Daily Economic Update: October 4, 2024

Jobs Day in 'merica.  Equity markets largely on hold, the movers have been the continued rise in oil related to middle-east tensions, a continued rise in yields and a stronger dollar which is benefitting from dovishness out of other central banks.  The 10Y is up to 3.84% and the 2Y at 3.71%.

Yesterday's jobless claims were largely in line with expectations and did not appear to be impacted by Helene which hit at the end of the measurement period.  The ISM services data looked strong and also showed an increase in the prices paid component, for whatever that's worth. Factory orders looked relatively weak, but in my mind it's a generally noisy set of data. 

It looks like there may be a pause in the port strike until January 15, and that a tentative deal may be in hand.

On the day ahead Jobs is the highlight, estimates are generally around +150K on the headline, though the whisper number seems lower.  Of course markets will look to see if the unemployment rate creeps up from 4.2% and average hourly earnings looks with 0.3% MoM as the estimate. In geopolitics the question of how Israel will respond and will it involve targeting oil assets or nuclear assets or something different entirely.  Time will tell. 

XTOD: A great example of what Palantir does in an easy to understand way:In 2016, Airbus showed how Palantir Foundry transformed their business by connecting complex systems of data to make quick & accurate decisions.   Imagine using this in ’24 with AIP to deploy LLMs within it https://x.com/i/status/1841494176799588765

XTOD: A reasonable counterfactual for 2020 is a severe financial crisis like we experienced in 2008. Yes, different origin stories for 2020 and 2008, but shutting down an entire economy in 2020 should have caused a severe financial crisis. The fact that it did not happen is amazing.

XTOD: In my 55 years as a global macro investor, I have seen, traded through, and studied many big debt crises (48 are covered in my book, “Principles for Navigating Big Debt Crises.”) It is that perspective that leads me to believe that China is at a fork in the road and can either: deal with its debt by beautiful engineering or deal with its debt crisis in a way that drags on. To me, this one in China looks like “another one of those” that can and should be treated in big, classic ways— but more is required. I go over this in my latest article. As always, I welcome your comments and suggestions. https://linkedin.com/pulse/beautiful-deleveraging-chinese-characteristics-ray-dalio-d7aue/?trackingId=gMQCFX85TbuJ4Ok1RZ8aUg%3D%3D

XTOD: It sounds obvious that reading is important in investing (or life). But in today's information environment, reading is practiced less and less. If practiced at all, the reading is in bite-size snacks, with not enough nutrition in it to develop key investment skills like visualization, recall and self-awareness.

Daily Economic Update: October 3, 2024

Markets shrugged off geopolitics, politics and ports to finish higher, despite Tesla finishing lower after missing on quarterly sales.  Bond yields moved higher as well with the 10Y closing at 3.79% and the 2Y at 3.65% after a solid ADP report and a lack of response from Israel yet was enough to quell the fears of yesterday.  In money markets repo markets seemed tight with SOFR continuing to rise, printing 5.05%, above the upper band of Fed Funds target.

After writing about Japan's Ishiba's hawkishness yesterday he quickly turned around and said Japan is currently in no environment to raise rates further.

As we get jobless claims today, a question going forward will be what impact does the Hurricane and port strikes have on the data going forward.

XTOD: Old enough to know when they told us SOFR was gonna be awesome….. coz u know it wasn’t LIBOR & all….Uhm…. $2.5 Trillion traded yesterday at 5.02% at the 75th percentile.  This is well outside IORB.   This is NOT Normal.

XTOD: Congrats on hitting your Q3 numbers. Here is an even bigger Q4 number that you will be fired if you don't hit, you fucking moron

XTOD: OpenAI says it has closed its new funding round raising over $6.5 billion at a $157 billion valuation.

XTOD: Successful investing is investing that lets you sleep peacefully at night. Success is not about who makes the highest returns or who makes the most money.   It is about achieving our financial goals in a timely manner with the lowest possible risk.

XTOD: “Money doesn't change men—it merely unmasks them. If a man is naturally selfish or arrogant or greedy, the money brings that out.”  ― Henry Ford

Daily Economic Update: October 2, 2024

Well, 4Q is off to a great start as Iran's missile attack against Israel weighed on equity markets and caused oil to spike, and bond yields to fall in a classic flight to quality move.  In case you forgot Iran attacked Israel back in mid-April with drones and missiles.  Will we forget this attack just as quickly?  I posted some thoughts on geopolitcs back then in this post.  The 2Y yield fell back to 3.62% and the 10Y back to 3.74%. 

The east coast and gulf port strike is in effect, with a sticking issue being the unions fight against increased automation (in addition to wanting a large pay increase).  I don't know about you but I can't help but associate dockworkers with the HBO classic "The Wire".  In fact the risk of automation was a topic on this episode from circa 2003.

Admittedly I haven't read enough to know anything to have a strong opinion about the port strikes, but it does make me wonder why the issue of automation at the ports has taken this long to become a major  sticking point.

In economic news JOLTS was solid on the surface with openings increasing more than estimated, but under the surface the continued low hiring rate and quit rates is a troublesome sign to some labor economist.  Whether or not low hiring and quits portends a problem or is simply a consequence of above average period of time when both measures were evelated over the past couple of years is something we'll find out over time.   On the ISM front the data was in line with weakening employment but increased production and new orders.

In the fallout from Hurricane Helene there are continued reports that one of the primary quartz plants in NC, a plant that supplies the quartz that is used in the manufacture of silicon wafers used in semiconductors, will likely continued to be shutdown due to flooding, leading some to question the second and third order effects.

A little under the radar is the new PM in Japan, Shigeru Ishiba, calling for elections on October 27th.  Ishiba is viewed as "hawkish" and largely opposed to low rates and low taxes.

On the day ahead ADP, Fedspeak, whatever happens in the Middle East. 

XTOD: Martin Wolf: Have we seen the end of cheap money? https://t.co/fmuagR0989

XTOD: Cerebras is an unprofitable AI company utterly dependent on selling chips to one of its biggest investors, which might not actually be able to take them out of the country.  Naturally it is seeking an IPO with an $8bn valuation.

XTOD: The amount of time young men spent gaming was not exactly low in 2019. Usually when you see dramatic growth it's from a low starting point, but this is dramatic growth from a high starting point.  https://pbs.twimg.com/media/GYy6QOgXUAMxJtl?format=jpg&name=small

XTOD: Another month of weak JOLTS data.  1/ Hiring rate at 3.3%, comparable to where we were with an unemployment rate of over 8% (!!!) last cycle.  It's a really tough time to find a job. The ongoing labor market weakening is intensifying the "Great Stay". Quits rate at 1.9% in August, aside from COVID the lowest since 2015.  Last cycle, we saw this level of quits when the unemployment rate was 5.5%-6.0%. People know it's a not-great labor market.

XTOD: Stanley Druckenmiller at Grant’s conference: “Bipartisan fiscal recklessness is on the horizon.”

He’s short bonds; equivalent of 15-20% of his portfolio.  “George would be embarrassed of me” for not making it a bigger bet.

XTOD: $APO just dropped the Private Equity meme of the decade in their investor presentation Savage

https://pbs.twimg.com/media/GYz79C2WIAI2me1?format=jpg&name=900x900

XTOD: “Your days are numbered. Use them to throw open the windows of your soul to the sun. If you do not, the sun will soon set, and you with it.”        — Marcus Aurelius, Meditations

Daily Economic Update: October 1, 2024

Port strike on the horizon.  Continued messy situation in the middle east, with Israel invading southern Lebanon.  What a port strike and continued escalations in MidEast tensions might mean for inflation is something that will likely get further attention, but in the meantime crude oil prices are down over 20% from last year.

In everyone's favorite topic Fedspeadk yesterday we had the guy who used to work for Obama (Goolsbee) call for lots of cuts.  Then we had the guy who runs the Fed say the Fed is data dependent and seems to think they can take their time and are in no rush to cut: "not something that we need to go fast on. It’ll depend on the data, the speed at which we actually go.”  Barring bad data, whatever that actually means, I think you can pencil Powell in for 2 more 25bp cuts.

Initially stocks didn't like Powell, but they nonetheless hit new highs.  Yields backed up a little with the 2Y up ~8bps to 3.65% and the 10Y up ~4bps to 3.79%. 

 

Interesting paper out of NY Fed called "The Central Banking Beauty Contest", it kind of reminded me of a paper I wrote about here on the "Hall of Mirrors" effect of information feedback loops, but in this case it approaches "expectations" from a game involving the Fed and market participants and the impact of their beliefs about one another's beliefs.  My summary, are we doing economics anymore or psychology or game theory, or a realization that the economy is dynamic and all of the above?

On the day ahead JOLTS will be the highlight, along with ISM Mfg.

XTOD: Multivariate Core Trend (MCT) #inflation increased to 2.6 percent in August from 2.4 percent in July (revised down from 2.5 percent).  The 68 percent probability band is (2.2, 3.0). https://nyfed.org/3NY8FCh

XTOD: “360 substations are out… There is a high likelihood that the substations are not reparable, and replacement of the substation equipment will be necessary.”  This is devastating. We do NOT have 360 substations worth of transformers and other electrical equipment sitting in stockpiles waiting to be deployed. It could take a very long time to restore power to everyone. Are we facing a Hurricane Maria-type impact on grid infrastructure?

XTOD: You’ve heard of Founder Mode, now get ready for …https://pbs.twimg.com/media/GYqY3z_bQAACp97?format=jpg&name=medium

XTOD: "Damodaran Bot has read everything that I have ever written, watched every webcast that I have ever posted and reviewed every valuation that I have made public."  https://t.co/6TRwh23Pth

XTOD: The ultimate status symbol is time. Time is the new money.

Daily Economic Update: September 30, 2024

Happy last day before we start the 4th quarter.  On Friday, PCE data was waeker than expected in the MoM core at 0.13%, yet the YoY rate increased to 2.7%. I'm not sure it mattered as markets seem much more focused on Chinese stimulus and labor markets for the moment, where the focus will shift to this Friday's job's report. 

We ended the week with Atlanta Fed's GDPnow estimate for 3Q2024 revised up to 3.1%.  The NY Fed nowcast is in general agreement at 2.99%.  Stocks in general agreement that things aren't bad (or maybe they just believe in the Fed put).  The 2Y is 3.57% and the 10Y at 3.75%.

Away from markets you have historic flooding as a result of Helene and continued dismantlement of Hezbollah leadership by Israel.  Not top of mind for many is the fact that Oct.1 starts the resumption of normal collections, late fees, reporting to credit agencies, etc. for student loans. 

On an unrealted note, if you're looking for a perhaps under the radar podcast on AI, I thought this podcast with Edward Chancellor and Marathon Asset Management was interesting https://shows.acast.com/66acfe26e65b9fd5b02a0fcd/66b22e2fec20c36e8ebf8542

Monday: Fedspeak, including Powell

Tue: Constructing spending, JOLTS, ISM mfg.  VP debate

Wed: ADP, moar Fedpseak

Thur: Jobless claims, factory orders, durable goods, ISM services

Fri: Jobs Day in 'merica

XTOD: What the core PCE price index looks like as of August 2024

12-month rate: 2.7% (up from 2.6% in June and July)
6-month annualized rate: 2.4% (lowest since Dec)
3-month annualized rate: 2.1%

What the headline PCE price index looks like as of August 202

12-month rate: 2.2% (lowest since Feb 2021)

6-month annualized rate: 1.9% (lowest since Sep 2020)

3-month annualized rate: 1.5%

XTOD: I think about this often, living in a tech transplant-centric area  On a given weekday, I see moms and dads shopping together, at the gym for 9 am yoga, walking dogs at 10 am, picking up kids from school at 3 pm…etc   Part of me celebrates that we’ve unlocked this level of work/life balance  It’s an enormous quality of life booster for working parents with kids  But part of me also fears this is “too good to be true”  Perhaps a number of these jobs are disposable, or at the very least, transferable overseas  Perhaps some of these couples are semi-retired, living off a wealth effect that may dwindle away in a stock market correction, or if inflation relentlessly drives cost of living higher Time will tell.

XTOD: Google breached the mindshare moat w a spartan web page that was fast - and an AOL deal that raised awareness - kids started “googling”.  And then it was over.  Technology is required but not sufficient - mindshare is lightening in a bottle that triggers network effects.  💥

XTOD: And these foreign interests trying to cash in on big city real estate development are just following the example set by our own home-grown developers who've been bribing mayors, inspectors, and local politicians for decades to build "luxury" developments that charge obscene rents

XTOD: Modern life rewards distraction and consumption. But fulfillment comes from focus and simplicity. Reclaim your time. Reclaim your health. Reclaim your life. 

Daily Economic Update: September 27, 2024

China continues with stimulus. AI stocks (sans Supermicro Computer) continue to have legs and overall everything is perceived as bullish for equities.  Powell didn't say anything about monetary policy, so that was that. 

On the data front, you still can't get fired with jobless claims at a 4 month low, this despite constant headlines about layoffs (so maybe they'll make it to claims eventually).  Pending home sales slightly higher than expected, Durable Goods orders held up and 2Q GDP was confirmed at 3% and most of the revisions to previously reported growth estimates were positive.  The 7Y auction solid.

Away from data there is still war, there is the threat of East coast port strikes next week and Mayor Adams was indicted (if he goes to jail will he be in the same jail as Diddy and SBF?)

On the day ahead it's PCE Day!  

XTOD: These BEA revisions seem material. A common recession narrative has been GDP would "catch down" to weaker GDI, and that low savings rate indicated consumer stress. But today it was GDI revised significantly higher due to greater interest income, leading to higher savings rate.

XTOD: Revised GDP for Q2, the more interesting news is in the revisions which go back the last five years.  Notably: Remember the debate over whether there was a recession in 2022 because of two quarters in a row of negative growth? Well, one of those quarters was revised to positive.  https://pbs.twimg.com/media/GYZ446XbIAAi_3S?format=png&name=small

XTOD: The $NVDA bull & bear case summarized in 2 minutes by Zuck.  It is that simple.  https://x.com/i/status/1839304406938038624

XTOD:  The game of football is officially broken.   NIL, transfer portal, 6th year seniors, high school kids being offered money to play college ball or transferring 2-3 times between freshmen - senior year in high school, youth select travel teams, personal trainers making more money than Bill Gates from training 9 year olds how to run routes. We are just chasing after the wind. Good luck catching it.  

Football was once built on the foundation of commitment, grit, finish what you start no matter the cost. 

We should apologize now to future employers, wives, and children for the young men that are learning to quit or leave when things are difficult or times get tough.

XTOD (READ the full thread if interested) : A #Refinance Solicitation: True story from a client call yesterday.  "They told me I'd save about $300 per month and it would only cost me $1,219. Sounds like a good deal to me! Can you tell me what you can offer before I proceed with them?"   The Devil is in the details! https://x.com/AdvisorJohn/status/1839347434612498864

XTOD: Clarity comes from subtraction, not addition.  Remove the noise, the distractions, and the unnecessary.  What truly matters will emerge.

Daily Economic Update: September 26, 2024

So long Apple Vision Pro, hello Meta Orion.  I wrote this in augmented reality.  I, like Sam Altman, have been lobbying the government in hope that we can further build out our electric grid so that we have electricity available to power data centers so AI can do a better job writing this blog. 

Mortgage refinancings surge 20%.  Sales of new homes in August were lower than July, but better than expected. If they give first time homebuyers more money prices will go____?

Putin talking about potentially using nukes. Israel preparing for ground ops in Lebanon. A Hurricane in the gulf.  Possible strikes at ports. Stocks near all-time highs (yes they were down slightly).

5Y auction was on the screws at 3.591% with decent internals, but no uptick in demand.  The long end of the curve continues to sell off post last week's FOMC.  The 2Y is at 3.56% and the 10Y at 3.79%.

Today we get updates to GDP, GDI, including revisions to data going back something like 5 years.  Durable goods data,  Powell at 9:20am and the 7Y auction at 1pm.

XTOD: A trader has placed the single biggest ever trade in SOFR futures today 🤯 Why? No idea.

XTOD: It is fascinating that yimbyism started with sensible democrats (as the problem is so much worse in places like sf), but then republicans rather than say great, you discovered property rights and markets, let’s get this done, moved to reflexive opposition.

XTOD: In the future, I think this era is going to be looked at critically in this regard. The ratio of attention that market participants have to give to the Fed, and the amount of communication that the Fed gives to the market on a regular basis, has kind of reached banana land.

XTOD: Almost one third of our life is spent at work.  But only 20% of people are passionate about their jobs.  This is one of the key reasons why:  45% of people have not felt true happiness for more than 2 years.   25% don't know, or have forgotten, what it means to feel happy.

XTOD: Do It Your Way  You do your best work and have the most fun when you’re not burdened by fear that someone else thinks you’re doing it wrong. 

https://collabfund.com/blog/your-way-is-the-only-way/

Daily Economic Update: September 25, 2024

China eases, cutting their RRR by 50bps which should open up over $140bln in new loans.  Chinese authorities also cut certain repo and mortgage rates by 20bps, while making some regulator changes to spur demand for homes and stocks.  Elsewhere in Asia, BoJ talked tough on inflation and the Aussie central bank held rates at 4.35% for the 7th straight meeting, so far abstaining from the rate cutting frenzy as they remain vigilant against inflation risk.

Stateside, the Conference Board's Confidence data dissappointed with an uptick in recession probability and a worsening "labor differential".  Not in most of the headlines, the survey also showed an uptick in inflation expectations for the next 12-months to 5.2%.

In fedspeak, Bowman, AKA 'the dissenter', expressed concern that the Fed's fight against inflation may stall and that the neutral rate may be much higher than it was pre-pandemic.  She also expressed concerns around geopolitical risk related to supply chain disruptions and fiscal policy as creating upside risk to inflation.  She didn't seem overly concerned about labor markets, but noted the cooling.

Stocks at all-time highs again, led by tech.  Caroline Ellison going to jail for 2 years.  The 2Y auction was 'meh', but probably as expected with yields having fallen as much as they had recently.  Closing the day, the  2Y at 3.54% and 10Y  at 3.74%.    Witht the 2s10s uninverted are you betting on a further steepening?  Bill Gross provides some context see XTOD down below.

XTOD: The trends in China are really quite worrying.  This isn't a crash like scenario where demand will suddenly be destroyed and intl markets will drawdown. It isn't 2015.  But I'm afraid China is in a decaying spiral that is getting impossible to climb out of.

XTOD: R.I.P. inverted yield curves. 

XTOD: Yield curve trades working well   Would not add here — due for a few weeks rest but last 25 years 2/10 curve avg — 107  Now — 18

XTOD: Almost everything is noise. A tiny fraction of things are enormously valuable. They are hidden many layers below the surface.