Daily Economic Update: March 21, 2025

The Red Roulette and the Rate Shock of 1994

Remember your job is to identify the book and post your answer. You can also simply share any thoughts in the comments.

Today’s Quote/Passage:

Imagine a casino full of gamblers betting on a roulette wheel. Spin after spin, the ball lands on a red-colored number. The gamblers bet on red numbers and win, doubling and feverishly redoubling their bets. As the cheers grow louder, they begin ignoring the fact that the wheel has just as many black numbers as red. They believe they have entered an incredible new world where the roulette ball only lands on red numbers. They bet everything on the next spin.

Substitute “low interest rates” for “red numbers” and you have a description of the early-1990s financial markets.

…On February 4, 1994, Alan Greenspan and the Federal Reserve raised overnight interest rates from 3 percent to 3.25 percent.

…But behind the scenes, it was pure panic. 

…Most individual investors did not yet know of the swaps Bankers Trust had done with Gibson Greeting and Proctor & Gamble, or the complex financial strategies First Bost and Salomon Brothers had engineered.

…By early 1994, hundreds of money managers and treasurers-from..Orange County, California to..Piper Jaffray - had secretly bet hundreds of billions of dollars -..bets that interest rates would stay low..When the Fed raised rates on February 4, 1994, they lost.

We’ll wrap this series up today and be back next week with the usual take on whatever madness the Fed (or markets) deliver.

Daily Economic Update: March 20, 2025

Inflation: It’s All in Your Head… Until It’s Not

Remember your job is to identify the book and post your answer. You can also simply share any thoughts in the comments.

Today’s Quote/Passage:

People make all sorts of decisions based on their expectations of what year’s price level will be: decisions about how much to demand, in terms of cash to hold on to and prices and wages to charge. An episodic excess supply of money can cause unexpected inflation. But when people look back on the half decade or so and see that there has been an excess supply of money during that time, they will expect inflation in the years ahead.

FOMC Recap: March Madness Fed Edition Redux

March Madness, Fed Edition: Same Playbook, New-ish Opponents

Another March FOMC meeting. Another round of Powell & Co. holding rates steady at 4.25% to 4.50%. And another tip-off to March Madness likely stealing the headlines by tomorrow morning.

Sound familiar? It should. The Fed is sticking to its game plan—slow the runoff of Treasury holdings starting in April, stay patient, and hope the economy keeps playing along. But, as every coach knows, no matter how good the scouting report looks, the game rarely goes according to plan.

Last year, I asked what lessons the Fed could take from March Madness—impossible perfection, the need for constant adjustments, and the reality that the future is always uncertain. If you missed it, you can catch that post here. Spoiler alert: those lessons still hold.

Today, the Fed’s projections show slower growth, stickier inflation, and a higher-for-longer rate outlook. Call it a defensive adjustment against inflation, that “streaky shooter” Powell warned about. Meanwhile, tariffs are back on the floor, pressing inflation higher and crowding growth into the corner.

But as in the tournament, surprises happen. Powell admitted “unusually elevated” uncertainty. Translation? The Fed’s ready to call timeout and change defenses if needed.

Plans are worthless, but planning is everything. The Fed’s bracket isn’t perfect. Neither is yours. Survive. Adjust. Advance.

Daily Economic Update: March 19, 2025

What Good Economists See (That Others Don’t)

Remember your job is to identify the book and post your answer. You can also simply share any thoughts in the comments.

Today’s Quote/Passage:

In the sphere of economics, a habit, an institution, or a law engenders not just one effect but a series of effects. Of these effects only the first is immediate; it is revealed simultaneously with its cause; it is seen. The others merely occur successively; they are not seen; we are lucky if we foresee them. The entire difference between a bad and a good Economist is apparent here. A bad one relies on the visible effect, while the good one takes account of both the effect one can see and of those one must foresee.  

The bad economist, says Bastiat, pursues a small current benefit is followed by a large disadvantage in the future, while the good economist pursues a large benefit in the future at the risk of suffering a small disadvantage in the near term.

Daily Economic Update: March 18, 2025

Arctic Wisdom

Remember your job is to identify the book and post your answer. You can also simply share any thoughts in the comments.

Today’s Quote/Passage:

On September 21, 2011, in the face of a declining stock market, the FOMC announced what the financial press would dub “Operation Twist”...Fisher again dissented, explaining why in a speech on September 27…He showed a photograph of the sign outside Jan Mayen Arctic weather station…Subject to brutal winters, the station was described by writer Tom Clancy in The Hunt for Red October as “Loran-C”...The sign greets visitors in the Norsk language, which translated to English reads: “Theory is when you understand everything, but nothing works. Practice is when everything works, but nobody understands why. At this station, theory and practice are united, so nothing works, and nobody understands why.”

Daily Economic Update: March 17, 2025

We’re All In the Fed’s Family

It’s going to be a busy week with your ‘highlight’ being the FOMC meeting on Wednesday. Let's face it, the FOMC meeting is likely to be a snoozer with a bunch of non-answers on topics like tariffs, rising inflation expectations and just about everything else.

Besides, you’ll be spending all week filling out your March Madness brackets and then pretending to work on Thursday and Friday as you watch tournament games.

As we’ve done before we’re going to take a break from all the noise.  

Stepping back from the noise: 5 days, 5 book passages on the Fed & markets. Guess the books, join the discussion. No Fed pivot required.

Starting with today and for the balance of this week you’ll get one quote/passage from a book that I think could be relevant to the Federal Reserve. Each day’s passage will be from a different book. Your job is to identify the book and post your answer along with any thoughts you have related to the passage in the comments. Sure, go ahead and use your favorite AI or search engine if you want, but bragging rights for those who don’t.

Today’s Quote/Passage:

Given so much uncertainty, he was convinced that the Federal Reserve should not try to make itself and arbiter of equity prices….Drawing a rather stretched analogy between the Federal Reserve and its various and conflicting objectives for the economy and a family burdened by many children, he ruminated, “Must we accept parenthood for every economic development in the country? That is a hard thing for us to do. We would have a large family of children.  Every time one of them misbehaved, we might have to spank them all.”

Daily Economic Update: March 14, 2025

So... we’re not popping bottles this Friday?

200% tariffs on champagne was enough to send the broader market into a technical correction. The S&P 500 is now down 10% at 5,521.  The small cap, Russell 2,000 index is looking like it’s on Ozempic, almost touching bear market territory.

Wine, champagne, tequila, all subject to tariffs, it’s getting hard to have a happy hour this Friday.

If you’re looking for answers, don’t ask your iPhone

Apple isn’t helping you out here, it’s market cap is down almost 20%. So much for writing my blog post on my Apple VisionPro while dictating to Siri AI and driving an Apple self-driving car…darn.  

Speaking of Vision

I’ve been doing some research on leadership and transformation (no, I’m serious). If you think the U.S. is going through a period of transformation, there is some literature by Noel Tichy that describes the transformation process at older organizations as a “Three-Act Drama”.  

I’ll lay out the broad strokes and you can decide for yourself what act in the transformation of the U.S. economy (if indeed transformation is the plan) is in and if it’s going well.

• Act I - Waking up the organization to the need for change and dealing with resistance.  Making the case and convincing everyone at all levels that things can’t continue as is, and people need to face reality. 
  
  

• Act II - Crafting a new vision and aligning people to it. The vision for the future must be communicated in a way that is so compelling that people will want to attain it. The leader must move quickly getting people onboard with the vision.
  
  

• Act III - Re-architecting the organization. Removing the old structures that don’t support the vision and replacing them with new values and working relationships.

The goal is supposed to be something like sustainable value creation, staying ahead of the competition by having people who are aligned, energized and smart. The kind of place where information flows and turns into usable knowledge, where everything gets better and everyone gets smarter.

In older organizations some of the challenges to transformation tend to be individuals holding onto power within structures that have become bureaucratic, hierarchical and that foster an attitude that because we’ve been here forever, we’ll survive.

Is it possible the current administration is trying to complete all Acts simultaneously?  

When you see things like: “The U.S. doesn’t have free trade. We have stupid trade." That sounds like Act I. 

Perhaps Act II is “the U.S. will shortly place a 200% Tariff on all WINES, CHAMPAGNES, & ALCOHOLIC PRODUCTS COMING OUT OF FRANCE AND OTHER E.U. REPRESENTED COUNTRIES. This will be great for the Wine and Champagne businesses in the U.S.” - You catch the line where things will be great. That’s vision! 

And Act III, I think that’s just firing everyone who doesn’t agree with you.

Done!  Wait, you weren’t sold on the tariff idea, you didn’t get it - did you not see the word “great”.

If you can’t sell your vision then other people will make it up for you

Don’t believe me, how many posts have you seen that imply that the current vision for economic transformation is as follows (courtesy of Kayla Scanlon):

Crash the market and reap the benefits.  How?  Create so much chaos that investors flee to treasuries, pushing down yields, at which point you refinance the entire national debt and simultaneously the U.S. starts producing everything.

The narrative has a hint of the previously bantered about ‘Mar-a-lago Accord’.  

I suggest you click the link, not because you care about any of the political chaos above, but because that is also the post with highlights from the most recent Berkshire Hathaway shareholder letter and we can all use more wisdom from Warren.

Enough dunking on politics - it’s not March Madness yet

O.K., I lied, sticking with politics, Germany may not want to spend that massive amount of Euro’s on their military and Russia may not want to stop their military from fighting in Ukraine. 

The Day Ahead

Even though PPI was lower than forecast, with core PPI rising just 3.4% YoY vs. expectations for 3.8%. 

Even with softer CPI and PPI, PCE doesn’t appear to be budging—so neither is the Fed. We head into Friday with 2Y at 3.98%, 10Y at 4.27%, and UofM inflation expectations as today’s main course. Tariffed guacamole optional.

XTOD’s:

XTOD: Every one job in Canada in the Aluminum industry supports 13 jobs in the United States. When you see the loss of a Canadian job in Aluminum - America loses many, many more.  There’s a reason the WSJ calls this “The dumbest trade war in history.”

XTOD: Overheard at #CERAWeek:  “China will probably burn more coal this decade than the US did in its whole history” — Judson Kroh, President of Robindale Energy

XTOD: Video has surfaced of the Chinese barges tailor-made for allowing easy ship-to-shore transfer of supplies to a location without proper docking facilities. The barges, first noticed in a Chinese port a number of months ago, are commonly compared to the “Mulberry Harbors” during follow-on operations after D-Day.

The barge’s military applications are obvious and would allow for follow-on forces and sustainment efforts in a Taiwan invasion scenario once a deep beachhead was established by any Chinese invasion force. However, given the nature of Taiwan’s available beaches and the susceptibility of the barges to precision strikes, it still remains to be seen how effective these barges might be in such a scenario

XTOD: WTI crude oil is down for 8 consecutive weeks (longest streak since 2015) and it hardly ever comes up in market/eco conversations.

XTOD: TRENDING: MARSHALL FAULK’S 1ST SPEECH AS THE COLORADO RB COACH HAS GONE VIRAL.  “I'm new. For those of you that don't know me, I'm Marshall Falk. I don't want to get into stats. If you want those, I'm Googleable. Check me out” 

“Effort requires no talent” https://x.com/i/status/1899633895693287810

XTOD: The Process: 1. Decide what you want to achieve.   2. Try different ways of achieving it until you find one that works for you.  3. Do more of what works. Do less of what doesn’t. 

4. Don’t stop doing it until it stops working.   5. Repeat.  It is both this simple and this hard.

https://x.com/Morgan_C_Ross/status/1900003235672281213

https://x.com/JavierBlas/status/1900284878446616720

https://x.com/sentdefender/status/1900206044682637798

https://x.com/FerroTV/status/1900255911245156838

https://x.com/i/status/1899633895693287810

https://x.com/JamesClear/status/1900227234075484365

Daily Economic Update: March 13, 2025

Still a 3-handle, but it didn’t stink too bad

CPI came and went. It was a little softer than expected—2.8% headline, 3.1% core. Unfortunately, some of the biggest declines, like airfares, don’t pass through to PCE.  This is a good summary of some of the major differences between CPI and PCE.  

Bottom line: A softer CPI makes today’s PPI report more important. Areas like financial services and healthcare could move the needle for PCE, which is what the Fed watches.

And since this CPI data dropped before the “T” word hit, it was, as the kids say… mid.

Speaking of the “t” word..

Tariff Tiff 

Tariffs are already weighing on Canada.  Bank of Canada Governor Tiff Macklem (yes, really) said, “The pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence.”

The BoC cut their policy rate by 25bps to 2.75%.

And the hits keep coming: The EU and Canada both slapped retaliatory tariffs on U.S. goods after the U.S. put 25% duties on steel and aluminum.

So, does a unified front from U.S. trade partners make it harder for the administration to negotiate one-on-one? Probably. Maybe that was part of the plan… or maybe not. Something to chew on.

While the rest of the world hates U.S. tariffs, on the brightside…

But Hey, No One Boycotted The Treasury Auction

10Y Auction was solid - strong bid to cover, solid indirects (foreign demand). So there’s that.

Despite positive inflation news and a solid auction yields rose, with the 2Y treasury closing at 3.99% and the 10Y at 4.32%.  

Over in equity land…

Continuing the 2000s Greatest Hits Tour:

Yes, stocks bounced. The S&P rose for the first time this week, closing at 5,599. Your favorite tech names had a good day. Fine.

But the 2000s nostalgia is more fun. So, here’s today’s throwback: 
Michael Saylor, founder of MicroStrategy, rode the internet bubble to a $13.5 billion net worth. In 2000, he told Noel Tichy, “The only people who think we’re in a bubble are the ones who don’t get it.” One week later, MicroStrategy restated earnings. The SEC charged them with fraudulent revenue recognition. Saylor was fined $10 million and lost control of the company. The stock dropped 62%.

Some things never change?

On Deck for Today: 

PPI, Jobless Claims, 30Y Auction. More fun awaits.

XTOD’s:

XTOD: What the @bogleheads  know:  If you have a sane asset allocation and a portfolio of low-cost investments, you can pretty much tune out the current nonsense with tariffs, market gyrations, etc.  I've got to say, it's incredibly freeing.

XTOD: Breaking: People close to @WhiteHouse  believe  @JoeBiden  increased federal spending by as much as $300 billion in his final months of his presidency to juice the economy and markets and help @KamalaHarris  get elected. That combined that with rolling over short term debt in order not to force rates on the all-important 10 year note (which consumers rates are priced off of) to spike higher, has left a balance sheet mess of epic proportions. They say this spending spree provides an insight into the mountain of debt and deficits that Trump must start to eliminate. Story developing

XTOD: The Atlanta Fed's sticky-price consumer price index (CPI)—a weighted basket of items that change price relatively slowly—rose 3.1% (on an annualized basis) in February, following a 4.9% increase in January. On a year-over-year basis, the series is up 3.5%. 

On a core basis (excluding food and energy), the sticky-price index rose 2.9% (annualized) in February, and its 12-month percent change was 3.5%.  The flexible cut of the CPI—a weighted basket of items that change price relatively frequently—rose 2.4% (annualized) in February and is up 0.8% on a year-over-year basis. 

https://atlfed.org/4hwPL0O

XTOD: Nearly everything awesome takes longer than you think. Get started and don't worry about the clock.

XTOD: When Kobe Bryant said his insane level of confidence came from knowing he’d done all he could to prepare, it taught me that anytime I feel nervous, it meant I didn’t prepare enough.

https://x.com/christine_benz/status/1899858661238874611

https://x.com/CGasparino/status/1899787584001245529

https://x.com/AtlantaFed/status/1899853419797414003

https://x.com/JamesClear/status/1899859536489427012

https://x.com/DearS_o_n/status/1899520848890925334