Daily Economic Update: October 31, 2024

Nothing too spooky in the markets this Halloween, we'll see if this morning's inflation data changes that, with the Fed's 'preferred' inflation metric, PCE, on the docket.   

ADP payrolls crushed estimates, but ADP is historically noisy and generally provides a poor read through to Jobs numbers on Friday.  The 3Q GDP data came in at 2.8% slightly below estimates but showed strong consumer spending and pulled down some due to weaker than expected fixed investment.  Oh and productivity is up and at the end of the day, productivity is king going back to Adam Smith's Wealth of Nations.  

The 10Y is back up to 4.30% and the 2Y is right around 4.20%.

UK Gilt yields fell following the budget, but when the market realized there was going to be a lot more supply, UK yields rose.  As some would highlight that simply the global quantum of sovereign debt being issued creates a condition where the supply could mean that U.S. debt has to offer higher yields to compete. What might be at risk of being over-looked is that so far the market has really not struggled to absorb debt issuance, especially U.S. Treasuries.  Remember that not too long ago people were talking about the risk of a "safe asset shortage", could it be possible that if at some point deficits are reduced that there might actually be a risk of creating a destabilizing shortage of safe collateral?  That's probably a problem for another day, but it really wasn't that long ago that it was a concern.  

Over in equities, EY resigned from their role as auditor of Super Micro Computer, while Microsoft and Meta earnings were met with kind of a 'meh', but mentioned AI so there’s that.  Their shares are falling ahead of today.  We'll get Amazon and Apple earnings after the bell today.

PCE is the highlight in data today.  Less than a week until political calls and text stop.

XTOD: Donald Trump riding in a trash truck, after Joe Biden calls Trump supporters “garbage.” 

XTOD: Former California Gov. Arnold Schwarzenegger criticized politicians but endorsed Vice President Kamala Harris in a lengthy statement posted to X on Wednesday

XTOD: British finance minister Rachel Reeves announced tax rises totaling 40 billion pounds, or 52 billion dollars — the biggest since 1993 — in a bid to upgrade health and education https://reut.rs/3NLuap1

XTOD: Celebrity is the most powerful currency in media, including financial media. It's more important than track record, novelty of insight, or ROI. 

Most people just want to hear the latest take from the person they know, even if that person's been saying the same thing over and over again for years and has been consistently wrong doing it. It doesn't make sense rationally, but it's how most people behave in practice, which is why so many podcasts and financial conferences feature roughly the same voices with the same opinions saying the same things, no matter what is happening in the world.  It's also easier for the producers of these media properties to source these voices. They have preexisting relationships with them, they know how to produce content around them, and who to sell it to.  It's a win-win for everyone involved in the "ideas industry" even if those ideas are the intellectual equivalents of waste water or bad milk.

XTOD: "My journey in music taught me that sometimes you don’t need to force it. For years, I tried to make beats fit my ideas. Eventually, I learned to let the beat lead and let it show me where it wanted to go. It’s like magic when you stop forcing things and just let it happen." -Killer Mike

XTOD: "You climb as hard as you can by just advancing one inch at a time—that's the secret of life."

— Charlie Munger

Daily Economic Update: October 30, 2024

Shares of DJT Media stock keep rising, which some see as "prediction" for an election victory. Bitcoin crosses $70K for first time since June. Gold continued to be strong and the Nasdaq hits new records.

After the close Alphabet beat with strong cloud revenue and talked up some AI efficiencies, like AI writing a quarter of their code.

 The 10Y hit its highest yield since July, but yields fell back after the 7Y auction was solid, with the 2Y at 4.11% and the 10Y at 4.26%.

In data, job openings declined to pre-pandemic levels, while hires, quits and layoffs were little changed.  The Conference Board Consumer Confidence was very good, hitting the best level of the year with consumers feeling very well about their jobs while remaining concerned about inflation   Perhaps that would seem to indicate the Fed should be focusing on inflation moreso than employment. 

There has been plenty of talk about the distortions in the upcomding payroll report, out this Friday, as the impact of hurricanes and strikes is expected to make for a murky picture.  With focus already seemingly shifting to jobs, we have 3Q GDP data and the Treasury Refunding Announcement out today.  Yesterday's ATL Fed GDPNow fell back under 3 at 2.8% as we head into today's data. Across the pond the UK budget will also be a subject of some focus, though it's not likely to be anything like the 2022 Liz Truss mini-budget debacle.

XTOD: Gold just hit a new all-time high. $2,785 per ounce. Who's buying? Central banks, BRICS, and billionaires. Who's not buying? Everyday Americans ... yet.

XTOD: The obvious risk here is that the perception of certainty of a Trump win is running very high, the corollary is that if that win does not materialize then the risk of a chaotic outcome - very underpriced right now - would become prevalent

XTOD: Bond traders "believe the range of outcomes for this general election is much wider than all other elections for which we have records (1988)...The market is pricing an 18bps rate movement on the days immediately after the election:" Harley Bassman https://convexitymaven.com/wp-content/uploads/2024/10/Convexity-Maven-2024-Election-Special.pdf

XTOD: “The size factor (small cap premium) isn’t dead. It’l just lives in private equity now (bc cos don’t IPO till after they’re huge)” - Pankaj Patel on quant panel at the Astoria Macro conf w ⁦

@alphaarchitect @choffstein @cullenroche ⁩ & Ben Lavine

XTOD: Of all the hot spots across global finance that were upended by the pandemic, few remain as fragile as the commercial mortgage-backed securities market. And within this market, the pain is most acute in a new breed of bonds, known as SASBs, that buildings like 1407 Broadway represent.  A Bloomberg analysis of almost every SASB tied to a US office property, more than 150 in all, revealed that creditors across numerous deals are on track to get only a portion of their original investment back. In multiple cases, the losses will likely reach all the way up to buyers of the AAA portions of the debt.

This is in large part because unlike conventional CMBS, which bundle together hundreds of property loans, SASBs are typically backed by just one mortgage tied to one building….. “The AAA rating is designed to be a debt security that would typically default less than once every 5,000 years,” said John Griffin, a chaired professor of finance at the University of Texas in Austin. “Yet, here we are not far from the financial crisis observing defaults,” he said, adding that “it does not appear that the major issues in structured finance have been fixed.” …

https://t.co/W6Zm5jr9wB

XTOD: When you are washing the dishes, washing the dishes must be the most important thing in your life... Live the actual moment. Only this actual moment is life. https://pbs.twimg.com/media/Ga7-pdxXEAACDBP?format=jpg&name=small  ~ Thich Nhat Hanh

Daily Economic Update: October 29, 2024

The commodities market opined on the Middle East by appearing to price out risk of further escalation between Israel and Iran, or at least further escalation that endangers energy assets.  The stock market was also happy ahead of key data and earnings reports from 5 of the Mag 7 this week.  Yields continue to rise with commentary tending to continue to believe at some level it's tied to increasing odds of a "red wave". Both the 2Y and 5Y auction were relatively weak, the 2Y had weak bid-to-cover and foreign demand and the 5Y tailed 1.6bps.  The 30Y mortgage rate is back to 7%, I don't think many saw that 100bp increase coming a month or so ago. 

Speaking of Treasuries, there's been a little bit of talk about the return of "term premium" to the long end of the curve.  As I mentioned back here, term premium in bonds is an excess expected yield over and above that expected short-rate path, which is compensation that investors get for bearing interest rate risk in a longer-term bond (additional compensation that the path of rates is not certain).  What's interesting is that back in October of 2023, term premium was a hot topic. There was definitely a view of some FOMC members that rising term premiums would do some of the work for the Fed reducing the need for additional tightening, how does that play now that the Fed is cutting?  At that time both 2Y and 10Y rates were over 5%.  Additional views on term premium range from a view that "term premium" is really just a code word for where inflation expectations are hidden to a view that the U.S. is losing it's exboritant funding privelege.

Whatever the view, it's still interesting that the steepness of the 2Y10Y is only 15bps, with the 2Y is 4.14% and the 10Y at 4.29%.  Is anyone in the term premium camp willing to bet on a bear steepening?

On the day ahead we have JOLTS and the 7Y auction as highlights in data and Alphabet on the earnings front.

XTOD: New: Airlines in the US are now *required* to give you a REFUND for a canceled or significantly delayed flight, automatically.   The DOT's "automatic refund provision" went into effect today. Good news for travelers with a month until the holiday rush begins.

XTOD: This 10yr UST trend has certainly not been kind to anyone in #RealEstate.  Equities continue to ignore yields.

XTOD: Channel 13 reports that the Israeli Security Cabient has made the decision to launch another Retaliatory Action against Iran soon, due to their Role in a recent Drone Attack by Hezbollah, which Targeted the Home of Israeli Prime Minister Benjamin Netanyahu.

XTOD: from $PLTR cofounder  @JTLonsdale “I’m fucking rich, Michael” 

“I would be fine to pay way higher taxes myself just to have a competent functioning society.

“I would pay a 90% tax rate if we could keep our society competent. If we could stop having illegals swarm into our country if we could fire unaccountable bureaucrats, if we could put systems in place to make our government competent, if we could stop having regulators harass and destroy and impune builders.

“I will pay whatever taxes that takes, I’ll pay 90% of my fortune. We need our country to be functional for my kids and grandkids and everyone else…”

XTOD: Cool story about Zuck teaching a class of middle school students about business (and life). He wrote 4 life lessons on the chalkboard: 

1) Love yourself

2) Only then can you serve others

3) Focus on what you can control 

4) For things you can control, never give up

\

Daily Economic Update: October 28, 2024

A busy data and earnings week is upon us while the election looms large.  The U.S. data highlights include GDP, PCE and Jobs. 

Heading into the week we already had the Israeli retailiatory strikes against Iran, which fortunately has not lead to obvious escalations.  The Japanese elections showed the ruling LDP party losing control, a blow to recently elected PM Ishiba, and the uncertainty may weigh on the Yen.

Despite the uncertainty the Nasdaq is at all-time highs.  The Goldman equity team is calling for the S&P 500 to deliver only 3% returns over the next decade due largely to high vlauations and high concentration, as such they recommend "investors should consider allocating to other indices that benefit from the strength of the US economy, earnings growth, and innovation but without the concentration risk, such as the equal-weight S&P 500 (SPW) and the S&P 400 (MID)."  It reminds me of something I wrote about mid last week, which is the broader debate around whether or not there are some companies and business models that have continually seen increasing returns to scale. 

Wherever you stand on the concentration issue, don't worry Blackrock and the financial industry has got your back, or at least is reaching into your back pocket for a share of your wallet.  Blackrock launched 3 new ETF's directly related to the concentration topic.  Per reporting from Reuters: "The iShares Top 20 U.S. Stocks ETF will offer access to the 20 largest U.S. companies...The iShares Nasdaq Top 30 Stocks ETF (QTOP.O), will let investors hold the 30 biggest non-financial stocks, including mega-cap tech. It has secured backing from the University of California's investing arm. The third product, the iShares Nasdaq-100 ex Top 30 ETF (QNXT.O),  will invest beyond the behemoths in the hopes of capturing the growth of relatively smaller tech firms."

With all the concentration discussion, it's interesting to think about the stat from Hendric Bessembinder's paper "Do Stocks Outperform Treasury Bills?"  from this X/tweet from Liz Ann Sonders earlier this year: "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".   What's interesting is while concntration risk is often discussed, a major risk is not having exposure to those winners.  'Don't look for the needle in the haystack. Just buy the haystack! - John Bogle

On the week ahead:

Mon:  2Y & 5Y note auction

Tue: JOLTS, Home Prices, 7Y Note

Wed: GDP and Treasury Refunding Announcement

Thur:  PCE, initial jobless claims, 

Fri: Jobs Day in 'merica, ISM Mfg

XTOD: Six more strikeouts from Aaron Judge during the postseason and he’ll have more strikeouts in 50ish postseason games than Tony Gwynn had in 485 games to finish his career.

XTOD: The real risk to the global dominance of the dollar is not that surplus countries seek an alternative.  It is that the US itself will tire of running huge trade deficits that represent its absorption of the obverse of industrial and trade policies implemented abroad, and so take steps to reduce or even eliminate these deficits.

XTOD: 75 years after it was first published, Benjamin Graham’s ‘The Intelligent Investor’ still has valuable advice on taking risks without being an idiot https://bloomberg.com/news/articles/2024-10-25/benjamin-graham-s-the-intelligent-investor-is-worth-reading-75-years-later? utm_source=website&utm_medium=share&utm_campaign=twitter via 

@business

XTOD: The goal isn't money, it's to compound your knowledge, relationships, talents, mental clarity, toughness, it's to get closer to the most confident version of yourself as you get older. You will then sense what true wealth is about: freedom, peace of mind, love beyond yourself.

XTOD: “Money is multiplied in practical value depending on the number of W’s you control in your life: What you do, When you do it, Where you do it, and With whom you do it.”  — Tim Ferriss

Daily Economic Update: October 25, 2024

PMI and new home sales data were both better than expected.  With PMI's it was services leading coupled with rising outlooks for the year ahead that did the trick.  New home sales data looked robust with the average home price above $500K.  Jobless claims seemed to continue to show that there is very little in the way of firings.  Stocks held up well as earnings, including those of Tesla gave some reason for optimism.  The 10Y ended around 4.21% and the 2Y at 4.09%.

I guess the theme of the week has been people talking about deficits.  

As I mentioned back in Wednesday's post, the MMT crowd was likely going to want to have a word with all of those deficit hawks, and sure enough Stephanie Kelton was more than happy to X/tweet out a defense of deficits, which culminated with a link to a 2010 article by James K. Galbraith (son of famous economist John Kenneth Galbraith).  That link is here.   "To put things crudely, there are two ways to get the increase in total spending that we call "economic growth." One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is. Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors–public deficits or private loans–has to be in action."  You're welcome to make your own judgments on MMT, I've shared mine on this blog before.  

Outside of MMT, but sounding MMT-ish, financial advisor, author, Cullen Roche wrote this piece titled "We Need to Have a Talk About “Bond Vigilantes”"  in it he states: "government spending is 23% of GDP. That’s the same level it was at in 1982! And while it’s a large portion of aggregate spending we should remember that 77% of spending is coming from OTHER sources. In most cases, it’s much more efficient sources such as the most efficient corporate machine the human race has ever seen (corporate America).  Again, don’t get me wrong. When government spending explodes to 45% of GDP like it did in 2021 then big inflation can come from this because the government becomes the primary (reckless) spender in the economy. But that’s not the case today. Government spending as a percentage of GDP is about the same as it’s been for most of the last 40 years. So it begs the question – in an economy like the USA does the government drive inflation or is the government driving a small amount of inflation that is not as important as other factors in the economy?"  He goes onto posit major factors that drive the real economy.  

Lest we absolve the Fed from any role in the economy, there was former Fed Governor, Kevin Warsh on CNBC with some choice words for the Fed and their fight against inflation and questioning their recent rate cuts.  As I listened I was reminded of my favorite central bank quote:

“I define central bank independence in one sentence, it's the ability to raise interest rates when the Treasury doesn't want you to. And the Treasury almost never wants you to, because of the cost of the debt.” – Peter Stella

Anyway, I guess I'll conclude the week right we started, with the advice I shared on Monday.  In no way am I saying not to be concerned about deficits, the election, stock valuations, or whatever the current narrative presents, but rather:

"The easiest way not to be overly influenced by what other people think is to not be aware of what they think" - Shelby Davis

and that the only way to beat the market (which I'm not saying you should even aim to do) is to diverge from the market:

"the willingness to be lonley, the willingness to take a position that others don't think is to bright.  They have an inner conviction that a lot of other people do not have." - Michael Lipper describing Buffett, Soros and Templeton

and lastly that the four most dangerous words in the English language are:

"This time is different."

 On the day ahead it's UofM and Durable Goods.

XTOD: This economy stinks I just paid $128 to have someone else get off their couch, pick up my caviar for me, drive it to my house and drop it off at my doorstep  And they wanted a tip!?!? 

How am I supposed to live?

XTOD: Former Fed governor Kevin Warsh: The 50-basis-point cut had no basis in the data available at the time of the Fed's meeting.   "Maybe they're not data dependent. I do not want to be the person accusing them of politics ... but when you don't have a theory of the case and you don't follow it, it is easy to get that accusation and it is harder ... to defend them."  https://cnbc.com/video/2024/10/24/former-fed-governor-kevin-warsh-the-fed-doesnt-seem-to-have-a-serious-theory-of-inflation.html

XTOD: You can either be judged because you created something or ignored because you left your greatness inside of you. Your call.

XTOD: John Steinbeck https://pbs.twimg.com/media/GaqrpvpXcAAO6yo?format=jpg&name=900x900

Daily Economic Update: October 24, 2024

Stocks fell for a third straight day as yields rose again.  The narrative around the recent rise in longer term yields seems tied to increasing odds not just of a Trump presidency but of a Red Wave, making it more likely that deficits will increase in a faster manner than any scenario where there is division in government.  A red wave was also predicted back in 2022 mid-terms and failed to materialize.  The other cited catalyst for the recent bond selloff is around global deficit leading to increased supply that must compete for investor demand.

The 10y is right around 4.25% and the 2y is up to 4.10%.

The Beige Book showed the impact uncertainty plays on business with 15 mentions of election uncertainty. There was also low labor turnover and generally solid conditions across most districts.

Outside the U.S., the Bank of Canada cut 50bps to 3.75% as they see inflation as stabilizing at target.

Today is the big day for data with jobless claims, PMIs and home sale data.  Still awaiting Israel’s retaliation, lest we forget.

XTOD: Insane stat from the Wall Street Journal that there are like 12 million full-time influencers in the US right now. That’s  7% of the American workforce 

No way a bubble like that is at all sustainable

XTOD: 10 year interest rates are unchanged in the last 2 years and you have people on here saying the bond market is predicting USA bankruptcy. 

XTOD: “For me an economic approach must help me understand the world, and provide me with some useful insights (preferably about my day job — investing). On those measures, let me assure you that MMT thrashes neoclassical economics, hands down.” ~ James Montier (GMO)

XTOD: "Good times teach only bad lessons: that investing is easy, that you know its secrets, and that you needn’t worry about risk. The most valuable lessons are learned in tough times."— Howard Marks

Daily Economic Update: October 23, 2024

Yesterday was a bad day for McDonald's quarter-pounders and to have formerly headed Abercrombie and Fitch.  Second straight red day for equities.  Gold has now returned almost as much as the S&P over the last 12 months, which is kind of insane to think about.  In an essentially no data day, the IMF did revise up their forecast for 2025 U.S. GDP growth to 2.8%.  Nevertheless we couldn't make it a day without more warnings about the U.S. fiscal situation, this time from Paul Tudor Jones, who invoked his fear of a "Minsky moment" as it realates to a sudden recognition that the fiscal situation is "impossible".  

If you're not familiar with Hyman Minsky, I had recently summarized his "financial instability hypothesis" for someone as "calm plants seeds of crazy - you assume good news is permanent, are oblivious to bad news, ignore bad news, deny bad news, then panic at bad news, believe bad news is permanent, and ultimately repeat the cycle in the opposite direction.  Hyman Minsky thought the idea of eradicating recessions was nonsense - thus his financial instability hypothesis."

The term "minsky moment" was coined by PIMCO's Paul McCulley back during the Asian financial crisis, to refer to the tipping point in the economic cycle, often when "apparent stability begest ever-riskier debt arrangements, which further begat asset price bubbles. And then the bubbles burst, in something I dubbed a "Minsky moment."  In general the Minsky moment progresses in a forward fashion through three debt units:

“hedge” financing units, in which the buyer’s cash flows cover interest and principal

payments; “speculative” finance units, in which cash flows cover only interest

payments; and “Ponzi” units, in which cash flows cover neither and depend on rising

asset prices to keep the buyer afloat."

Once the moment occurs, it all works in reverse, with falling asset prices, higher risk premiums, lower leverage and economic contraction. How close is the U.S. sovereign to experience such a moment, I don't know?  I would venture to guess advocates of MMT would vehemently disagree with all this rhetoric.  If you're unfamiliar with MMT you can read my post here.

In other news, Howard Marks dropped his latest memo "Ruminating on Asset Allocation".  My takeaways:

• In a world where there are so many asset classes, his ephiphany of late is that "at bottom, there are only two asset classes: ownership and debt"
• It's an enormous difference to own vs. to lend.  Owners have no promise of return, lenders have a contractual "fixed outcome" assuming the borrower makes good.
• Choosing between the two is the most basic thing investors must decide.
• To anchor the decision, Marks' says you must first indentify a "risk posture", how much emphasis you want on preserving (defense) vs. growing capital (offense).  Calling this preservation vs. growth, mutually exclusive and a "inescapable truth in investing."
• The absolute level of risk must be conciously targeted and the level of risk in the portfolio must be well compensated.
• A higher expected return with further upside potential, at the cost of greater uncertainty, volatility, and downside risk? Or a more dependable but lower expected return, entailing less upside and less downside? The choice between the two is subjective, largely a function of the investor’s circumstances and attitude toward bearing risk. That means the answer will be different for different investors.
• Even after investors determine their "normal risk posture", they face a choice: they can maintain that posture all the time or deviate on occassions of market attractiveness.
• As "risk" incrases, not only do expected returns increase, but the range of possible outcomes becomes wider and bad outcomes become worse.
• "All ways of getting to a certain risk level will produce the same expected return."  There are no free lunches, in theory.  However, Marks' states "in reality, markets are not efficient in the academic sense of always being "right" and gains can be acheived through skill.
• He believes that it's difficult to advocate for investors to depart from their "sweet spot" in terms of risk level because many managers who are believed to possess alpha turn out not to.
• He concludes with a quick plug for investors to conisder the certain of allocations to credit at current levels, which he sees as returns of 7-10% (likely only obtainable in high-yield in private credit in my estimation)

Both Marks' memo and even thinking about "Minsky moments" are in someways still connected to what have been somewhat themes for the week. At a high level those themes are maintaining a level of intellectual humility and thinking about risk in the context of return goals. In the terms of Marks' memo their "offense/defense balance. For each individual or institution, this decision should be informed by the investor’s investment horizon, financial condition, income, needs, aspirations, responsibilities, and, crucially, intestinal fortitude, or their ability to stomach ups and downs."

On the day ahead it's home sales, Fed Beige Book and Canada eh?

XTOD: The Intelligent Investor newsletter.  https://createsend.com/t/d-8876921A5A4BB3532540EF23F30FEDED   Happy Ben Graham day, everyone!

XTOD: First Druckenmiller (the GOAT) and now PTJ…“All roads lead to inflation. I’m long gold. I’m long Bitcoin” - Paul Tudor Jones  Incredible how far Bitcoin has come.

XTOD: JPM Asset Management's chief global strategist David Kelly was asked at a reporter roundtable about risks to his current forecast.  He gave some great evergreen investing advice.

1.) It's always the risk no one talks about.

2.) Zoom out. It likely won't matter in the long run.

XTOD: Remember! pessimist sounds smart but optimist  makes money   Geo-political instability is temporary but commerce is the fundamental backbone of civilization  FII selling, Inflation, Recession all are expensive distractions for long term investors

XTOD: “The most valuable personal finance asset is not needing to impress anyone.”  — Morgan Housel

https://x.com/jasonzweigwsj/status/1848741927350374898

https://x.com/Geiger_Capital/status/1848739824531841456

https://x.com/_JoshSchafer/status/1848450188844888186

https://x.com/CivEngg_Adarsh/status/1847932541803577597

https://x.com/MoneyWisdom_/status/1848687915120853007

Daily Economic Update: October 22, 2024

Stocks fell and yields rose.  All of the worries were on display in financial media yesterday.  Stocks, well Goldman says you won't make money in stocks.  Bonds, well deficits.  Cash, well inflation.  Even crypto and gold didn't work for the day.  Investing is hard. 

We ended the day with the 2Y back up over 4 at 4.04% and the 10Y at 4.20%. 

There's an idea of market cycles and reversions to the mean, ‘trees don’t grow to the sky’.  Contrasting to that is the idea that the we're in a new age and there are some companies that have learned to scale at levels not seen before in history, a new Industrial Revolution, an exponential age with increasing returns to scale. 

In the "new" economic system the thinking is summed up in a 2019 in an essay called "Graham or Growth" by investor James Anderson:

"They have endured for decades even at massive scale. I don’t see this as a contention but as an observation. Ironically they’ve altered the patterns of stock market return sufficiently that the very utility of the ‘mean’ has been undermined. The mean is now so far above the median stock that our entire notion of the distribution of returns has to be reviewed. The first chance to reassess came with Microsoft over 30 years ago. The investment community has been slow indeed. We can react to economic data or quarterly earnings in seconds but adjusting our world view has proven far harder.

Separately, one can wonder what if the recent higher interest rate environment somewhat counterintuitively helped repair balance sheets, stopped the proliferation of "zombie" firms, and allowed for the reallocation of capital to more productive uses, thus helping fuel growth (an idea once posited by Claudio Borio).  

Further, despite all the deficits, what if we're poised for more growth than we think.  After all, in the fiscal theory of the price level: "I emphasize: fiscal theory says you get inflation if debt exceeds faith in a country’s long run ability and will to repay. There is no hard and fast debt/GDP limit. Argentina has debt crises at 40% debt to GDP. Japan lasted a decade at over 200%."  This John Cochrane substack post on debt sustainability is worth a read (in the last two paragraphs that's about as optimistic as Cochrane seems to get).

It’s all a lot to think about with political and geopolitcal risk abounding, so it’s important to have intellectual humility.

Jason Zweig recently described how Ben Graham’s concept of margin of safety was also meant to apply at the individual level, to yourself as an investor. In the personal context he posited:  "Do I know what I think I know? How do I know what I think I know?  What evidence is there that I might be wrong?... Why do I know something about this asset that other investors haven't figured out? Why exactly would I be right when all of them are wrong?  

Somewhat related to humility, Morgan Housel's latest post "A Message From the Past (Thoughts on Nostalgia) does a nice job of adding some perspective around the current environment.  In it:

"Are we now forgetting that at virtually every moment of the last 15 years, smart people argued that the market was overvalued, recession was near, hyperinflation was around the corner, the country was bankrupt, the numbers were manipulated, the dollar was worthless, on and on?

I think we forget these things because we now know how the story ends: the stock market went up a lot. If you held on tight, none of those past events mattered. So it’s easy to discount – even ignore – how they felt at the time. You think back and say, “That was so easy, money was free, the market went straight up.” Even if few people actually felt that way during the last 15 years.

So much of what matters in investing – this is true for a lot of things in life – is how you manage the psychology of uncertainty. The problem with looking back with hindsight is that nothing is uncertain. You think no one had anything to worry about, because most of what they were worrying about eventually came to pass.

“You should have been happy and calm, given where things ended up,” you say to your past self. But your past self had no idea where things would end up. Uncertainty dictates nearly everything in the current moment, but looking back we pretend it never existed.

Concluding with "The past wasn’t as good as you remember. The present isn’t as bad as you think. The future will be better than you anticipate."

And that's about as much optimism as you're going to get from me.

XTOD: The World Series between the Dodgers and Yankees is sold out and there are no tickets under $1,000 on the secondary market. 

XTOD: If there is not radical reduction of government expenditures, then, just like an individual who has taken on too much debt, America will become de facto bankrupt.  The interest on the debt is trending to rapidly absorb all tax revenue, leaving nothing for critical needs.

XTOD: The speculative public is incorrigible. In financial terms it cannot count beyond 3. It will buy anything, at any price, if there seems to be some “action” in progress. It will fall for any company identified with “franchising,” computers, electronics, science, technology, or what have you, when the particular fashion is raging. --Benjamin Graham

XTOD: Understand: the greatest generals, the most creative strategists, stand out not because they have more knowledge but because they are able, when necessary, to drop their preconceived notions and focus intensely on the present moment. That is how creativity is sparked and opportunities are seized. Knowledge, experience, and theory have limitations: no amount of thinking in advance can prepare you for the chaos of life, for the infinite possibilities of the moment. The great philosopher of war Carl von Clausewitz called this “friction”: the difference between our plans and what actually happens. Since friction is inevitable, our minds have to be capable of keeping up with change and adapting to the unexpected. The better we can adapt our thoughts to changing circumstances, the more realistic our responses to them will be. The more we lose ourselves in predigested theories and past experiences, the more inappropriate and delusional our response.