Daily Economic Update: September 15, 2023

Friday starts off with the UAW on strike. Stocks don't care and look to continue their rally following solid U.S. data yesterday.  Yields are higher by ~3bps, the 2Y yield is ~5.04% is and the 10Y is ~4.33%.   Plenty of news to start the day including the UAW strike front and center, the IRS halting the Employee Retention Credit (ERC),  Hunter Biden getting indicted on a gun charge and some better than expected industrial production in China.  Late yesterday GS research cut their odds that the U.S. will fall into recession in the next 12 months to 15%, while this sounds great, the cynical view is that GS must have some positions they still want to dump on investors ☺.  On the day ahead it's empire manufacturing data, industrial production and surveying consumers about gas prices (aka UofM consumer sentiment survey - which seems to have a highly negative correlation with gas prices).

ECB somewhat surprised markets raising rates to their highest level since the ECB has existed. Overall it was considered a "dovish" hike as Lagarde indicated this is likely the peak in rates, having reached significantly restrictive levels. I thought some of Lagarde's comments on the fiscal situation were perhaps of most interest as they fit a theme I've been seeing really since Jackson Hole.  If you go back to J-Hole, many of the papers and discussions really focused more fiscal topics, so here is what Lagarde said: "As the energy crisis fades, governments should continue to roll back the related support measures. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for an even stronger monetary policy response. Fiscal policies should be designed to make our economy more productive and to gradually bring down high public debt."  This seems like a tacit admission that central banks are struggling to combat the side effects of fiscal policy.  

XTOD: Nobody seems to know how to treat Fridays these days. Are they workdays or part of the weekend?

XTOD: Big deal:  The idea of the Employee Retention Credit was to get money into the hands of employers during the pandemic. Now, worried that it's become a money grab, the IRS has announced an immediate moratorium on processing new ERC claims.

XTOD: What does the ERC have to do with international travel after today? I'd have to say a WHOLE LOT LESS...

XTOD: last week longtime Amazon #2 Dave Clark was publicly fired from his new job. Clark is 1 of the great sociopaths of postmodern commerce, a  productivity algorithm in human form As big an asshole as Jack Welch, minus the charm.

XTOD: Colombian cocaine exports are surging, and the drug is set to surpass oil as the country's top export, according to Bloomberg Economics.  Also note that US and European cocaine consumers are seeing rising prices, despite flat wholesale prices. Seller's inflation strikes again.

XTOD: So apparently the rapidly rising premiums being paid for Gold in China is the latest convoluted 4D chess move to propel China to victory in their economic war with the west.  It has nothing to do with the fact that there is Chinese demand for gold bc their currency is the Yuan.

XTOD: There is an infinite number of things in finite supply.

XTOD: Defiance 0DTE put selling Ticker QQQY:  >"Current income with indirect exposure to Index" >Each day sell 0 - 5 DTE options from ATM to 5% ITM puts  >Targeting 25 bps of daily income, and adjust positions around that >"Invest up to 80% of assets" >Naked short puts - no indication of put spreads or hedging and acknowledge full downside exposure to index >Rebalance at the end of the day >0.99% fee  BBG article: https://bnnbloomberg.ca/zero-day-options-boom-is-spilling-into-7-4-trillion-etf-market-1.1971370 

XTOD: Tired of my 13u team getting banned from tournaments. Yes my players drink Coors Light after winning the championship game. The big leaguers do it every postseason. Let the kids play. Prohibition ended in 1933. #BeElite

XTOD: If you are feeling down for any reason, just think that some people became Softbank’s exit liquidity today.  See? Made you feel better already   Bless 🥹

XTOD: can someone order me a copy of every newspaper in the country tomorrow? thanks

Daily Economic Update: September 14, 2023

Ahead of ECB decision and the U.S. data today (jobless claims, PPI and retail sales), the 2Y is 4.98% the 10Y is 4.26% both down ~5bps from yesterday morning. Yesterday's CPI was largely in line with market expectations, all but cementing the Fed holding rates steady next week.  On the heels of CPI, this post from the BLS hit my feed, "There were 236 work-related suicides in 2021, down from 259 in 2020. Work-related suicides in these years were down from 307 in 2019, which was the highest number since the data series began in 2011. There were 229 work-related suicides in 2015, the lowest number over this 11-year period."  It probably says something about the plight of workers when the government decided to start tracking this statistic (I feel like Karl Marx in writing that sentence).  Speaking of labor the UAW appears "likely" to strike at midnight tonight with UAW President Fain saying: "It’s a battle of the working class against the rich; the haves versus the have-nots; the billionaire class against everybody else.” 

ECB decision day. At Jackson Hole, Lagarde focused on some of the uncertainties around supply-side factors (geopolitics, near-shoring) and technology shocks that under certain labor condition could lead to sustained "tit for tat" inflation.  My favorite quote of hers from J-Hole was that "we should also be clear about the limits of what we currently know and what our policy can achieve. If we are to maintain our credibility with the public, we will need to talk about the future in a way that better captures the uncertainty we face."   (because you wanted to know - my favorite Lagarde quote of all time is "If inflation is the genie, then deflation is the ogre that must be fought decisively.")

Uncertainty is an interesting word and one that is often conflated with "risk" in the financial setting and perhaps is a little confusing. I've found the following to be a helpful guide: "risk refers to all outcomes that can be insured against, uncertainty to those which cannot." And "..uncertainty as both Keynes and Knight define it, but which the mainstream denies: a situation where we have no scientific basis for calculating a ratio (probability)."  To further illustrate: "For example, if one smoker out of ten died of lung cancer, the probability of smokers dying of lung cancer is 10 percent. This set of numerical probabilities [cardinal probabilities] is the standard domain of risk as recognized by actuaries...At the opposite extreme is uncertainty...where we have no scientific basis for calculating a ratio."  Keynes (as reported by Skidelsky) sums this up as "The magnitudes of some pairs of probabilities we shall be able to compare numerically [cardinal probabilities], others in respect of more or less only (i.e. 'more or less likely', "ordinal probabilities), and others not at all [uncertainty]."  If you're ever interested in reading more about risk and uncertainty (and Keynes views on uncertainty), author Peter Bernstein's classic "Against The Gods" is worth a read.   

While uncertainty might be scary, Bernstein laments:

 "A tremendous idea lies buried in the notion that we simply do not know.  Rather than frightening us, Keyne's words bring great news: we are not prisoners of an inevitable future. Uncertainty makes us free."

Or as Frank Herbert said in the Dune series:

 “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.”

Back to the ECB, faced with slowing output in parts of the EU, the betting line is for the ECB to hold their key policy rates with the main refinancing rate at 4.25% and stress data dependence. 

We also still have casino hacks, the first day of Arm trading in the public markets and China with another rate cut

XTOD: Under the Master Plan the pressure on the Fed to "do something" wont start until the banks have offloaded their CMBS and LL exposures to the non-bank tapeworms via "credit risk transfers." That will be 2025 at the earliest.

XTOD: From Goldman, potentially three big hits coming to economic activity. Student loan resumption, UAW strike, and government shutdown

XTOD: An economist looks at this and says hey, grocery prices aren't adding to inflation any longer. A normie looks at this and says hey groceries still are 17% more expensive than 2 years ago. Why aren't they going down?

XTOD: Overall I still feel better than I did a few months ago about the possibility of a soft landing. But I feel a bit worse than I did yesterday.  And if you over-updated based on the noisy June and July data you should probably be over-updating back again based on the August data.

XTOD: Whilst I am not a fan of a 0 deficit policy: there is a limit. The fed government was right to spend more during Covid. But that should never have been more than a temporary response to help out those who sacrificed for the rest of us. Making that spending permanent is reckless.
We are creating new dollar valued assets equal to 10% of GDP every year. The Fed has an inflation target of 2% and, to hit that target, it will need to continue raising rates. As interest rates go up, the deficit will explode further to finance the existing debt.
The likely outcome will be a resurgence of inflation that will act as a stealth tax to help finance the shortfall. This will not end well.

XTOD: Many people will look at this trend and think "it's not sustainable b/c debt service becomes impossible." Nope (not for U.S., at least). It's unsustainable b/c inflation will reverse trend (by making NGDP grow ever more rapidly)...Yes. But when push comes to shove, does monetary or fiscal policy capitulate? Fed is obliged to support Treasury at auction, so unless one is expecting Volcker II...

XTOD: I have yet to find a system that's a good way to track:
- media recs to come back to later
- random ideas I want to spend more time noodling on
- future tasks I have to do
- daily/weekly activities i want to track
i want all of this together, organized, and easy to add to

XTOD (reply): this does not and will never exist. let it go <3

XTOD: Possible Sign Of Life Found On A Planet 120 Light-Years Away https://trib.al/ieel60f

Daily Economic Update: September 13, 2023

$29 dongles, an attempt to impeach Biden, MGM casino cyber attack, covid, UK GDP contracting, but it's CPI that is in focus today. At the last FOMC meeting, the Fed had identified five pieces of economic data that would inform their upcoming decision, those were: the Employment Cost Index back on July 28, the two Jobs reports (8/4 and 9/1) and the two CPI reports (8/10 and today's upcoming report), most commentators and the market believe those reports, which have shown some slowing in labor data and cooling inflation, will likely leave the Fed on pause next week (CME FedWatch has probability of a pause at 93%), but we'll see what happens with today's CPI.   To start the day, the 2Y is up 3bps to 5.03% and the 10Y is higher by 3-4bps to 4.31%.   On the cap we get CPI and the 30Y Bond Auction.  If you're looking for bank forecast for the inflation read you can find them here.

If you missed it yesterday, Howard Mark's put out his most recent memo. As is typical of Howard's memo's, it's worth a read.  He spends some time using tennis as an analogy, harkening back to Charlie Ellis' classic "The Loser's Game" in which Ellis argues that argues that lay investors have the best chance of success in investing in the stock market by avoiding costly mistakes, minimizing cost and focusing on asset allocation and passive investing.  Mark's states: "The amateur doesn’t have to hit winners to win, and that’s a good thing, because he or she generally is incapable of doing so dependably."

As we look ahead today's inflation reading, it's always "fun" to reflect on inflation, so here's a few gem's from Irving Fisher's classic "The Money Illusion":

• "Money Illusion"; that is the failure to perceive that the dollar, or any other unit of money, expands or shrinks in value.
• "As long as a dollar is not safe, any agreement to pay a dollar is not safe. However certain it may be that you are going to get the promised dollar, it is not at all sure what the dollar is going to be worth when you get it."
  
• "In short if more money pays for the same goods their price must rise, just as if more butter is spread over the same slice of bread it must be spread thicker, the thickness represents the price level, the bread the quantity of goods."
• "..the only important fact, in so far as the price level is concerned, is the relation between these two circulations [money and goods]...if the circulation of money increases relatively to the circulation of goods, the price level will rise. If, on the contrary, it decreases relatively, the price level will fall; that is, whether the butter is thick or thin depends on whether there is much or little butter relative to the bread."
• "War has always been by far the greatest expander of paper money and credit, and therefore the cause of the greatest price upheavals in history."
• "[Inflation] It would, indeed, be of no importance if everybody's income were adjusted to the change in prices. But this is not and cannot be the case...a change in the money yardstick, the dollar, is far more serious, and for three reasons:
• it affects all sales
• it is used for long-term contracts...we are constantly contracting to pay present dollars for future dollars...it makes tremendous difference, for instance, to a bond holder.
• these disasterous effects are not perceived because of money illusion
• "when your house is burglarized, society is none the poorer..that would be cold comfort to you..in somewhat the same sense this burglarizing dollar is defrauding people...it is social injustice."
• "while inflation is going on, the general public finds it hard to admit that there can be too much money....After rapid inflation once starts, the clamor for more money often grows louder and louder."
• "When prices are rising wages and salaries are, as it were, running after a lost train."
• "Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."
  
• "As inflation goes on, the workers continually grow more dissatisfied and attribute their plight to an intentional plundering by a social system of exploitation." "Out of such discontent, therefore came Bolshevism and other radical theories."
  
• "worst examples of inflation have come from unbalanced government budgets. As we have seen, when a government cannot make both ends meet, it pays its bills by manufacturing the money needed."

XTOD: A picture of inflation as a tax on the average family: https://bloomberg.com/news/articles/2023-09-12/us-inflation-adjusted-incomes-fell-2-3-in-2022-from-prior-year?srnd=undefined#xj4y7vzkg

XTOD: Every Twitter economist is saying the same brain dead, out of touch thing…“Why are the American people so negative on the economy? GDP is up!”  Maybe because they just watched their purchasing power be annihilated by generational inflation, real household incomes have fallen for 3 years in a row and wealth inequality continues to expand. All while their tax dollars are being wasted and/or sent overseas.  GDP doesn’t come up at the kitchen table for normal Americans you clowns.
“Honey… the credit card bill is due and we don’t have enough to cover it this month. Our groceries have doubled and student loans are restarting soon. There’s also a possibility of layoffs coming at work.”  “Oh don’t worry about that. GDP is trending stronger than expected!”

XTOD: Today we broke the record for the longest streak of trading days (210) with an inverted 10yr/3mth yield curve.  What that means, you be the judge...

XTOD: "We don't have enough Americans to afford what is going on out there right now."  Housing Market Set For A "Cat 5" Storm, Worse Than The Great Financial Crisis.

XTOD: Let me make one thing clear on  @IRSnews  ERC.  Small business owners who qualified rightly claimed this. GOOD. Law was designed FOR THEM.  Years later, most new claimants are being SOLD the ERC for 25-30% commission. Most new claims are fraud.  Danny Werfel knows it. Good for him!

XTOD: Don't believe me? Since 1983, whenever entitlement spending pushed deficits too high, Congress responded by cutting defense and social spending (education, veterans, kids), and raising middle-class taxes. And it will get much worse.

XTOD: A CDC advisory panel met to come up with a recommendation on whether updated COVID shots approved by the government should be used broadly or targeted to specific at-risk populations, setting the stage for the launch of a re-vaccination campaign

XTOD: Government: "OK so there's a pandemic, but don't worry we're going to let you not make payments for 3 years." 
Borrowers: "OK cool, I'm going to buy a house with that money." 
G: "Wait no, that's not what we said..."
B: "OK I also bought a new car"
G: "Wait stop, that's not how this works."
B: "We're in Europe on vacation, AirBnB does Klarna now."
G: "......"

Daily Economic Update: September 12, 2023

Today starts with yields pretty flat the 2Y is at ~5.00% and the 10Y is 4.28% .  Big day for Tesla yesterday as Morgan Stanley suddenly uncovers a supercomputer known as "Dojo" that is being used to train Tesla's self-driving feature.   “The same forces that have driven AWS [Amazon Web Services] to reach 70% of Amazon total EBIT can work at Tesla, in our view, opening up new addressable markets that extend well beyond selling vehicles at a fixed price. The catalyst? Dojo, Tesla’s customer supercomputing effort in the works for the past 5 years,” Jonas wrote.  You should see the AI super-computer that powers this blog and also mines crypto while I sleep....blog market cap now infinity.

This morning, the NFIB Small Business Optimism survey was lighter than estimated and remains below average with their Chief Economist citing inflation and a shortage of workers as being "the biggest obstacles for Main Street".  Across the pond in the UK, 'regular pay' which excludes bonus was up 7.8% YoY and is at the highest on record with pay increases in financial services leading the way, this despite data this morning showing the UK economy shed jobs.

In non-market news, Aaron Rodgers might be done for the year, new iPhones, Putin meeting with Kim Jong Un.

The 10Y auction will be the big fixed income item of the day as markets await tomorrow's CPI. 

XTOD: DIMON: “.. I would not be a buyer of Treasuries at 4.2%, nor would I be a buyer of credit spreads at these spread levels.”  [He wouldn’t be surprised to see 10yr Treasury yields at 5.5% or oil at $120-150.] 

XTOD: Colombian cocaine output surged to a record last year, with the drug flooding into new markets and fueling violence across the world

XTOD: If you had bough $1000 worth of Bed Bath & Beyond stock one year ago, it would be now worth $26   With AMC, you would have $96 left   If you had bought $1,000 worth of Budweiser (the beer, not the stock) 1 year ago, drank all the beer, then turned in the cans for the 10 cent deposit, you would have $214 
Based on the above, my current investment advice is to drink heavily and recycle

XTOD: Note this morning from Apollo's Torsten Slok about why the Fed's measure of "supercore" inflation remains high. He sees it as a reason monetary policy must remain tight. I see it as a reason to stop focusing on a deeply flawed measure

XTOD: To date still one of my favorite learning materials. (Lehman Foreign Exchange Training Manual)

XTOD: "The money needed to sustain this giant prosperity-generating machine comes from the government running deficits and from banks extending credit, with the Fed’s activities linking the two." 8/10

XTOD: The share of U.S. households reporting that it's harder to obtain credit than one year ago hit a new high in the New York Fed's consumer survey, which is around 10 years old

XTOD: The mechanics of negative convexity and how it can impact bondholders.   https://vgi.vg/488hoKh

XTOD: Kyle Bass Says US Banks to Lose $250 Billion in Office Holdings  @business  Banks in the US will lose $200, $250 billion in office over time here, Bass said. And there’s about $2 trillion of equity in the banks so it’s like a 10% hit to US banking equity. #CMBS

XTOD: Youth is definitely a virtue for many tasks, such as moving furniture, carrying water up a mountain (in the absence of mules), skiing at very high speed in a rocky steep terrain, but it won't help much in challenging age old investment wisdom.

XTOD: Yo if your name is Omar and you’re from San Rafael, your girl Jessica who works at Starbucks is cheating on you.   I’m waiting for my food and she’s talking about it with her coworkers behind the counter.

XTOD: MGM casino hack:  “The system is still down,” receptionist at Borgata casino in New Jersey tells me, adding slot machines are only taking cash as a result.   She said most guests were understanding but that “a couple are angry.” 

XTOD: Orangutan launches possum out of enclosure at zoo — as horrified visitors scream https://trib.al/04HoK8I

Daily Economic Update: September 11, 2023

 

September 11th starts with yields up and steeper the 2Y is 4.99% and 10Y is up ~4bps to 4.294%.  The Yen is stronger against the USD as over the weekend Ueda said Japan may eventually end NIRP (negative interest rate policy) with the 2% inflation target in sight.   It will be an important week in economic data heading into next week's FOMC decision as we get CPI on Wednesday, Retail Sales on Thursday, and another look at consumer expectations for inflation with UofM survey on Friday.  Speaking of central banks, the ECB decision on Thursday will likely be of some interest given the continued inflationary pressures against continued weakness in areas like German manufacturing, as the European Commission cut the Euro Area growth forecast for remainder of 2023 and 2024 with contraction in Germany.

Staying in the states, there are some pretty big disconnects in GDP forecasting amongst Federal Reserve regional bank forecasters as Atlanta Fed's GDPNow is estimating real GDP at 5.6% for 3Q2023 and the newly reinstated NY Fed GDP nowcast at only 2.25%.  The considerably better growth forecast have caused some commercial bank researchers to up their year end yield targets, with JPM now seeing 10Y yields ending the year at 4.20% up from 3.85% in their last forecast.  Morgan Stanley on the other hand stated "We stand alone, with conviction, telling investors to buy government bonds, despite incessant selling, weak price action, driven by backward looking - and in our view - questionable narratives." Guess time will tell who is correct.  Lots of talk of the Arm IPO this week, around the $55bln valuation threshold.

No major data today with a 3Y Note Auction the highlight of the day.
Tue: 10Y Note Auction
Wed:  CPI, 30Y Bond Auction
Thu: ECB Decision, Jobless Claims, PPI, Retail Sales
Fri: Empire Mfg, Industrial Production and UofM

XTOD: NY Fed Q3 GDP Nowcast: +2.2%  Atl Fed Q3 GDPNow: +5.6%  Really smart move by Central Bankers here. You want to diversify your views in case one of these is way off the mark.

XTOD: Chicago Fed research: Fed rate increases have already taken substantial effect on output but the majority of effects have yet to occur for labor market  The model says the Fed has done enough to bring inflation to target by 2024 while avoiding a recession  https://chicagofed.org/publications/chicago-fed-letter/2023/483

XTOD: The only three variables that are too low in this late cycle are the only three that actually matter:  - spreads   - vol  - ERP  Everything else is levitating, rates, equities, house prices,…  Usually liquidity ties it all together, not now

XTOD: @INArteCarloDoss  has a great list of the reasons to be in cash.  But the big kahuna which ties them all together is missing.   Bond Term Premium is negative.   All four need to go higher or the economy will continue to surprise on the upside.  We think all four will go higher.

XTOD: New Fed Z.1 (which gives us early household wealth data) is out for the three months through June 2023.   A big pop driven by stocks and real estate has pushed household (+nonprofit) net worth back above where it was before rate hikes started in 2022.  https://federalreserve.gov/releases/z1/dataviz/z1/changes_in_net_worth/chart/

XTOD: Yes I agree, owning the index guarantees you own the winners, whoever that ends up being

XTOD: India is studying possible responses to a potential Chinese invasion of Taiwan after the US made discreet inquiries on how the nation could contribute in the event of a war, according to senior Indian government officials. The study, commissioned by India’s top military commander, will assess various war scenarios and provide options for the giant Asian country in case a conflict breaks out. Some Indian military commanders believe that strong statements may suffice as a response in case the war is short, but ultimately that will not be enough if the conflict drags on like Russia’s war in Ukraine, the officials said. Under Prime Minister Narendra Modi, India has developed a policy of “multi-alignment,” effectively hedging its bets by fostering close ties to the US while refusing to join international sanctions on Russia. That policy will be tested in the event of a drastic deterioration of US-China ties. via Bloomberg

XTOD: If markets are efficient, why are people still holding huge sums in bank accounts that yield 0.63% when money market funds pay 5.08%?

XTOD: Wow, there’s something that Lenin, Keynes, and Austrian economists all agree on:  The best way to destroy society is to debase the currency.  I'm genuinely curious what a Keynesian today thinks of these statements from Keynes in 1919.....haha imagine being an MMTer and knowing that Lenin, Keynes, and Austrians are all able to see/admit that debasing the currency destroys society.  they prob spin this as motivation... "everyone is wrong except MMTers!!"

XTOD: Citigroup is tanking the way Credit Suisse did near the end.

XTOD: Crypto exchange FTX will likely get approval to liquidate its assets 13th of September.  They had $3.4b worth of crypto in April.  Current proposed plan is to sell up to $200m worth of crypto every week.

XTOD: Everything seems coordinated to hit in October 🤫  1) Student loan payments resume 2) Government budget shutdown October 2nd 3) Virus lockdowns 4) Bank failures 5) FEMA & FCC Nationwide Emergency Alert Test for October 4th

Daily Economic Update: September 8, 2023

Despite strong ISM Services and jobless claims to start yesterday, yields ended lower as markets focused on news like that out of Walmart, which is cutting starting pay for some new hourly workers. To start the day, yields are relatively flat with 10Y at  4.24% and 2Y at 4.94%.  As we head into Fed's blackout period, NY Fed President Williams yesterday seemed to join the chorus of Fed officials who seem to generally be promoting a "pause" at the upcoming meeting.  With the yield curve still in deep inversion, there was a good St. Louis Fed post yesterday on the yield curve inversion and recession probabilities.  In it the author derives a lower recession probability if you look at the inversion of the yield curve in "real" (inflation-adjusted) terms.

As an aside, probably one of the worst takes I hear seemingly daily in the financial media goes something like: 'the U.S. economy is so much less interest rate sensitive because people have used fixed rate debt'. From there the pundit will typically follow that with a statement to a seemingly logical conclusion that goes something like 'therefore the Fed's rate hikes are less impactful...or therefore 'long and variable lags'.  That all seems reasonable.  So why do I think this is a bad take? The reason I think this is a bad take is that it fails to recognize that fixed-rate liabilities are someone else's fixed-rate asset.  What is therefore great for someone who borrowed at a low fixed rate is equally bad for someone who holds that loan/security as an asset.  These same pundits often talk about Fed policy working through financial conditions and wealth effects, but then seem to skip the step where they account for the mark-to-market losses that anyone who holds a fixed rate asset with a low interest rate are experiencing.  It's only been 6 months since SVB and concerns about banks mismanaging duration risk were all the headlines and I guess now we only account for the gains from holding fixed rate liabilities on the books of homeowners and corporations.
Now if you want to get into a discussion around the structure of the U.S. economy and how it's shifted to a more technological based and services oriented economy, or how certain industries have lower leverage than the past,  then I can probably buy into the narrative that the economy as a whole might be less interest rate sensitive, but that's not the sound bite narrative I hear on TV.   

On the day it's Wholesale Inventories and Consumer Credit

XTOD: SBF has no friends left.

XTOD: Scoop: TikTok's Shop marketplace is live for some US users. It looks like an Amazon copycat and is full of cheap Chinese goods.

XTOD: Is there any research or empirical support to the notion that the last mile on inflation is the hardest? (serious question)

XTOD: The authors' findings show the significant uncertainty surrounding the measurement of inflation in real-time, which adds to the challenges faced by policymakers, analysts, and the general public in analyzing inflation.

XTOD: They are not  pouring money into “alternative” assets. They are pouring money into over-priced (and over-fee’d) under-expected returned beta (plus some vol laundering). Overpriced beta ain’t “alternative.”

XTOD: US investment-grade bond supply over the first two days after Labor Day has totaled $52.6 billion, the third largest over the same period since 2010: Bank of America research.

XTOD: Seems like everyone has forgotten about the banks just as they are flashing warning signs again

Daily Economic Update: September 7, 2023

After another day of rising, U.S. yields open the day a little lower with the 2Y right around 5% after crossing 5% yesterday following better than expected ISM services data.  The 10Y is 4.27% also down slightly 2bps from yesterday's close.  Yesterday's Fed Beige Book showed some signs of slowing in the job market and some squeeze in profit margins as businesses struggled to pass on higher input cost to consumers, perhaps another sign the consumer is rolling over and exhausting excess savings.  Fedspeak continues to skew towards inaction at the upcoming FOMC meeting.  Atlanta Fed GDPNow is still up at 5.6%.  China data continues to show weak trade, oil continues to stay high (see airline profit warnings), Covid cases out there, and path of rates remain a question mark. 
On the day ahead we have a decline in Apple in the pre-market due to reports that China looks to expand the ban on iPhone sales to state firms and agencies.   On the day ahead: Jobless claims, Productivity and Cost, Fed Williams speaking 330pm, Bowman.

XTOD: Out of 28,114 publicly-listed U.S. companies analyzed over past century, 25 best stocks have created nearly 1/3 of all shareholder wealth; put another way, just 0.1% of stocks have added over $17.6 trillion to investors’ wallets;  @VisualCap  graphic from Henrik Bessembinder of  @ASU  shows best stocks of past century [Past performance is no guarantee of future results]

XTOD: Point 10 in Tom Sargent's 2007 Berkeley graduation speech:  "When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation." 

XTOD: Supply continues to do its thing: For the first time in many decades, apartment rents are rapidly flattening (and could soon go negative) at the same time demand remains healthy.  Why? Apartment construction is at 40+ year highs-- shifting the balance of power to renters.  YoY, effective asking rents for new leases (same-store) inched up just 0.28% and could turn negative by September.  Compare 2023 to the last two times (excluding 2020 pandemic year): early 2000s and 2009. In those prior two periods, rents fell as recessions hit, jobs were lost, demand evaporated and vacancy hit 7-8%. By comparison, in 2023, vacancy has been fairly stable since January in the mid 5% range.  Demand is solid, but operators are giving on price in order to compete and to protect occupancy / cashflow.  That'll likely continue through 2024 as supply peaks, before 2025-26 as supply by then will be significantly less.  The rent slowdown won't show up in CPI until early-ish 2024. But it'll happen. CPI rents won't go negative by then, but they'll look pedestrian at that point.

XTOD: AIR B&B to lead real estate market crash.  If you want a new home your happy days are around the corner. Same for rental property. The best time to get rich is in a crash. Good luck.

XTOD: Here's the big story in childcare: There's been mass closures of "in home daycares" (the most affordable option)  More than 97,000 have closed since the early 2000s, cutting the overall industry by ~half.  As pandemic aid ends, expect even more closures.  https://washingtonpost.com/business/2023/09/05/child-care-cliff-day-care/

XTOD: There's a great line in Walter Bagehot's "Lombard Street" (1873!!), where he essentially says this is the most efficient role of banks.  "Busy bankers" don't have time to become specialized, and thus should just be the senior lenders to those who are

XTOD: “being able to pass on an investment and then get in after it’s gone up 100% is a superpower”.

XTOD: Our US members' confidence in finding or holding a job (grey line) matched its highest level since March.  Y/Y declines in this metric are moderating.

XTOD: What bear steepening? (This one)  From August 1 pre QRA supply to today 

2s : + 14bp

10s : + 28bp

30s: + 28bp 

I keep hearing this because the curve did bear steepen. Twitter warned us of a supply driven bear steepening

XTOD: Want to handle pressure better? Learn to compete against “nameless, faceless opponents.” In other words, focus on competing against the game itself, which is what you have trained to do (personally and as a team).

Daily Economic Update: September 6, 2023

Continued dollar strength especially against Asian currencies (JPY and CNY)  and rising oil prices are front and center today as equities and bonds are little changed to start the day.  The 2Y UST is trading ~4.95% while 10Y is ~4.25% ahead of today's ISM Services and Fed Beige book.  Fed Governor Waller yesterday didn't rule out more hikes and didn't seem to favor cuts.  German factor ordered missed estimates badly falling 11.7% in another sign of stagflationary fears for EU.

XTOD: You know what breaks the S&P 500?  People selling off their Vanguard funds from their retirement accounts and paying the penalty because they no longer work and milk now cost $357.73. 

Few understand this.

XTOD: A Delta flight from Atlanta to Barcelona was forced to return to Atlanta to address, "diarrhea all the way through the airplane."

XTOD: There's an epic Battle for Narrative right now.  Each side is vying to get a landmark share placing out successfully:

- On one side, OPEC wants to pump the Saudi Aramco placing through the Inflation narrative

- On the other side, Wall Street wants to pump the ARM IPO through the AI AI AI AI narrative 

The only certainty is that a new class of bagholders will be created

XTOD: Long list of people who keep on telling me how smart they are to be long duration and what an idiot I am for being short it. It's almost as if they don't have a quote provider and they are living in their own little fantasy land where supply gets mysteriously bought by Daddy.

XTOD: Join us on the blog as we mark one year since Liz Truss began her short-lived tenure as PM, one that got us all talking about submerging markets and...lettuce.