?

Stocks took an L, and are now 9-1 in their last 10 contests, still likely better than your favorite baseball team.  The 3Y Auction was solid, printing through where WI was trading.  On the whole, the S&P finished the day at 5,650, the 2Y Treasury yield rose to 3.84% and the 10Y to 4.35%

I guess the news of the tariffing films was enough to remind investors that tariffs are still a big deal.  The ISM Services data looked pretty solid, but the comments also offered a reminder that tariffs uncertainty is impacting business conditions. 

Or Was It That Girls Don’t Need 30 Dolls That Was Bearish?

Look, it’s only 3 or 4 dolls tops and 5 pencils tops, you got it?  Maybe Trump’s comments on “consumerism” as part of the perceived problems with trade deficits aren’t bullish?  We talked about “consumerism” in a post a few weeks ago when we talked about “Eat Now, Pay Later” loans and when you think about it, the whole Buy Now, Pay Later culture is analogous to trade deficits.

The trade deficit acts like Buy Now, Pay Later in that the country running the trade deficit is “buying now” (getting goods/services today) and “paying later” (by handing over claims on future income/assets).  The difference is the U.S. gets to roll over this loan at very low rates for very long times. 

Remember John Cochrane talking about this a few weeks ago? In which he talked about reforming “pro-consumption” policies:  

“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.”

Speaking of Recycling Capital Into The U.S.

I’m sure you’ve seen the news about the Taiwan Dollar gaining over 8% against the U.S. dollar in two days.  This story is a microcosm of the second order effects of attempts to rebalance trade. The driver is not 100% certain, but believed to be tied to trade discussions between the two countries and an increasing willingness for Taiwan to allow investment capital to flow into the country. 

What’s interesting is that much of the discussion has been centered around the challenges Taiwanese financial companies face from a depreciating dollar.  Apparently many Taiwanese financial companies hold unhedged U.S. dollar assets which are used to fund local currency liabilities.

Flipping The Tension On An Old Theme

The old story of currency crises was one of financial liberalization. Borders opened up, money poured into countries, countries and banks got access to borrow in U.S. dollars, etc.  Usually that money pouring into the country would end up leading to a local credit crisis and when the “hot” money would flee the country the U.S. dollar would appreciate against the local currency.  The central bank would try to support the currency but raising rates would be too hard on the local economy, so they’d get stuck and the depreciating local currency and strong U.S. dollar would make it nearly impossible for local companies and governments to pay back U.S. denominated liabilities.  

In summary the currency crises of the past were largely “liability” side of the balance sheet problems that were exposed to dollar appreciation.  With the unfolding of the Trump trade war and a revulsion against “liberalization”, is the “new” currency crisis one where foreign companies and governments that have accumulated U.S. dollar denominated assets going to be a crisis of the “asset” side of the balance sheet, where a depreciating dollar leaves these institutions unable to settle their local currency liabilities?  I guess time will tell.

"The dollar is our currency, but your problem." — John Connally, U.S. Treasury Secretary, 1971

Seems like there might be some unhedged dollar longs out there.

Here Are Some Old Themes That Might Actually Be Worth Thinking About

With Warren Buffett fresh on our minds, I thought I’d share some Buffett adjacent wisdom shared by Marathon Asset Management founder Neil Ostrer on a recent episode of The Capital Cycle Podcast.  Ostrer was discussing Buffett’s belief that evaluating company management, how they allocate capital and whether they earn good returns on that capital is crucially important to the valuation of the business.  Ultimately management and the people they motivate to work every day matter because companies are dynamic organisms.

While that discussion is interesting, I thought I would share a summary of Ostrer’s views on management red flags:

• Autocratic Management - you get the sense there really isn’t any real dialogue or discussion in those management groups.  You see turnover and you’d realize people couldn’t get along with the boss.
  
  

• The Investment Banker Turned CEO - these are people who are promotional, surrounded by sycophants and intolerant of criticism. Often they are utterly useless managers.  Everything with them is a show towards capital raising.
  
  

• Grandiosity - moves to fancy headquarters, management doing things you wouldn’t think are normal and down to earth both at the corporate level and in their personal lifestyles.

The Buffett influence is everywhere.

XTOD’s:

XTOD: Bessent’s Statement on U.S. Credit Risk and Rates  SOURCE: @FirstSquawk

 citing Scott Bessent, May 5, 2025 KEY STATEMENT: “If we can take away the credit risk of the U.S. government, interest rates will come down.” Let’s break this down with full-spectrum cognition…Thus, his core thesis: Rates are artificially high because the U.S. government itself is now the risk premium.

XTOD: The reason for persistent USD strength despite all the bailouts, money printing, stimulus, QE, whatever you want to call it…and why Trump is now trying to reset it…is not due to American Exceptionalism. It’s bc of the design or the system.   The U.S. monetary system, and every other countries monetary system, is debt based.  Which means it is leveraged.  Which means it is essentially a carry trade in that currency.  And everyone enters into some form of economic activity where expected return is higher than the “carry”.   When the carry is exceeded, it’s great.  When the carry is not exceed the system crashes.   The US only runs a carry trade in one currency.  The USD.   Every other country runs a carry trade in two currencies. Their local currency and USD since need USD to operate on global stage. 

This is a problem.    Bc for these other counties, one of the carry trades is always going against them.  This is bc floating exchange rates are a zero sum game.  If the USD rises the other paired currency falls.  In this event the USD carry trade goes against them.  If USD falls and local currency rises, the local currency trade goes against them.  They are damned if they do and damned if they don’t.   And since the USD (or Eurodollar) carry trade is orders of magnitude larger the any of the smaller carry trades, it is the one that ends up dominating.  It’s just a matter of time.

XTOD: Jason Zweig: "Expertise is rooted in pattern recognition, and Buffett has seen every conceivable pattern. I estimate—conservatively, I believe—that Buffett has read more than 100,000 financial statements in his more-than-seven-decade career."  https://pbs.twimg.com/media/GqJP316asAAWBPz?format=jpg&name=900x900

https://x.com/onechancefreedm/status/1919440299450864021

https://x.com/SantiagoAuFund/status/1919123316549333149

https://x.com/trengriffin/status/1919184223224861180