Daily Economic Update: May 31, 2024

We end May with the anticipated PCE (inflation) report.  Following yesterday's slide in yields on a GDP report that showed lower growth than previously reported, we end May with 2Y yields at  4.93%, down from 5.05% to begin the month and 10Y yields at 4.55% down from 4.68% at the start of the month.  Despite falling yields the 20% decline in Salesforce shares helped lead equities lower for a second straight day.  After hours news that the U.S. will slow exports of AI chips is likely to weigh on the most loved equities.

Yesterday's 1Q GDP report showed real GDP revised down to 1.3% from 1.6%, with consumption revised down and PCE component also revised down.  On the day ahead we'll get an update to the ATL Fed GDPnow for 2Q, where the last estimate was currently sitting at a strong 3.5%.  The NY Fed's nowcast will also be updated today and is much lower at 2.04%.

Away from the data (I’m not touching political news here)…..the STL Fed had a research piece out on Commercial Real Estate that seems to state the obvious issues already well known to the market and probably could have been a post on X/twitter: 

• A 'wall of maturities' with $1.7 trillion of CRE loans expected to mature between now and 2026
• Borrowers may be refinancing into higher rates and weakening fundamentals (especially for office)
• A discussion of NOI by real estate sector, noting that higher inflation has raised operating cost as has rising insurance cost, both eroding NOI
• If you didn't know the office sector is having problems, now you do.
• " stress in the commercial real estate market is likely to remain a key risk factor to watch in the near term as loans mature, building appraisals and sales resume, and price discovery occurs, which will determine the extent of losses for the market."

On the day ahead PCE is the main event.

XTOD: Pending home sales, a leading indicator, plunged 7.7% in April to the lowest level since the economy was in pandemic-lockdown recession mode in April 2020. Nice to see how ineffective Fed policy is, right?

XTOD: It's hard to understate just how unprecedented the scale of US fiscal stimulus is at the moment. Not only is the deficit massive for a non-crisis period, but its financing is almost entirely via very short-term issuance, which has never been the case before in a non-crisis time.

XTOD: Hello stagflation.   The US GDP growth for the first quarter of 2024 was revised downward from 1.6% to 1.3%.   This figure, less than half the growth of the third quarter of 2023, which was 3.4%, paints a stark picture of our economic trajectory.  The slowdown in economic growth hinged on consumers spending less this past quarter. That is understandable. Consumers are facing record credit card, auto, and mortgage debt. Consumer prices rose by 3.3% during the first quarter of 2024. 

The Fed can't control supply-side or event-driven inflation. Commodity prices are rising. Higher-for-longer rate policy has increased debt burdens for individuals, businesses, and the government. Banks are sitting on more than half a trillion dollars of unrealized losses.  

None of that suggests economic growth will beat inflation any time soon.

XTOD: Real GDP (annual rate) revised down to 1.3% in Q1, originally 1.6%. GDI was 1.5%.

Inertial components strong:

--Consumption +2%

--Business fixed investment +6.0%

--Residential +15.4%

--Real final sales to domestic purchasers +2.8%

XTOD: Ex-NY Fed's Bill Dudley: "I think r* is a lot higher than the Fed recognizes, which means the central bank isn’t doing enough to fight inflation...Perhaps the Fed’s mantra, instead of 'higher for longer,' should be 'higher indefinitely.'"

XTOD: Charlie Munger: “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.”

Bob Robotti: "It is difficult to maintain patience when managing other people’s money.... The decision to remain patient is an active decision, no less important than buying or selling a security."

XTOD: Here are six practical lessons and actionable ideas from our conversation with Morgan Housel:

1. Aim for financial independence, not just growing wealth. When you can wake up and do whatever you want to do, that's a sign of success.

2. As you make more money, it's okay to spend more money. But people get into trouble when their spending outpaces their income growth. You can move the goalposts, just not too fast.

3. Wealth accumulation is about being average for an above-average period of time.

4. Don't be a slave to FOMO. Stick to your investment strategy, and don’t be swayed by others' short-term gains.

5. The duration of your investment is more critical than the size of your returns.

6. Personal finance should be personal. Make financial decisions based on your personal goals and values, not on societal pressures or what others are doing.

Focus on what makes you and your family happy, and use money to do that more. https://t.co/0aYuxDJYGf

Daily Economic Update: May 30, 2024

A rough day for stocks, despite NVIDIA being up again.  American Airlines took it on the chin despite data that shows Americans are traveling in record numbers.  Global inflation readings and another poor treasury auction caused some concerns and led to higher bond yields.  The Fed's Beige book showed some pessimism with rising uncertainty and greater downside risk despite reporting that national activity continued to expand in April and through mid-May.   Treasuries ended the day with steeper yields with the 2Y still under 5% at 4.98% but 10's at 4.62%

Speaking of the Fed, they get a Goldman alum joining the ranks as Beth Hammack will replace the retiring Loreta Mester as the next President of the Cleveland Fed.  I didn't spend too much time on the internet, but I'm sure the internet had nothing to say about that.

It seems like every couple of weeks there is some catalyst that leads to higher yields, which sets off some cycle of investors questioning the drivers of higher yields and whether they will feedback into the real economy and drag down stock prices.  From there the collective generally looks to the next inflation or employment print to provide the answers that seem elusive at the moment.

We'll get jobless claims, another look at GDP and inventories on the day ahead.

XTOD: NVDA 2024 = CSCO 2000.  I mean, it is exactly the same thing.

XTOD: Franklin Templeton's Sonal Desai sees 10-year yields settling in above 5% for the longer-term, in part due to the fiscal deficit.

XTOD: Whatever reservations folks might've had about the optics of hiring another Goldman alum into the Fed's top ranks would be presumably diminished by Hammack bringing significant heft on financial plumbing and markets to a committee/board that has been seen as light in those areas

XTOD: As per Taleb’s minority rule, political parties are coalitions of single-issue voters and not collections of centrists. You win by rewarding your supporters with targeted handouts.

XTOD: When trying to make sense of the world, it helps to remember that everyone out there is just doing their best......to advance their own interests.

XTOD: The longer you’ve had strength, the harder it is to lose strength. 

XTOD: ‘Bruce, if I run any more, — and we're still running — ‘if I run any more I'm liable to have a heart attack and die.’ He said, ‘Then die’ 

It made me so mad that I went the full five miles. Afterward I went to the shower and then I wanted to talk to him about it. I said, you know, ‘Why did you say that?’ He said, ‘Because you might as well be dead. Seriously, if you always put limits on what you can do, physical or anything else, it'll spread over into the rest of your life. It'll spread into your work, into your morality, into your entire being. There are no limits. There are plateaus, but you must not stay there, you must go beyond them.’”  - John Little, “The Art of Expressing the Human Body” (1998)

Daily Economic Update: May 29, 2024

The news yesterday was centered around consumer surveys, Fed's Kashkari, poor 2 & 5 year auctions and of course AI fueling another NASDAQ record despite rising yields.  The 2Y is nearing 5% and 10’s crossed 4.50 to 4.55%.

Yesterday's Conference Board Consumer Confidence readings were above consensus forecast both for present situations and expectations index, with the expectations index "was below 80, the threshold which usually signals a recession ahead.".   Also in the report was data showing consumers increasing their 1y inflation expectations while "The Perceived Likelihood of a US Recession over the Next 12 Months rose again in May, with more consumers believing recession is ‘somewhat likely’ or ‘very likely’. This contrasts with CEO assessments of recession risk: according to our CEO Confidence survey, only 35 percent of CEOs surveyed in April anticipated a recession within the next 12 to 18 months.

While much has been made of recent soft data underperforming hard data (i.e. survey data saying the economy sucks while GDP and employment data saying otherwise.  Goldman researchers hypothesize:

 "We hypothesize that the 2020-21 Covid shock led economic agents to widen their conception of what constitutes “unchanged” business conditions. Shell-shocked from the economic volatility of the pandemic recession and its fits-and-starts recovery—economic agents may have redefined their definitions of “unchanged” to encompass a broader and potentially higher range of economic activity growth."

Economist and blogger, Claudia Sahm also wrote about consumer survey data recently, she argues people are currently better off than they were prior to Covid but are more angry about the economy than ever.  She discusses how people are confused about inflation and in my opinion seems to get a little upset that people don't understand the technical definition of inflation.   Some selected quotes:

"No. Words have meaning. Here is the definition of inflation:"  "The gap between people’s assessments and reality is huge." "The best I can do here is say that people are angry and scared of what’s around the corner. They are constantly told that they should be angry and scared. When asked about basic economic facts, they blast all that anger and fear at the questions."

One important thing to keep in mind when it comes to talking about things like the economy is that as humans we struggle to speak about things that cannot be perceived by the 5 senses and most (all?) economic topics fall into this category.  When we are dealing with things that we can't directly be experienced by the 5 senses we talk about them as if they could be seen, touched, heard, or in other words we have to use metaphors.  Words like growth, development, inflation, etc. are metaphors to help us understand things by reference to things we've actually experienced. We've seen a ball be inflated, we've seen a plant grow, etc. When it comes to the word "inflation" it is likely that we have also metaphorically associated it with things like an "enemy" or evil "genie", so it doesn't seem terribly surprising people who now see that word more than ever have negative feelings about it.  As Claudia opines, do this mean survey's capture more than people's feelings about the economy, I'm not sure.  Maybe the survey's are actually showing how disappointed people are about the economy because they see words repeated in media for which they have strong negative opinions of in a metaphorical sense.

Away from the data yesterday we had Fed's Kashkari arguing that we need "many more" positive inflation prints before the Fed will cut rates, he also didn't rule out raising rates if inflation is stubborn.

Economist Alison Schrager had a post in which she argues that "we're never going back to 2019 interest rates."  She is clear that this doesn't mean the Fed won't cut rates ever (even to 0%) but that we'll be in for higher rate environment than existed pre-covid. The reasons: (1) higher r-star and (2) higher bond risk premium due to higher and more volatile inflation and much more debt being issued.

"But it’s not all bad. We’ve had periods of highish (if you call 5% high) rates and lots of growth. Capital will be more expensive, and we probably won’t lavish unlimited capital on anyone who has a tech idea anymore. But that can also mean a healthier and more balanced relationship with risk and a more thoughtful allocation of capital. A zero-rate environment always felt unnatural, even if it was mainly due to market forces."

She goes on to bemoan how private markets are now talked about as nearly risk-free and concludes that discussion with this:

"Many people think risky markets are riskless these days. That’s what happens when you have ten years of zero rates. Even the biggest names in finance forget what risk means. I, for one, welcome higher forever; the madness needs to end."

Time will tell if Alison is correct, but it's interesting to wonder how much pricing in there has been, if any, for an era of higher cost of capital.

In the meantime home prices and AI don't care about the cost of capital.

XTOD: U.S. home prices, as tracked by Case-Shiller, rose +1.3% between the February '24 and the March '24 reading.  That's a new all-time high—national home prices are +2.7% above the 2022 peak 

Year-over-year: +6.5%

XTOD: Nvidia’s share of the data center compute market has grown from about 15% five years ago to circa 80% today, via Goldman Sachs:

XTOD: Microsoft Data says that US office workers are spending 300% more time in meetings today compared to 2020

 XTOD: Markel CEO Tom Gayner on how interest rates are like an inverse form of curfew (on speculation):

"When I graduated from UVA, our first mortgage was something like 15%. It was insane. Every penny we had went to that mortgage. A 15% interest rate is like having a 6 p.m. curfew. When you come home from school, you barely eat a little supper and you're done. You do your homework and you go to bed. There's nothing [else].

Well, as interest rates came down and went from 15% to 10%, maybe that's a 7:30 or 8:00 p.m. curfew. You could come home and go outside and play with your friends a little bit, but nothing really bad was going to happen.

As interest rates kept going lower and lower, the curfew got later and later. To the point where we got to, in effect, 0% interest rates [and] negative interest rates in Europe. That's like no curfew whatsoever. And [with] no curfew whatsoever, bad things can happen."

XTOD: In honor of Angel Hernandez retiring, I am making a thread of my favorite fuck up’s of his throughout the years  Enjoy, and please feel free to add your favorite as well.

Daily Economic Update: May 28, 2024

With the Nasdaq at all-time highs, the week ahead sets up as follows with PCE on Friday as the highlight.

Tue: Fedspeak, home price index, consumer confidence, 2Y & 5Y Treasury Auctions

Wed: Beige Book, moar Fedspeak, 7Y Auction

Thur: Jobless claims, 1st revisions to 1QGDP, inventories

Fri: PCE

Friday featured Waller questioning the level of R-Star.  Are you starting to feel like the Fed just goes in / talks in circles?  Recent data has showed measures of expected inflation moving higher.

I thought the following summarizes the current situation quite well, courtesy of Marcus Nune's blog post titled: "Misunderstanding the Macroeconomy" which you can find here.

"The present situation can be summarized thus:

• a permanently higher 2% price level path
• a permanently higher 5% NGDP level growth path
• the same RGDP level gowth path.

The Fed is, once again, focused on inflation and how to “manage” its “beloved” instrument, the policy interest rate.

If the Fed is “true” to AIT, it will have to bring inflation below 2% for some time. This will also bring the price level to a lower level. Therein lies the danger. Looking at what happened in 2008, to bring the price level down (even if not all the way to the previous level, which, as was mentioned in the “AIT Primer” box above, is not required), the level of NGDP will have to fall. A (maybe) deep recession is the most likely outcome!

The Fed is “scambling” to understand its options. A recent speech by Governor Waller, who wants “several months of good inflation data before lowering rates” is concerned about “what is the neutral interest rate”.

To my knowledge no one has ever pinned it down, with estimates not only varying wildly, but also enclosed within very large confidence bands. As a guide to monetary policy it is quite useless! Since the economy is not anymore in a "low interest rate environment" (which was an important motivator for the change in the Fed monetary Policy framework of August 2020), the Fed is trying to guess how high should interest rates be in the "new environment". Fed talk about rstar is not the "attractor" but the "distractor"!"

I feel like I've been on a theme for a minute (see my last two FOMC recaps), or a career, about uncertainty and the desire for precision where none can be found.  I came across this quote in an unusual place and one far afield from finance and economics (perhaps where people in finance and economics should spend a minute - away from finance and economics, outside of excel and DSGE models, etc.)

" Our natural inclination is to be so precise– trying always to forecast accurately what will happen next– that we look upon uncertainty as a bad thing.....we do not know what a day may bring forth...This is generally said with a sigh of sadness; it should be said as an expression of breathless expectation."  

See this post from September 14, 2023 for more.

XTOD: At the beginning of the year, the market was pricing six Fed cuts this year, six ECB cuts, and five BoE cuts  Today, the market is pricing two-and-a-half cuts by the ECB and the BoC, one-and-a-half cuts by the Fed and the BoE -Torsten Slok

XTOD:  I think it’s about time pompous idiots who think they are the economic  intelligentsia stop talking about polled consumers as a bunch of peasants who cannot be allowed into the pantheon of economic punditry for smelling like hay. Most of you farts have built careers being consistently wrong about everything. Am sure the common man knows better.

XTOD: Really interesting speech by @federalreserve  Governor Chris Waller on R-star. This speech should put to bed the claim that R-star no longer relevant. Au contraire, it is very much alive and well! A short 🧵on his speech (1/n) ...Governor Waller then list the reasons he sees for why treasury yields have trended down: (4/n)

1. "The first factor is the liberalization and globalization of capital markets starting in the 1990's."

2. "The second factor causing demand for Treasury securities to grow more than supply was the large buildup of official reserves that started after the reforms that followed the 1998 financial crisis in Asia."

3. "The third factor driving prices up and yields down for Treasuries and similarly affecting r* is sovereign wealth funds."

4. "The fourth factor that is thought to have influenced Treasury yields and r* over the past couple of decades is the aging of the population in the United States and around the world."

5. "The fifth factor that increased the demand for Treasuries came from many new financial regulations implemented after the 2008 global financial crisis."

He notes these 5 factors on the treasury demand side have not and probably will not meaningfully change. What is changing and may affect R-star is on the supply side of treasuries: the expected and growing path of future primary deficits. (Sounding a little FTPLish, no?) (5/n)

XTOD: Peter Thiel: AI is bad news for people for math skills and society is going to shift in favor of people with strong verbal skills.

XTOD: Clarity comes from subtraction. Remove the noise to hear the essentials speak.

Daily Economic Update: May 24, 2024

Yesterday was a tough day for equities despite the previous evenings NVIDIA earnings.  The stronger than expected flash PMI's seemed to be part of the culprit as the hotter than expected reading likely pared with yesterday's "hawkish" FOMC Minutes led to higher yields.  The 10Y creeps back towards 4.50% off a local low of ~4.35% and the 2Y creeps back towards 5% off a local low of ~4.80%.

As for PMI's both manufacturing and services beat expectations and hitting fastest in 2 years, with services leading.  The concern for bond yields was that the input price readings rose sharply in May, "the rate of inflation accelerating to register the second-largest monthly increase seen over the past eight months" and in commentary provided by S&P: " What’s interesting is that the main inflationary impetus is now coming from manufacturing rather than services, meaning rates of inflation for costs and selling prices are now somewhat elevated by pre-pandemic standards in both sectors to suggest that the final mile down to the Fed’s 2% target still seems elusive.”

On the day ahead it's durable goods orders, UofM sentiment and Fed speak.  Ok, you can go back to AI, tariffs, elections, data-center power usage, deficits, MMT, the Yen, the Yuan, wars, and whatever else is on your mind.

XTOD: First loss on an AAA-rated slice of a CMBS deal since 2008 right here - backed by 1740 Broadway in NYC.  https://bloomberg.com/news/articles/2024-05-23/cmbs-buyers-suffer-first-loss-on-aaa-debt-since-financial-crisis by @ArroyoNieto  &  @natalexisw

XTOD: I’m always amazed that mainstream ratings agencies are able to hand out AAA ratings to single-asset loan CMBS (given that diversification is the supposed to be the bedrock of securitisation)

XTOD: We did it everyone, magnificent 1!

XTOD (See DARK MATTER): "Economics profession, they've been - they've been confident in various formulas, but economics is not physics. The same formula that works in one decade doesn't work in the next. Economics is a difficult subject."  Charlie Munger

XTOD: US to China: We raise tariffs on you. China to US: we lower yuan.

XTOD: From the DOJ complaint: “Ticketmaster Tax” "Whatever the name of the fee and however the fees are packaged and collected, they are essentially a “Ticketmaster Tax” that ultimately raise the price fans pay."

XTOD: "If you are not enthusiastic about your job, one-third of your life goes to waste." —Ingvar Kamprad (founder of IKEA)

Daily Economic Update: May 23, 2024

Stocks fell (in the normal trading, but NVIDIA reported after hours), yields rose as FOMC Minutes (meeting ended May 1, 2024), skewed hawkish, see bullets below, but the TLDR is perhaps best summarized by these two statements: (1) "many participants commented on their uncertainty about the degree of restrictiveness. These participants saw this uncertainty as coming from the possibility that high interest rates may be having smaller effects than in the past, that longer-run equilibrium interest rates may be higher than previously thought, or that the level of potential output may be lower than estimated and (2) Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.

And did anyone else think that the fact that the Staff expects inflation to fall back to 2% by 2026 to be a bit of a long timeline?

NVIDIA beat across the board and announced a 10 for 1 stock split effective June 7th.  Snowflake earnings appeared to be really good too.  AI continues to appear to be an unstoppable force or something. 

Across the pond PM Sunak is calling for elections July 4th.  

Add Bird Flu to 'risk to your outlook'.

On the day ahead it's jobless claims and flash PMI's.

FOMC Minutes Recap - probably worth skipping to XTOD's

• Financial Markets and OMO:
• data pointed to inflation being more persistent than previously expected 
• the rise in longer term yields appeared to be due to higher real rates and higher risk premium
• short-term inflation expectations rose, but longer-term inflation expectations were well anchored
• reserves remained abundant
• Staff Review of Economic Situation
• good growth, slowing inflation and better balance in labor markets
• Staff Review of Financial Situation
• recapped market data, mentioned geopolitical situations
• credit remained available despite some tightening of conditions but noted that credit standards continued to tighten for CRE
• the Staff characterized the vulnerabilities of the financial system due to high asset prices as 'elevated'
• Staff Economic Outlook
• The economy was expected to maintain its high rate of resource utilization over the next few years, with projected output growth roughly similar to the staff's estimate of potential growth. The unemployment rate was expected to edge down slightly over 2024 as labor market functioning improved further, and to remain roughly steady thereafter.
• PCE inflation was expected to be close to 2% by 2026
• The Staff cited upside risk to inflation and downside risk to growth
• Participants Views 
• some debate over the impact of seasonal patterns and the impact of volatile categories had outsized impact on inflation readings vs. the view that inflation increases had been broad based
• attuned to inflation risks and still expect that inflation would return to 2% over the medium term, taking longer than previously thought
• some discussion of new leases at lower rents ultimately passing through to lower inflation
• despite participants noting some positive factors that could lower inflation, 'Several participants commented that growth of aggregate demand would likely have to slow from its strong pace in recent quarters for inflation to move sustainably toward the Committee's goal'
• Discussion of the impact of immigration on wages and growth
• Discussion/disagreement on productivity, with some believing recent productivity growth will not persist, while others believing it will be sustained in light of things like AI
• Noted the dichotomy of how lower income households were being hit hard by higher rates while wealthy households appeared to be benefiting from easy financial conditions
• Overall attuned to how higher rates could impact financial stability, but believed that other tools should be used to combat financial stability risky without impact policy rates
• many participants commented on their uncertainty about the degree of restrictiveness. These participants saw this uncertainty as coming from the possibility that high interest rates may be having smaller effects than in the past, that longer-run equilibrium interest rates may be higher than previously thought, or that the level of potential output may be lower than estimated.
• Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate. Committee Policy Actions

XTOD: The minutes not only made mention of "various" participants willing to consider hikes, they also removed the sentence below about rates being at their peak.

XTOD: Great work Mike Wilson

XTOD: Imagine believing you're running a restrictive monetary with stock markets liquidity goosed up to 188% market cap to GDP.

XTOD: "Commodities protect against structurally higher inflation and diversify better than bonds. A portfolio with 40% exposure to commodities outperformed a traditional 60/40 mix with less downside risk."  - BofA

XTOD: Question: What if I don’t want to wait for the monthly CPI release to see what inflation’s up to? Answer: Look at the price changes specifically for sugar and sweets, which are closely correlated with overall CPI https://ow.ly/l43H50RPoyv

XTOD: Investing in yourself is the key to achieving financial freedom.  Whether it's learning new skills, starting a side hustle, or taking care of your physical and mental health, investing in yourself has the highest ROI.

Daily Economic Update: May 22, 2024

S&P 500 hits a new record.  Yields were down slightly, but overall it was another quiet day.  Gov. Waller says that in the absence in higher unemployment, he needs to see several more good inflation prints before cutting rates.  He did seem to downplay the need to raise rates further and the easing of financial conditions.  Waller joins a chorus of Fedspeak that all seem to say they need to see more data before being willing to cut rates will also holding a view that policy is restrictive and just needs more time.  We’ll see what FOMC Minutes, though now stale, have to provide that might be of any interest.

Away from Fedspeak is always and everywhere AI.  The latest buzz in AI news seems to be the threatened lawsuit by Scarlett Johansson against OpenAI where she asserts that after she turned down providing OpenAI permission to use her voice they essentially trained an AI personal assistant to sound just like her.

You'll get to hear plenty about AI today with Nvidia earnings on the come today.

And away from AI you have Biden planning to release another million barrels from the SPR to help ease gas prices ahead of the 4th of July.  Some might argue this doesn't quite get at the heart of the high price problem, but others could argue that the administration has been a pretty good oil and gas trading firm.

On the day ahead we get FOMC Minutes and new home sales along with Nvidia earnings.

XTOD: Some more fallout from the Freddie multifamily probe: The agency has placed valuation & appraisal firm BBG Real Estate under review, and says it will not accept any deals where BBG's Jon DiPietra is involved. See screenshots attached...In November, Freddie rocked the MF world when news broke that had placed Ralph Herzka's Meridian under investigation over an allegedly dodgy loan deal. There's been a lot of turmoil since, w sister agency Fannie blackballing title firms (riverside,Madison)

XTOD: This Craigslist ad for a 1999 Toyota Corolla is a masterclass in copywriting.  https://x.com/amandanat/status/1792943756951584929

XTOD: The Fed survey of economic well-being is out; some changes at the margin, but the basic story remains that Americans say they're doing mostly OK, their local economy isn't too bad, but the national economy is terrible 1

XTOD: Bill Miller on the value of simplicity:  “For every company, there are a few key investment variables. The rest of the stuff is noise.”   “Are things getting better or worse? If they’re getting better, then I want to understand what’s going on.”

XTOD: It makes relatively little difference whether the Fed targets 2%, or 3%, or 0%, inflation. The bigger difference is that between any inflation target and an aggregate spending (e.g., NGDP) target, which lets the inflation rate vary with aggregate supply innovations...Some of the Fed's biggest errors have stemmed from its failure to stabilize spending when supply innovations made doing so inconsistent with inflation targeting. It would be a shame if it missed yet another opportunity to take the stable spending alternative seriously.

Daily Economic Update: May 21, 2024

Is Morgan Stanely's Mike Wilson switching from market bear to bull a sign of the top or should we just give the guy some credit for being able to change views?  After all, "“When the facts change, I change my mind - what do you do, sir?” ― John Maynard Keynes

What do people do when there is no inflation, employment or growth data to obsess over?  I guess they listen to Dimon express pessimism despite his stock price being up pretty massively the last 2 years or they catch up on Matt Levine's writing about Red Lobster's BKO, or they hear Loretta Mester and Bostic imply higher for longer.

Tuesday's is another light day for economic data, so you'll have to read about copper, gold, shrimp, cybersecurity, whoever announces something involving AI (see AI PC's), wars, hear the same Fedspeak, etc.

XTOD: Jamie Dimon: "We do know the consumers are running out of excess money.  Small businesses are running out of excess money. We don't know when it's going to end, but it looks like sometimes early next year..."

XTOD: A record 55% of fund managers surveyed this month by Bank of America say global fiscal policy is too stimulative. Easier monetary policy and tighter fiscal policy could be positive for US 30-year Treasuries: BofA's Michael Hartnett

XTOD: Details from Red Lobster’s bankruptcy filing are wild and so much mismanagement:

▫️$1B in debt, $30m in cash   ▫️Previous PE owner sold land and leased it back to Red Lobster at “above market rates” ▫️$20 Endless Shrimp cost it $11m but the interesting part is that one of the chain’s owners is Thai seafood firm Thai Union (which also owns Chicken By The Sea) and it may have used Endless shrimp to dump its own shrimp supply through the 578 restaurants in North America  - Thai Union became the only Red Lobster shrimp vendor, overcharging for shrimp and skipping quality reviews (Thai Union has written off its $500m+ investment) ▫️Red Lobster has had 5 CEO in the last 5 years (!!!)

▫️Sales down 30% since 2019

XTOD: BofA: The bar for hikes is high, but cuts are still a way off... Also, we reject the "stagflation" narrative that has resurfaced recently. The consumer spending outlook is solid.

XTOD (If you want a long thread on shipping...I don't): Global containerized ocean freight prices are surging to levels not seen since the pandemic supply chain crunch. Some key trade lane rates are up 140% since mid-December and increasing by the week. What’s happening, why, and what it means for businesses needing products moved? 

XTOD: The fact that inflation is mostly in services means that these disruptions probably haven't added to inflation yet. Which is why they're so worrying -- it means a supply shock is coming and hasn't been felt yet.

XTOD: What is the cost of inaction? What is your status quo costing you, and how can you make the pain painful enough to drive you forward?

XTOD: You just have to be willing to look like an idiot while you figure it out.

Because once you figure it out, everyone else looks like an idiot for doubting you.