Daily Economic Update: November 29, 2024

"If you are confident you have done everything possible to prepare yourself, then there is nothing to fear. There's no stress in losing under those circumstances. It just wasn't meant to be.” - Michael Jordan

Daily Economic Update: November 28, 2024

 "true power" stems from traits such as honesty, compassion, and a dedication to enhancing other people's lives......"You can't get away with lying to other human's"

- David Hawkins

Daily Economic Update: November 27, 2024

 “I don’t know what I would have done. I would have perhaps produced a few things and who knows where I would have went? But if I’d continued to dedicate my life to Bruce Springsteen’s vision I would never have realized my potential. I still haven’t, obviously, but I got a few things done and I think they wouldn’t have gotten done if I’d stayed.”   

                 - Steven Van Zandt [on leaving the E Street Band]

Daily Economic Update: November 26, 2024

 "Keeping your organization simple is not simple, but it is very important."  Robert Kierlin (The founder of Fastenal)

  "the more simple anything is, the less liable it is to be disordered…" - Thomas Paine in Common Sense

Daily Economic Update: November 25, 2024

One of the things the Federal Reserve does correctly is implement a blackout period, every once in a while it's good to cut the noise out, especially when it comes to financial news.  As I've done in the past this holiday-shortened week my economic update will consist solely of one quote.

The week ahead does feature some relatively important data with FOMC Minutes on Tuesday and PCE along with GDP data on Wednesday ahead of the market close on Thursday and a shortened day for fixed income trading on Friday. 

 "The great defect of scale, of course, which makes the game interesting—so that the big people don’t always win—is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature...And in a bureaucracy, you think the work is done when it goes out of your in-basket into somebody else’s in-basket. But, of course, it isn’t...So you get big, fat, dumb, unmotivated bureaucracies...They also tend to become somewhat corrupt...you get layers of management and associated costs that nobody needs.Then, while people are justifying all these layers, it takes forever to get anything done. They’re too slow to make decisions and nimbler people run circles around them..." - Charlie Munger

Daily Economic Update: November 22, 2024

For all the talk that Nvidia earnings were more important than the FOMC and really everything else in the year, it just didn't seem to be the major event that options markets had implied.

Duct tape banana sells for $6.2mm, and I thought NFTs were crazy.  The DOJ continues to push towards Alphabet spinning out the Chrome browser.  SEC Gensler announces his resignation effective Jan 20, no shocker as Trump wasn’t keeping him around.  Bitcoin $100K.  Stocks were positive on the day.  Yields were little changed with the 

In U.S. data, you still can't get fired and you pretty much still can't buy a house.  In Asia, Japanese inflation data is in focus.

On the day ahead it's really just UofM survey.

XTOD: Just keeping a running list for myself to repost in future:

1. MSTR now represents a mid single digit of all converts in US

2. Meme coin bro buys 6.2m banana to eat 

3. 10 year old rug pulls greedy meme coin people for $30k -> someone kidnaps his dog and asks for money back 

4. Some of the best L/S guys I know giving up shorting stocks 

5. 2/3 my feed is not ICBM rockets but “retardio” and “fartcoin” 🚀🚀

6. DJT rumor to be buying BAKKT (FT)

7. James Howell is paying 10s of millions to search landfill for lost bitcoin 

8. SBF would be richest man in world right now 

9. Scottie Pippen knows Satoshi and talks to him in dreams

10. TikTok “ChillGuy” meme coin is now $400m mkt cap and up 400,000%

Feel free to add so we can catalogue this time in

XTOD: Nvidia keeps crushing because Jensen runs it unlike other CEOs:

- No 1:1s

- No 1 or 5-year plans

- No status reports

- 60 direct reports

Once you see why he does it, you can't unsee it  And it explains everything wrong with the traditional way of running a compan

XTOD: Breaking: Top hedge fund managers are growing wary about the debt situation — $35 trillion and counting but also how they believe  @SecYellen  and the  @JoeBiden  were manipulating interest rates in the run up to Nov 5 by selling so much short dated debt so as not to cause a spike in longer dated yields, which would upend stocks and could cause a significant economic slowdown. Now  whoever  @realDonaldTrump  nominates for  @USTreasury  will be stuck with a mess of a balance sheet, a mismatch to unwind that will put pressure on bonds and markets. Story developing

XTOD: Limiting your options now will expand your opportunities in the long run because you can remain focused enough to master something.  Keeping your options open now will reduce your opportunities in the long run because you divide your attention and end up doing an average job on seven different things.  Are you falling into the pattern of always mastering one thing or always chasing the next thing?

Daily Economic Update: November 21, 2024

Why does it take so long to count votes in Cali?   The G20 wrapped up and to the best of what I read, didn't seem like there were too many major takeaways other than the usual dysfunction.

10Y remains range bound around 4.40% and the 2Y in much the same boat around 4.30%.  There doesn't seem to be an imminent catalyst that will cause a break out in either direction, though perhaps an escalation in Ukraine in the Middle East or a surprise Treasury Secretary pick could be such a catalyst in the near term.

High mortage rates, higher gas prices and rising inflation in the UK were all in the picture.  Stocks fell into Nvidia earnings.  The Hawk Tuah Girl thanked Michael Saylor for getting her into crypto, to which responses generally are in the realm of "emergency 100bp intra Fed meeting rate hike needed", and "has there ever been a sentiment signpost as big as this?".

After the bell Nvidia earnings beat estimates, but shares traded lower as of the time of this writing on what was characterized as disappointing guidance, whatever that means in the context of that stock.

In other news you likely missed, the Treasury Office of Financial Research put out it's 2024 Annual Report on Financial Vulnerabilities, you can read the full 111 pages here.  In full disclosure I did not read everything in the report, but some of the high level takeaways are that: 

• CRE credit remains a risk, specifically office and particularly at smaller banks
• Asset valuations are likely streched and the use of leverage and complex strategies is elevated
• Runs on money-like instruments are always a risk, including risks associated with stablecoins
• The debt ceiling poses risks as do basis trades in the Treasury market
• There are still areas where data is limited, such as Private Credit and other non-bank financial areas that could pose risks
• Technology comes with risks, including cyberattacks

Some quotes you can use if you want to impress your relatives with your financial market knowledge over Thanksgiving:

" Equity valuations and investor sentiment are high relative to historical averages, raising the risk of large, sudden price declines. In Treasury markets, the design of the U.S. debt ceiling is a major vulnerability. Exposures to some complex and opaque trading strategies are high"

" The increasing interconnectedness of digital assets with the traditional financial system is an emerging vulnerability."

" The cyclically adjusted price-to-earnings (CAPE) ratio for the S&P 500, for example, is 36 and in the 98th percentile of historical values"

" Trading liquidity in the Treasury market can become stressed in other circumstances as well. One potential source of stress is an abrupt unwinding of the Treasury cash-futures basis trade."

" The spreads on investment-grade and high-yield bonds are low by historical standards"

" about half as many employees are physically working in the office compared with before the COVID-19 pandemic"

" OFR researchers find that while PoS saves energy and provides for greater scalability of a crypto asset, it may be unstable because a significant drop in the crypto asset’s price may cause validators to exit their investments"

" The number of transactions occurring outside of the traditional exchange system, or off-exchange, is substantial"

" Nonfinancial corporate business debt contributed to financial instability at least three times during the past 40 years: 1989-91, 2000- 02, and 2007-09.17 Each episode featured a mix of unusually high borrower default rates and constraints on weaker firms’ ability to issue or renew debt. Often, the two interact and form a debt-default spiral. "

" The price of insurance, where insurance is available, is rising rapidly, especially in areas experiencing adverse climate events." "The researchers estimate that the average homeowner stands to lose approximately $11,000, or 4% of their home value and 34% of their home equity at the time of home purchase if prices change to reflect climate risk"

" The 2024 cyberattack on Change Healthcare (Change) illustrates how a cyber event that disrupts the business sector can transmit stress to the financial system."

" Since the 2023 banking turmoil, banks have increasingly used reciprocal deposits as a tool to expand FDIC insurance coverage and to reduce liquidity risk from runs. Through thirdparty reciprocal deposit network sponsors, such as IntraFi and others, banks swap customer deposits with one another to keep the amount in each account at or below $250,000. This makes it possible for a bank customer to hold tens of millions of dollars in insured accounts with a single relationship bank. "

"  Since private lenders are connected to the rest of the financial system through funding arrangements and shared credit exposure, their distress could propagate rapidly. The lack of data about private lenders’ portfolio risk and leverage may obscure or worsen vulnerabilities in the financial system"

" Vulnerabilities associated with stablecoins remain elevated. Issuers of the dominant stablecoins continue to invest a material fraction of their reserves in illiquid or volatile assets. For example, as of June 30, 2024, more than 12% of the assets that support Tether’s value were in Bitcoin, precious metals, and secured loans"

XTOD:  What makes superstars so powerful:- Can't substitute quality  (10 bad phones ≠ 1 iPhone)

- Innovation a public good - everyone uses the best ideas

- Top talent leveraged and clusters 

Result: Winner takes all (Rosen (1981, 1982)). POST LINK https://siliconcontinent.com/p/it-is-all-about-the-superstars....If you look beyond tech giants. US economy isn't that special: - Banking? Worse than EU - Insurance? Worse - Manufacturing? EU growing faster  But superstars change everything. 5 tech firms spend 2x more on R&D than entire EU public sector.

XTOD: Howard Marks' interview with Bloomberg just dropped: 

- Be less aggressive, but don't exit the market. Nobody can time the market. Instead, calibrate your behavior between aggressiveness and defensiveness.  

- You can be right about the events but wrong about how the markets react.  There are many speculations about the new administration, but the truth is, nobody knows how it will play out.  

- He doesn't think things are crazy high now and doesn't believe it is time to get out of the market.  

- China is trying to calibrate the right amount of stimulus. They're wary of overshooting.  

- Howard Marks sees the Chinese market as a bargain right now.   

- The problem with the property surplus will take time to be absorbed. It doesn't just disappear with new policies. He believes the government will do what it takes to digest these excess properties and implement policies to prevent this from happening again.   

- When people say China is uninvestable, it becomes music to their ears.

XTOD: Archegos founder Bill Hwang was ordered to spend 18 years in prison for fraud and market manipulation tied to the stunning 2021 collapse of his $36 billion family office, capping a case that riveted Wall Street.

XTOD: 10 observations about Michael Jordan and Kobe Bryant —from their trainer: 

1.  Everyone wanted to be like Mike. Mike did not want to be like anyone else.

2.  Stop adding. Start deleting. 

3.  Their minds were stronger than their feelings.

4.  You can't buy a map to the top.

5.  Motivation is entry level.

6.  They didn't allow themselves to be told what to think.

7.  If you can't master the fundamentals, you can't master anything else.

8.  They each possessed an unshakable confidence in themselves that never wavered.  

9.  When you're giving everything you have, making every sacrifice, and devoting every part of your life to winning, it's hard to tolerate anyone in your circle who isn't doing the same.

10.  The greats figure out what works for them, regardless of what everyone else does.

Daily Economic Update: November 20, 2024

The news that Ukraine struck targets inside Russia using U.S. weapons and that Russia would consider responding to an attack considered to be backed by a nuclear power by using nuclear weapons did little to dissuade equity investors on the day.  In equities Walmart earnings provide some indications that the U.S. consumer is doing well and poised for a healthy holiday season.

In data, housing starts fell by more than forecast largely due to the impact of weather in the south.  Buidling permits fell by more than expected as well but the deline seemed to be driven by a decline in multi-family permit component which tends to be volatile.

Away from data, Trump cabinet nominees remain a hot topic.  Kevin Warsh is the increasing betting favorite for Treasury Secretary.  In Fedspeak, KC's Schmid expressed confidence in lowering rates, and a belief the Fed can offset fiscal deficits through higher interest rates.

The dollar, gold and Bitcoin all traded well, while the Euro is a currency that has steadily declined post Trump election.

The word of the day is DePINs, you may already be familiar with this term, but it was new to me. DePIN is the acronym for Decentralized Phyiscal Infrastructure Networks that are based on blockchain.  Somewhere in that acroynm is the idea of using tokens to fund physical infrastructure somehow.  I'm not 100% sure what problem it solves, but figured I'd share in case one day it leads you to lead a massive DePIN project.

On the day ahead, all eyes are on NVDA earnings, but there is UK inflation data out in the morning if you're into that.

XTOD: My journey from energy to crypto comes full circle with DePIN. Scaling decentralized infra demands novel financing models rooted in credit, cash flows, and decentralized coordination 

XTOD: French farmers continue protests as union threatens food supply disruption http://reut.rs/3OepXun

XTOD: Didn’t expect Ben Affleck to have the most articulate and realistic explanation where video models and Hollywood is going https://x.com/i/status/1858211286066073922

XTOD: Special Forces Vet. Evan Hafer & Joe Rogan on Trump Declaring War on the Cartels: 'It Is Going to Get Wild Come January 20th'  "If we declare war on the cartel, these dudes are not gonna understand what the f*ck is going on. They are in for a world of ultra-violence they've never actually felt before ... They have f*cking no clue if we organize these Tier 1 units against them ... What I would be doing if I was down there ... I would be getting ready to retire right now because if Delta Force is hunting me, bro I would be so terrified."

XTOD: “Companies that focus on their stock price will eventually lose their customers. Companies that focus on their customers will eventually boost their stock price. This is simple, but forgotten by countless managers.”   — Morgan Housel