Daily Economic Update: April 15, 2024

 

 

Tax Day in 'merica. "If you take a walk, I'll tax your feet".  You can check out Stevie Ray Vaughn's cover as well. 

The weekend retaliatory attack by Iran and subsequent missile exchanges by Hezbollah and Israel will keep the risk of a broadening conflict front and center.

On Friday, the UofM consumer sentiment index came in below expectations, but showed increases in the year ahead and five year ahead inflation expectations.

Speaking of inflation and what the Fed has accomplished to date, a few interesting blog post over the last few days.  Both of the following post hit on the puzzle of interest rates and r-star.

The first, courtesy of Stephen Williamson, titled "Do Central Bankers Know What They're Doing" which posits:

• Williamson is a known 'Fisherian' or an adherent of 'Neo-Fisherism'.  What's that?
• It's based on the Fisher Effect, coined for Irving Fisher, and the basic equation that a Nominal Rate = Real Rate + Inflation
• If you turn this equation on its head, you can posit that a high nominal interest rate will cause inflation to actually rise over time (in other words the causation runs counter to what you tend to think), why?
• Because economist believe that nominal interest rates are 'long-run' neutral and do not change the real rate
• Back to Williamson's blog, he argues:
• PCE inflation is essentially at target and inflation expectations measured by break-evens are well anchored at target
• "So, the state of the U.S. economy, by these measures, appears to be as close to perfect as the FOMC might want, given its dual mandate, including its 2% PCE inflation target. Then, given that the median FOMC member still thinks the long-run nominal interest rate should be about 2.5%, if I had been asleep for 20 years, just woke up, looked only at these charts, and knew the 2.5% long-run estimate, I would wonder why the overnight rate was not 2.5% instead of 5.3%."
• "My best guess, though, is that the FOMC isn’t so worried about the actual inflation numbers as the state of the real economy. That is, the idea that the inflation rate is controlled by controlling the unemployment rate persists at the Fed, as it does at most central banks in the world, despite plentiful evidence to the contrary....Inflation came down with essentially no upward movement in the unemployment rate. The Phillips curve narrative persists, as it somehow allows monetary policy committees to achieve consensus, and it’s easy to explain to the public - however wrong it may be. Unfortunately, if central bank officials speak Phillips curve language for long enough, they start to believe it, which produces bad monetary policy."
• He posits that if the Fed truly believes the long-run real interest rate is 0.5% then maintaining this level of nominal rates will set the Fed up for above target inflation.
• " That is, if the policy rate stayed at 5.3% forever, and the long-run real interest rate is 2%, then we would expect inflation to come in at 3.3%, which is better than 4.8% under the FOMC consensus."
• "The bad news is that the FOMC, along with other central bankers in the world, may be setting itself up for persistent overshooting, just as central banks tended to undershoot their inflation targets from 2010 to 2020. That’s all part of the same phenomenon, which is not recognizing long-run Fisher effects - and this may set in sooner than people seem to think. Basically, consistent with all mainstream macroeconomic theory, a persistent increase in the central bank’s nominal interest rate target produces a long-run increase in inflation, not a decrease. What allows a central bank to hit its inflation target is a widely-held belief that the central bank will always revert to a nominal interest rate target consistent with its inflation target and Irving Fisher. If that widely-held belief falters, the game’s up."

The second post comes from Scott Sumner, who is an avid supporter of Nominal GDP Targeting.  His post titled "Time to Add Epicycles" discusses what he describes as the absurdity of 'reasoning from a price change' when talking about interest rates causing changes in other macro variables. 

• "Interest rates can change for multiple reasons, and the effects of the rate change will depend on the underlying factors that caused them to change."
• He goes onto discuss the 'frustrations' with current economic models and excuses such as "long and variable lags".
• "If interest rates rise because of tight money, then aggregate demand may decline. If interest rates rise because of fiscal deficits or booming immigration or strong “animal spirits”, then aggregate demand may rise. It depends."
• "Doesn’t the Fed determine interest rates? Well, it has a target, which it moves up and down in response to what it perceives as changes in the equilibrium interest rate. But is it leading the market, or following?"
• "All I can say is that the proof is in the pudding—apparently we are still not able to model that “natural” rate with any degree of accuracy. As a result, we end up reasoning from a price change.
• "Monetary policy is not interest rates, it is the market forecast of future NGDP."

And just to complete the trifecta, we get a post from John Cochrane titled, "Inflation Confusion"

which discusses a recent WSJ article and how the current administration is struggling with basic economics.

• Cochrane starts off with some basics around how relative price changes are not inflation and that by jawboning about inflation has been tried and failed.
• He goes on to complain about the administration's lamentation that there isn't much they can do about it:
• "Nothing one can do? We have, now admittedly, a deficit fueled inflation. One could start by not pouring more gas on the fire. Such as cancelling billions of student loan debt, never mind the Supreme Court and the quaint idea that Congress votes spending. The CBO reports “The deficit totals $1.6 trillion in fiscal year 2024, grows to $1.8 trillion in 2025, …” with a 3.8% unemployment rate. Even in the simpleminded Keynesian economics that dominates left-of center Washington, there is no excuse for such stimulus."
• "There’s nothing we can do except the one thing that we all know would work. So we’ll rearrange the teacups on the side tables of the deck chairs of the Titanic instead. Which means nothing we want to do."
• "The quote here reflects the standard Keynesian view, deficit = aggregate demand = inflation with a lag. But we’re pretty clearly now in the situation that expected systemic deficits are the problem. Germany stopped a hyperinflation in a month. A credible announcement of spending, tax, and growth reforms that put the budget on a sustainable track would do the job. Scaling back the IRA, Chips, student debt river in recognition of inflation would help a lot more than complaining about how many potato chips are in a bag. Even just saying we recognize that’s needed would help."
• He concludes his piece with a complaint that politicians care too much about what 'resonates with voters' rather than taking the action they could take to lower inflation.

On the week ahead we'll get a lot of corporate earnings, retail sales and plenty of Fedspeak:

Monday: Empire St. Mfg, Retail Sales, Fedspeak

Tuesday: Housing Starts, Building Permits, Industrial Capacity, Durable Goods and Fedspeak including Powell at 1:15pm

Wednesday: Fed Beige Book, Fedspeak

Thursday:  Jobless Claims, Home Sales, Leading Indicators

Friday: Just one Fed speaker (Goolsbee)

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Daily Economic Update: January 8, 2025

Gulf of America, Greenland, the Panama Canal…No more fact checking on Facebook (I don’t have the app, but seems to be another example of the shifting "culture") but stocks slide? Nevertheless yields rising was the major takeaway for yesterday.  Over in data, JOLTS showed job openings at a much higher level than expected with most of the openings showing up in professional and business services and financial areas. ISM services remained in expansion increasing to 54.1, with decent component readings.  The data did nothing to dissuade investors from betting on higher yields and led to an ugly 10Y auction that cleared at 4.68% with weak bid-to-cover and other demand metrics.  Concerns over the overall quantum of treasury supply certainly don’t seem to be helping.  The 10Y rose 7bps and is yielding ~4.68% while the 2Y remains around 4.30%.

On the day ahead we get ADP, and the moved up Jobless Claims data, the 30Y auction, FOMC Minutes and some fedspeak.  It’s bound to be a busy one as investors position for Friday’s job’s report.

Continuing the start of 2025 exploring one of what I describe as the competing “meta-narratives”, the idea of cycles, that there are limits to growth, “trees don’t grow to the sky”.  Yesterday we talked about the business cycle in general, today we’ll dig into the “Credit Cycle” and the work of Hyman Minsky in his Financial Instability Hypothesis, something we touched on back in October when famed investor Paul Tudor Jones raised the idea of another “Minsky Moment”.

When I started this theme this week it was unbeknownst to me that the great Howard Marks was going to play right into my hands (or steal my thunder) with his first memo of 2025 “On Bubble Watch” in which he reflects on the 25th anniversary of the dot-com bubble.  Marks is an ardent believer in impermanence, disruption, the inevitability of cycles, psychology and that overpaying is the greatest investment risk.  He’s in the camp “trees don’t grow to the sky”.  His memo feeds nicely into today’s topic on Minsky and tees up tomorrow’s discussion on CAPE., we both actually referenced Kindleberger (someone’s whose quotes I shared over the holiday)....great minds think alike I suppose.

While I discussed the basics of Minsky’s framework in that previous post, one of the striking features of his hypothesis is that a capitalist economy does not depend on an external shock (war, pandemic, etc.) to generate a business cycle (though it may help to start the process), we are more than capable of generating a business cycle all on our own and often amplified by interventions from policymakers.

Minsky has a specific description of credit cycles in his hypothesis, but more generically, a Credit or Debt Cycle is a way to describe the changing availability and pricing of credit in an economy.  Credit takes on increased importance in the real economy as it’s generally a necessary ingredient for business and household investment, particularly big ticket items like real estate.  In general when the economy is growing, credit increases and when the economy is contracting it decreases.

That all sounds pretty benign on its face, but these credit cycles have tended to produce long and deep business cycles both on the way up (expansion, mania) and the way down (recession, panic, crash).  I state this somewhat definitively because there is empirical, historical evidence as well documented by the likes of Charles Kindleberger in his 1978 book, Manias, Panics, and Crashes. But why are credit cycles so important?

In building his financial instability hypothesis, Hyman Minsky, was influenced by earlier work of Keyne’s and Irving Fisher.  From Keynes, Minsky took to ideas related to the role of capital development, how financing and creation of capital assets can drive fluctuations in economic growth and also Keyne’s “veil of money” which connects money to financing through the element of time, essentially that money flows to firms in expectation of future profits, while firms can only pay back that financing through realized profits.  From Fisher, Minsky was influenced by Fisher’s classic “debt deflation” theory, whereby excessive debt can lead to falling asset prices, which leads to defaults, which leads to declining economic activity, which leads to further defaults and a self-reinforcing downward spiral (interest Nine Inch Nails album too).  Inherent in the earlier work of Keynes and Fisher and other classical economists such as Adam Smith, Knut Wicksell and John Stuart Mill is a view that markets aren’t always self-correcting and can experience periods of disequilibrium and that expectations can change financial structures and contribute to instability.  Minsky takes things a step further and emphasizes the fragility of the system and its propensity to have a disaster.

The basics of Minky’s model (as discussed by Kindleberger) are as follows:

• “Displacement” - some shock comes along that alters the economic and profit outlook for at least one important sector of the economy and this attracts investment while pulling it away from other sectors. If this new opportunity dominates the old opportunities a boom is underway. This gets further fed by the expansion of bank credit and the formation of new credit instruments and even personal credit outside of banks.

• “Euphoria” - the desire to speculate fueled by credit stimulus feeds into demand, prices increase, new profit opportunities emerge and a positive feedback loop ensues.  

• “Overtrading” - which could mean pure speculation that prices will increase further and the use of leverage, both of which can be accompanied by an overestimation of profits.  When this speculation is taken on by a large number of firms and households we potentially lose rationality and it is termed a “mania”.  All the while the credit system stretches further.

• “Revulsion” - eventually something spurs the realization that the market can’t go higher forever, it might be a bank failure, an uncovered fraud, but people and firms begin to liquidate and there is a “revulsion” against lending against the collateral that were being speculated on.

• “Panic” - which is really just the revulsion stage going to a point where people want to get through the door before it shuts and that last until…that’s for another time.

Or to summarize, as Morgan Housel describes Minsky, “calm plants the seeds of crazy”.  Stability breeds instability by encouraging excessive risk taking which leads to booms and eventual busts. 

To map this model to today we can look at AI as a possible example (to be clear I’m not saying AI is a “bubble” or anything of the sort).  A new technology, AI, comes along creating new opportunities, it attracts a lot of capital (see AI chip spend and data center spend), encourages risk-taking, and generates a wave of optimism.  As AI proves profitable, widespread optimism takes hold, credit is available for businesses associated with this trend and perhaps exuberance pushes asset prices higher, even exceeding their intrinsic value.  At some stage a belief that the good times will keep rolling sets in and businesses and investors try to leverage their bets further, which further inflates asset prices, often moving to the “ponzi” stage of financing where rising asset prices are required to refinance assets as cash flows can’t even cover the interest.  In the model this would sow the seeds of revulsion, where some event eventually causes investors and lenders to re-evaluate the landscape. In the AI example, this could be some revelation that obstacles to further scaling the models cannot be overcome.  A sudden shift in sentiment could lead to selling and as a result the contraction of credit.  Ultimately a panic could set in as liquidation of investment holdings creates a self-reinforcing cycle.

All of this is a story of a movement through the credit cycle from “Hedge Units” where there is sufficient cash flow generated to meet contractual liability obligations, to “Speculative Units” where cash flow is sufficient to cover interest but not repay the principal - meaning assets ultimately need to be sold or refinanced to meet the commitment, to “Ponzi Units” where the repayment of the debt is based solely on the ability to sell or refinance based on an asset that has increased in value.

That seems like enough foundational cycle related stuff, tomorrow we’ll get into a valuation metric based on the idea of cycles, specifically CAPE, the cyclically adjusted price-to-earnings ratio.

XTOD: One day MS dreams of taking Bitcoin private so that they can mark it to whatever they wish each day and further outperform the public coin markets

XTOD: Barry Naughton: "Japan spent almost a decade trying to painlessly restructure a financial system that had suffered a huge reduction in the value of its assets. And now China seems to be repeating some parts of that." In itself, debt is simply a set of transfers – an explicit transfer today followed by an explicit or implicit transfer tomorrow. Secondly, as John Kenneth Galbraith explained, the creation of fictitious wealth at first boosts economic activity through a wealth effect, but as it is written down, it dampens economic activity even more vigorously through a negative wealth effect.  In China's case, most of the accumulated debt has been used to fund investment, but if this investment had been productive, then by..

XTOD: 4. If you don’t define your own version of success someone else will for you; take time every year to reflect on your values; do everything you can to live in accordance with them.  

5. There is no bigger trap than thinking the accomplishment of some goal will change your life. But what will change your life is the person you become in the process of going for it.  6. The people with whom you surround yourself shape you. We are all mirrors reflecting onto each other. Choose wisely. This is everything.

XTOD: U.S. President-Elect Donald J. Trump has stated that he won’t commit to not using Military Force to capture the Panama Canal and/or Greenland, and that he wants to change the “Gulf of Mexico” to the Gulf of America.

https://x.com/ohcapideas/status/1871406046943891567?s=46&t=D2AESCsaw42dAEzgmjXHQA

https://x.com/michaelxpettis/status/1876172997410861133?s=46&t=D2AESCsaw42dAEzgmjXHQA

https://x.com/bstulberg/status/1870930223711277309?s=46&t=D2AESCsaw42dAEzgmjXHQA

https://x.com/sentdefender/status/1876676322086302175

FOMC Recap: What a long strange trip it's been

 

“He looked down and saw his friend, the man with the big yellow orange hat! George was very happy. The man was happy too.”

• Fed pauses as expected, leaving the Fed Funds target range at 5.25% to 5.50% and leaving QT unchanged
• FOMC members median Fed funds projections continues to show another 25bp hike in 2023, while the projected 2024 median Fed funds rate was increased 50bps to 5.1%, effectively removing two rate cuts from their previous 2024 projections
• Powell reiterates the need to stabilize inflation and that there is a "long way to go" to get there
• Indicates data dependence, "need to see more progress before concluding" policy is sufficiently restrictive, "we want to see more than just three months" that inflation and job data support a conclusion one way or the other
  
• Powell acknowledges that the short-run neutral rate may be higher than forecast

Like a monkey named George, I am also curious, curious as to how monetary policy lowers inflation with long and variable lags, whether we can get a soft-landing, or whether, as Bernanke once quipped, expansion don’t die of old age, they get murdered.  Since Jackson Hole much ink has been spilled (Claudia Sahm has had a few good articles recently) over why Americans appear to find themselves unhappy with an economy where the data shows rising growth and cooling inflation.  There is unhappiness with the rise of prices at the pump and in the grocery aisles.  Unhappiness with the state of pay and working conditions; unions feeling like they missed out on the gains after sacrificing during the pandemic, white collar office workers seemingly dissatisfied with commutes to back to the office.  And there is unhappiness with rising borrowing cost.

Over the summer, much was made of the man in the orange hat, Fed Chair, Jerome Powell being spotted at a Dead & Company show in Virginia. In a response to a question posed by representative Wiley Nickel at House Financial Services Committee hearing,  Powell replied “I’ve been a Grateful Dead fan for 50 years.”

As a self-professed Dead fan, I am certain that Powell can appreciate some of the wisdom inherent in the Dead's lyrics about the current state of the economy.  Here are some examples:

“Took my twenty-dollar bill and it vanished in the air…a friend of the devil is a friend of mine”

Many American's are still feeling the sting of inflation when they conduct their everyday affairs, feeling like their money is vanishing in the air.  Others wonder about the politicization of the Fed and "fiscal dominance", worried that the Fed will be forced to engage in financial repression to fund the fiscal agenda.

“I know the rent is in arrears the dog has not been fed in years / It’s even worse than it appears but its alright”

The cost of housing, whether it be the increase in rents or rising mortgage borrowing cost have been a source of pain for many Americans.

“’Cause when life looks like easy street, there is danger at your door”

On a recent episode of Bloomberg's Odd Lots podcast, Bill Gross stated: "We have an economy that's based on asset prices going up," "If they don't go up, there are problems".  I don't envy the Fed's challenge in gauging the impact on financial stability from monetary policy decisions, especially in a world where nonbank financial intermediaries play increasing important roles in the intermediation of credit.  As a reminder, it was only back in March when it seemed we were on the precipice of a larger banking collapse.

“Lately it occurs to me what a long, strange trip it’s been”

And lastly, structural changes in the economy may have been accelerated by the pandemic, with the last 3+ years certainly being "strange".

The standard story is the Fed raises interest rates which feeds through to asset prices, expectations, exchange rates and ultimately drives down demand as households and businesses change their investment and spending decisions. Inherent in the implementation of monetary policy are estimates of the "output gap", the difference between estimated potential output of the economy and the actual output, as well as estimates neutral rate (r-star), and the relationship between the level of unemployment and inflation (NAIRU).  To complicate all of this, the economy can face unanticipated shocks that can impact supply and demand.  A pandemic, a war in Ukraine, unanticipated cuts in oil production, labor strikes, a government shutdown, changes in technology, you get the picture. On top of all of that the Fed also needs to consider the impact of fiscal policy.  Clearly the size of deficits have grown and at present there is no sign that consumers are concerned about future taxation or so called "Ricardian Equivalence".  This makes it hard to see fiscal policy doing much to help reduce demand to cool inflation.  Measuring potential output and therefore the output gap in a dynamic economy seems to be a difficult science.

As Powell ponders heeding advice from the Dead, he might want to consider advice from a dead economist who some consider to be the greatest economist America ever produced, Irving Fisher. In Fisher's classic, 'The Money Illusion', he goes to great lengths to discuss the harms of unstable money, boiling it down to three evils: social injustice, social discontent and social inefficiency.  Fisher didn't believe the responsibility to stabilize money was solely the purview of the Fed rather it was shared responsibility between the Federal Government and it's independent central bank.  As it relates to deficits, he noted that “when a government cannot make both ends meet, it pays its bills by manufacturing the money needed” and further that “The government has an added responsibility when its own debts are involved. To borrow billions of dollars and then to depreciate the dollar is not even fair gambling. It is stacking the cards.”  Fisher didn’t absolve the banks or central banks from playing a role in the stability of purchasing power, noting that central banks are “properly expected to provide an “elastic currency” to expand or shrink with the expansion or shrinkage of the business to be done by it.”  While further providing that central banks “can make the money we all use easy or hard to get, and thereby prevent inflation or deflation.” 

It seems the Fed is currently trying to make the money we all use hard to get, so how might this all end? There are three main endings I see espoused by economic pundits (I can't or won't assess the probability of any of these outcomes):

1. "Soft Landing":  which would likely mean we remain with low levels of unemployment while continuing with real growth and low inflation.  The argument for this outcome are best summed up in a recent post by Marcus Nunes as follows: "The difference between now and past occasions, is that the Fed is “adjusting from above”. In other words, monetary policy is tightening, not to take NGDP growth down below its “normal” or stable value, but to bring it down to the stable level!"
   
   
2. "Financial Repression and the Age of Scarcity": the positive supply side forces of global cooperation, favorable demographics and technological productivity gains are reversing while economies will need to invest in areas like their militaries, climate, etc. while facing already high debt burdens.  Rising real rates and higher inflation might be here to stay. While not the only way out, as stated by William White in a recent article "The Case for Pessimism", governments might "try to limit the feedback effects on interest rates and debt service through administrative procedures and capital controls. So called “financial repression,” in which inflation is allowed to rise but interest rates are held down, was used successfully to reduce debt overhang after World War ll."  White isn't alone in this thinking, feel free to take a look at the work of Arslanalp and Eichengreen presented a Jackson Hole.  Both White and Eichengreen point out that financial liberalization and nonbank financial intermediation make carrying out financial repression policies more difficult, but a recent paper by Charles Calomiris discusses how financial repression could be pushed through the banking system by imposing a "high reserve requirements for zero-interest paying reserves".  
   
   
3. "Hard Landing - we've already gone to far - the Fed once again murders an expansion": Look no further than rising bankruptcies, falling commercial real estate prices, slowing of bank credit creation, a slow down in leading indicators, a slowing China, etc.  The U.S. money supply is falling for the first time since 1933.  Holding other variables constant the basic equation of monetarism would say a falling money supply will lead to falling prices, eventually deflation.  The concern for some in a levered economy are that, falling asset prices can lead to unexpected deleveraging which can spiral into a financial crisis.  Related to this concern is that as the increases in interest rates continue to filter through to the economy through rising borrowing cost, this could lead to potential defaults, falling asset prices, and again a spiral as the wealth effect leads to decreased spending, leading to job losses, leading to recession.

I'm certain there are other scenarios or ways to describe these scenarios, but I'm just as certain that I don't know how this plays out or what other shocks to the system will occur in the meantime. In the meantime, some parting thoughts for Powell from the Dead:

 “There is a road, no simple highway / Between the dawn and the dark of night / And if you go, no one may follow / That path is for your steps alone”

Daily Economic Update: August 19, 2024

J-Hole Week is Upon us, with Powell on Friday.  In case you were wondering what Powell said there last year, check here. 

Last week ended with stocks higher as retail sales, jobless claims, consumer confidence all were better than expected.  Some optimism on progress on a middle east cease fire doesn't hurt either.  Gold at record highs, might be a sign of a loss of confidence in the instituions that support or fiat currencies, or it might just be speculators feeding on speculators.

There are some narratives out there which are centered around how high rates are causing business uncertainty and harming the economy.  That might be correct at some level, but to me it misses the bigger point that it is inflation that causes the most harm to business and interest rates rising has just been an attempt to quell the ultimate uncertainty which is inflation.  Don't take my word for it, you can take Irving Fisher's as we discussed back here:

 "Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."

Speaking of Fisher, as I wrote back at the September 2023 FOMC meeting, Fisher believed tackling inflation as shared responsibility between the Federal Government and it's independent central bank.  As it relates to deficits, he noted that “when a government cannot make both ends meet, it pays its bills by manufacturing the money needed” and further that “The government has an added responsibility when its own debts are involved. To borrow billions of dollars and then to depreciate the dollar is not even fair gambling. It is stacking the cards.”

Elon Musk apparently is a fan of the Fiscal Theory of the Price Level. If you want a refresher, this post from February on this blog isn't too bad.  Feel free to search this blog for "Cochrane" and "FTPL"

On the week ahead:

Today: Waller, Leading Indicators, DNC starts

Tue: Bostic

Wed: Payroll benchmark revisions, FOMC Minutes

Thur: Jobless claims, S&P PMI's, Home Sales, J-Hole agenda released

Fri: New home sales and Powell at J-Hole

XTOD: For anyone who's interested, the macroeconomic theory Elon is espousing here is called the Fiscal Theory of the Price Level, or FTPL. It has been promoted by top economists Chris Sims, John Cochrane, and Michael Woodford, but remains a minority view.

XTOD: And if you want the FTPL history of US inflation, this is just fantastic: https://aeaweb.org/articles?id=10.1257/jep.36.4.125

XTOD: .@AtlantaFed  ’s sticky price CPI (slow-to-change consumer prices) rose 3.2% on an annualized basis in July, following a 2.6% increase in June. Graph and track the index in FRED: https://ow.ly/VOaG50SZJQa

XTOD: My firm uses a model to forecast interest rates.  She's terrible.

XTOD: Wow, @crampell  pulls no punches in her appraisal of this proposal:  https://washingtonpost.com/opinions/2024/08/15/kamala-harris-price-gouging-groceries/

"It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Some far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk. At best this would lead to shortages, black markets and hoarding, among other distortions seen previous times countries tried to limit price growth by fiat... At worst, it might accidentally raise prices."

XTOD: The return of economic idiocy is staggering and terrifying. Many things are debatable even if I or others may strongly differ. Tax rates are debatable. Transfer programs are debatable. Regulation is debatable (all within reason). But the return of politically driven idiocy that is not debatable, that history and theory have both proven destructive, is terrifying. Almost all economists of the left and right (not the extreme left and extreme right) would agree (though we haven’t heard the former economist Paul Krugman or any of his backup singers, the Krugtones, courageously speak truth to their own party about rent control of this latest asininity on price controls). 

The current top 3.

1) Rent control — has destroyed whatever it has touched, and for clear obvious reasons. The left wants it everywhere and are finally poised to get it.

2) The “blame corporations” utter nonsense on inflation, and the plan to whip inflation now through price controls, is beyond ridicule. From Diocletian to Nixon, from theory to fact, it’s insane. The left is all in on it.

3) Tariffs and trade wars out of the past destroying a ton of prosperity for both us and our trading partners all to claim to have saved some jobs (generally in the industries we don’t really want, they always say “we don’t need cheap crap from overseas in exchange for American jobs” but we don’t want those jobs making “cheap crap” either — also involving “national security” here is almost always just a lie (almost)). This one is mainly from the right but Biden didn’t repeal Trump’s idiocy here and added his own, so the left has no real high ground and is poised to make it worse just not “as much worse” as Trump if they win.

We have a democratic candidate who is economically illiterate and just a far left hack, and a republican candidate who thinks lying about his crowd size is more important than articulating anything cogent.

It is very very bad.

Good morning.

XTOD: “It’s time you realized that you have something in you more powerful and miraculous than the things that affect you and make you dance like a puppet.”         ― Marcus Aurelius, Meditations

Daily Economic Update: August 23, 2023

U.S. yields start the day lower, with the 2Y down 4bps back at 5% and the 10Y down 6bps at 4.26%, both back to where they were pre-SVB (remember SVB?).  Eurozone PMI contracting further with German manufacturing continuing to weaken.   Some retail earnings weren't great on Tuesday, but really where are there still Macy's anyway??..and stop stealing from Dick's [insert if Staples sells Staples then...videos here].  There are some academic and non-academic theories connecting a rise in retail theft (or "shrinkage") to inflation.  Generally those theories are that either: (a) rising prices make some goods more expensive so people steal them and (b) rising prices creates an incentive to sell stolen goods below retail prices on the black market.  As we wait for Powell at J-Hole on Friday, attention has turned to bashing Biden's trip to Maui, counting Trump arraignments, Republican primary debates, or, dare I say mask-mandates?  On the day ahead we have S&P PMI's, new home sales and 20y auction today.

If we're going to keep talking about R-Star, can we at least give my man Knut Wicksell some credit?  Wicksell believed that while you could not see the natural rate, you could see the impact of policies that kept rates above or below this rate by looking at trend growth rates. Today, our central bankers discuss their interest rate policy relative to this neutral rate or “R-Star” to determine if their policy is restrictive or not. 

“Nature’s productivity has a strong tendency to keep up the rate of interest” – Irving Fisher ....read the Febezzle article 

XTOD: Confession: in the past 3 years, I've never listened to a single podcast that someone has sent to me. I'm maxed out.  Always feels like main point can be summed up in a tweet or a paragraph rather than expecting me to block out 1-3 hours.

XTOD: Time to scrap ALL stars. ystar, ustar rstar

XTOD: Zoltan: “The west dreamt of the Brics as a lapdog, that they would accumulate dollars and recycle them into Treasuries, but instead of that they are renegotiating how things are done.”  Who opened this door?   “The signal moment for them in the past 18 months, argues the former Kofi Annan aide Mousavizadeh, was not Russia’s full-scale invasion of Ukraine in February 2022 nor Nato’s rediscovery of its purpose, but the freezing of Russian central bank reserves, which dramatically underlined once again the power of the US dollar.  “For middle powers, it was the equivalent of someone going in and seizing embassy property.”

XTOD: Interesting article, but with a pretty bizarre quote from Zoltan Pozsar: “The west dreamt of the Brics as a lapdog, that they would accumulate dollars and recycle them into Treasuries, but instead of that they are renegotiating how things are done.”.....I don't think he understands at all how the international balance of payments works. If he were the only one, it wouldn't matter, but he repeats a very common confusion....There is a popular conspiracy theory (sometimes called the petrodollar conspiracy) that claims that the main purpose of US foreign policy is to trick or cajole foreigners into buying US Treasuries so as to lower the borrowing cost for the US government...This is total nonsense. Net foreign purchases of US assets is just another name for US trade deficits, and the US has been eager to reduce its trade deficits, which is just another way of saying that the US wants foreigners to stop buying US assets..BRIC countries want to do exactly what Pozsar says they don't want to do, and the west wants them to stop doing exactly what Poszar says the west wants them to do.

XTOD: Microsoft $MSFT just announced the public preview of Python in Excel - Tech Crunch

XTOD: Unexpected inflation can lead to redistribution, hurting creditors and possibly workers.  But steady, expected inflation gets built in to interest rates and wages—it does not hurt workers or creditors.  To a first approx think of real wages as unrelated to average inflation.

XTOD: Crash coming.  Haven’t used that word in forever.  Retail is getting taken out back today.  The consumer is not strong.  Airlines all failed miserably and household savings is 90% below it’s peak of 2020/2021.  Asset prices and real estate prices are going to fall with rates pushing above levels not seen since 2007.  Credit conditions are tightening and we have record debt levels.  This is the most obvious precursor to a recession I have seen since the financial crisis.  Takes time and more layoffs, but it is coming.  I haven’t been this bullish on the vol market since the beg of 2022

Daily Economic Update: September 13, 2023

$29 dongles, an attempt to impeach Biden, MGM casino cyber attack, covid, UK GDP contracting, but it's CPI that is in focus today. At the last FOMC meeting, the Fed had identified five pieces of economic data that would inform their upcoming decision, those were: the Employment Cost Index back on July 28, the two Jobs reports (8/4 and 9/1) and the two CPI reports (8/10 and today's upcoming report), most commentators and the market believe those reports, which have shown some slowing in labor data and cooling inflation, will likely leave the Fed on pause next week (CME FedWatch has probability of a pause at 93%), but we'll see what happens with today's CPI.   To start the day, the 2Y is up 3bps to 5.03% and the 10Y is higher by 3-4bps to 4.31%.   On the cap we get CPI and the 30Y Bond Auction.  If you're looking for bank forecast for the inflation read you can find them here.

If you missed it yesterday, Howard Mark's put out his most recent memo. As is typical of Howard's memo's, it's worth a read.  He spends some time using tennis as an analogy, harkening back to Charlie Ellis' classic "The Loser's Game" in which Ellis argues that argues that lay investors have the best chance of success in investing in the stock market by avoiding costly mistakes, minimizing cost and focusing on asset allocation and passive investing.  Mark's states: "The amateur doesn’t have to hit winners to win, and that’s a good thing, because he or she generally is incapable of doing so dependably."

As we look ahead today's inflation reading, it's always "fun" to reflect on inflation, so here's a few gem's from Irving Fisher's classic "The Money Illusion":

• "Money Illusion"; that is the failure to perceive that the dollar, or any other unit of money, expands or shrinks in value.
• "As long as a dollar is not safe, any agreement to pay a dollar is not safe. However certain it may be that you are going to get the promised dollar, it is not at all sure what the dollar is going to be worth when you get it."
  
• "In short if more money pays for the same goods their price must rise, just as if more butter is spread over the same slice of bread it must be spread thicker, the thickness represents the price level, the bread the quantity of goods."
• "..the only important fact, in so far as the price level is concerned, is the relation between these two circulations [money and goods]...if the circulation of money increases relatively to the circulation of goods, the price level will rise. If, on the contrary, it decreases relatively, the price level will fall; that is, whether the butter is thick or thin depends on whether there is much or little butter relative to the bread."
• "War has always been by far the greatest expander of paper money and credit, and therefore the cause of the greatest price upheavals in history."
• "[Inflation] It would, indeed, be of no importance if everybody's income were adjusted to the change in prices. But this is not and cannot be the case...a change in the money yardstick, the dollar, is far more serious, and for three reasons:
• it affects all sales
• it is used for long-term contracts...we are constantly contracting to pay present dollars for future dollars...it makes tremendous difference, for instance, to a bond holder.
• these disasterous effects are not perceived because of money illusion
• "when your house is burglarized, society is none the poorer..that would be cold comfort to you..in somewhat the same sense this burglarizing dollar is defrauding people...it is social injustice."
• "while inflation is going on, the general public finds it hard to admit that there can be too much money....After rapid inflation once starts, the clamor for more money often grows louder and louder."
• "When prices are rising wages and salaries are, as it were, running after a lost train."
• "Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."
  
• "As inflation goes on, the workers continually grow more dissatisfied and attribute their plight to an intentional plundering by a social system of exploitation." "Out of such discontent, therefore came Bolshevism and other radical theories."
  
• "worst examples of inflation have come from unbalanced government budgets. As we have seen, when a government cannot make both ends meet, it pays its bills by manufacturing the money needed."

XTOD: A picture of inflation as a tax on the average family: https://bloomberg.com/news/articles/2023-09-12/us-inflation-adjusted-incomes-fell-2-3-in-2022-from-prior-year?srnd=undefined#xj4y7vzkg

XTOD: Every Twitter economist is saying the same brain dead, out of touch thing…“Why are the American people so negative on the economy? GDP is up!”  Maybe because they just watched their purchasing power be annihilated by generational inflation, real household incomes have fallen for 3 years in a row and wealth inequality continues to expand. All while their tax dollars are being wasted and/or sent overseas.  GDP doesn’t come up at the kitchen table for normal Americans you clowns.
“Honey… the credit card bill is due and we don’t have enough to cover it this month. Our groceries have doubled and student loans are restarting soon. There’s also a possibility of layoffs coming at work.”  “Oh don’t worry about that. GDP is trending stronger than expected!”

XTOD: Today we broke the record for the longest streak of trading days (210) with an inverted 10yr/3mth yield curve.  What that means, you be the judge...

XTOD: "We don't have enough Americans to afford what is going on out there right now."  Housing Market Set For A "Cat 5" Storm, Worse Than The Great Financial Crisis.

XTOD: Let me make one thing clear on  @IRSnews  ERC.  Small business owners who qualified rightly claimed this. GOOD. Law was designed FOR THEM.  Years later, most new claimants are being SOLD the ERC for 25-30% commission. Most new claims are fraud.  Danny Werfel knows it. Good for him!

XTOD: Don't believe me? Since 1983, whenever entitlement spending pushed deficits too high, Congress responded by cutting defense and social spending (education, veterans, kids), and raising middle-class taxes. And it will get much worse.

XTOD: A CDC advisory panel met to come up with a recommendation on whether updated COVID shots approved by the government should be used broadly or targeted to specific at-risk populations, setting the stage for the launch of a re-vaccination campaign

XTOD: Government: "OK so there's a pandemic, but don't worry we're going to let you not make payments for 3 years." 
Borrowers: "OK cool, I'm going to buy a house with that money." 
G: "Wait no, that's not what we said..."
B: "OK I also bought a new car"
G: "Wait stop, that's not how this works."
B: "We're in Europe on vacation, AirBnB does Klarna now."
G: "......"

Daily Economic Update: April 10, 2024

CPI Day is upon us.  Expectations are for both headline and core CPI to rise 0.3% MoM.  Speaking of inflation, yesterday's NFIB Small Business Optimism provided the following:

“Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds,” said NFIB Chief Economist Bill Dunkelberg. “Inflation has once again been reported as the top business problem on Main Street and the labor market has only eased slightly.”

I was as shocked as you, I didn't know inflation could be so problematic, in fact I thought it was business greed that was causing inflation.  How could business be harmed here?  

Maybe 'Money Illusion'?   

"Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."  - Irving Fisher

Don't worry I'm sure crypto solves this or if not AI will.

Yesterday's 3Y auction wasn't super pretty with a 2bp tail, we'll get CPI and 10Y Note auction today.  Markets also keeping an eye on the geopolitical risk with tensions escalating in Gaza.

XTOD: TODAY IS THE MOST IMPORTANT CPI REPORT OF YOUR LIFE SO READ THIS THREAD🧵

XTOD: Is the U.S. deficit growth a problem which will necessitate YCC one day?  Maybe.  But talk to me when the yield curve is positively sloped by 250bp AND our currency is weak relative to other fiats AND our economy is in a recession.  Otherwise STFU about #YCC

XTOD: Here's a crazy stat that no one will believe.  The universal investment benchmark is the 60/40 portfolio of stocks and bonds.  What if you replaced the bonds entirely with gold....crazy right? 

Turns out it makes no real difference.

XTOD: Manley: "Lower mortgage rates would prompt more people to sell their homes, leading to more supply and potentially softer prices."

"Manley’s idea is a provocative one." That's provocative: "P-R-E-T-T-Y-S-T-U-P-I-D."

XTOD: Who are you riding with to take home the green jacket?

Daily Economic Update: October 19, 2023

 

Yields continued to rise as the 10y has a 5 handle in its sights.  This morning the 10Y is hitting new local highs yielding 4.96% and the 2Y is yielding 5.24%.  Yesterday, the 20y auction was well bid, but it's the 20y, so I'm not sure how much you'd want to read into that, especially not when there is plenty more supply coming from Treasury.   The lifting of some sanctions on Venezuela raises the prospect of additional oil supply which is helping to keep oil prices contained.  

Speaking of Treasury and sanctions, yesterday they announced new sanctions geared towards Iran and Hamas. The role that crypto has played in supporting terrorism is certainly a story to watch, especially as the SEC continues to consider crypto ETF's.

In Fedspeak - I guess we're at the part of the inflation cycle where we can blame continued inflation on people at home playing video games ???  See Governor Bowman: "What has been somewhat surprising, however, is that the relative strength in goods spending has persisted, rather than reverting to its pre-pandemic trends. This pattern we see in the U.S. is also unusual relative to other advanced economies, where the composition of goods versus services spending appears to have returned to historical norms. There are a number of potential explanations for these newly emerging spending patterns—some that would likely be temporary, and others more lasting. For example, the strong sales of computers, televisions, and video game consoles this year might reflect some ongoing pent-up demand following earlier supply shortages, or they might reflect a more permanent change in preferences for these goods due to the greater amount of time many of us are spending at home."

Maybe staying at home and watching TV is to blame, I mean look at how Netflix is trading post earnings.

Readers generally know that I've generally been open to questioning the standard narrative about how interest rates lower inflation (I'm not saying it is incorrect, just that it's worth examining).  Steve Williamson, formerly of the St. Louis Fed researcher had this to say on his substack yesterday: 

• Basically, according to these people, a disinflation is produced by high interest rates. “Demand” is too high relative to “supply,” an increase in the nominal rate of interest increases the real rate of interest, which reduces demand, which reduces the rate of inflation. It’s basically an IS/LM/Phillips curve story.
• if the central bank narrative is correct, why did inflation come down? In the basic narrative that reduction in demand shows up as a decline in economic activity and an increase in the unemployment rate - it’s not something I can see
• given this modern framework for monetary policy, central banks have a rather strange view of how inflation control works. For example, central bankers want to engineer a disinflation not through some means where we know where we’re going in the long run (low inflation, low nominal interest rates, economy humming along), and anything bad that happens is due to non-neutralities of money. Instead, they seem to think that disinflation works through the non-neutralities of money, as if Volcker reduced inflation because he induced a recession. Basically, we control inflation by controlling the unemployment rate. And we’ve known for a long time that that’s a messed-up approach - or maybe some people forgot.
• The danger here is the following. Long-run neutrality - inherent in all the dynamic models we work with, essentially - says that higher nominal interest rates ultimately engender higher inflation. That’s just Irving Fisher. That’s why the long run world with low inflation has low nominal interest rates. So, in a disinflation, engineered by the modern central banker, that central banker eventually has to find a reason to reduce nominal interest rates. What would make our central banks cut interest rates? More unemployment? Inflation at target? Both?
• The risk is that, if high nominal interest rates persist, then so does high inflation. How high?
• Serious disinflation is something that has never been done before in the context of modern central banking frameworks (inflation targeting and nominal interest rate rules). I wish I were more confident in BoC and Fed people, but they worry me.

…..of course Steve could be completely off-base and it’s just a matter of time until the ‘long and variable lags’ kick in.

On the day ahead we'll get Powell talking as well as jobless claims and leading indicators

....and if you're looking to read something different, have fun with this super-long "The Techno-Optimist Manifesto" from Marc Andreesen.

XTOD: Beige Book: "There were multiple reports of firms modifying their compensation packages to mitigate higher labor costs, including allowing remote work in lieu of higher wages, reducing sign-on bonuses or other wage enhancements"...... "shifting compensation to more performance-based models, and passing on a greater share of healthcare and other benefits costs to employees." ..."Contacts across many Districts reported less pushback from candidates on wage offers. "

XTOD: 2019-2022 was the largest 3 year jump in wealth over the past 30+ years  More than double the next largest increase on record  I wonder why we haven't had a recession yet? (crazy this period includes one of the worst years ever for 60/40 portfolio too)

XTOD: The 2022 net worth data for U.S. households was just released: 25th pct = $27,000 (was $12,410 in 2019) 50th pct =  $192,700 (was $121,760) 75th pct =  $659,000 (was $404,100) 90th pct = $1,936,900 (was $1,219,500) 99th pct = $13,615,400 (was $11,121,100)  Blog coming next week

XTOD: SCF early impression: America is flush with auto asset wealth.  (But are autos truly wealth? A thorny wealth inequality question suddenly has some higher stakes with it.)  https://federalreserve.gov/econres/scf/dataviz/scf/chart/#series:Owned_Vehicles;demographic:all;population:all;units:median.

XTOD: The thing to remember is that the median household has essentially zero financial assets. They have a house (the large majority of their wealth), then some liquid savings and a car. Past 3 years saw a big jump in housing, liquid savings, and car values, and it shows in the SCF. 

XTOD: Having fun with the new SCF microdata (and learning the R package "gt"). Here's a table showing how each age group got richer over the pandemic. Housing price inflation was an enormous boon to gen Xers https://twitter.com/riccoja/status/1714803786030444646/photo/1

XTOD: Student Loan Payments Will Have Minimal Impact on U.S. Economy, Fed Research Shows

XTOD: My view is that the modern media is set up to deliver a very negative view of tight labor markets. Tight labor markets are great for workers but not for employers and (to a lesser extent) investors.  Guess whose voices drive most economic coverage? Employers and investors.

XTOD: Bored Ape Yacht Club. WTF was that?

XTOD: ‘Growing concerns over the US government’s near $2tn annual budget deficit, which were exacerbated by Fitch Ratings decision in August to cut the US debt rating, have only added to upwards pressure on yields, investors said.’

XTOD: TL;DR: I'm leaving @LinkedIn! Will take some time off and then figure out what's next. :) Longer version below...10/ What's next? Spending a lot of time with my wonderful family and figuring out what I want to do next! It'll probably have to do with economics, so stay tuned. (And if you have an interesting opportunity, please reach out!)

XTOD: No, I think Congress will balance the budget. Means test entitlements. Fewer generals and F35s (shitty airplane anyway). Financial transaction taxes on leverage. Then clean house in the Caymans.   "Its easy if you try"

XTOD: War does not resolve any problem. It only sows death and destruction, increases hate, multiplies vengeance. War erases the future. I exhort believers to take only one side in this conflict: the side of peace – not in word, but in prayer.

Daily Economic Update: February 14, 2024

I was going to take my wife out for Valentine's Day, but after yesterday's inflation print I just can't afford it. According to an article on Travel and Tour World (whatever that publication is - it still probably gets more readers than this blog, so who am I to criticize) 46% of American's say inflation will affect their Valentine's Day plans, but despite this 33% say it's worth dipping into credit card debt for a Valentine's Day gift.  Another 24% of American's don't plan to spend any money on a gift this year. The data appears to be from this WalletHub survey  

So when's the first rate hike?

It was in July 1996, per the FOMC Meeting Transcript, that the U.S. history of 2% inflation target was born:

MS. YELLEN. Mr. Chairman, will you define "price stability" for me?

CHAIRMAN GREENSPAN. Price stability is that state in which expected changes in the general price level do not effectively alter business or household decisions.

MS. YELLEN. Could you please put a number on that? [Laughter]

CHAIRMAN GREENSPAN. I would say the number is zero, if inflation is properly measured.

This exchange was part of a long Yellen exchange, in which Yellen argued for some positive inflation under the "greasing-the-wheels argument".  

Anyway, the point is, I don't think we're at a point that would meet Greenspan's general, non-numerical criteria, which would be a place where people generally don't think about inflation when making decisions.

 
If, and it's a big if, the Fed is able to do it's job of overseeing the financial system (again, it's a big "if"), then I'll be all-in on rate cuts the day the next CPI, PPI or PCE report isn't made into a national spectacle.  That's the day I will feel confident we have achieved price stability and that rates are risking being restrictive. 

In case you forgot why inflation is harmful, Irving Fisher can remind you here.

Bad day for stocks and bonds yesterday.  Fixed income doesn't like inflation and yields finished the day up 15-20bps with the 2Y at 4.66% and the 10Y at 4.33%.

XTOD: Ok, there’s a lot of bullshit making the rounds. Ex this, ex that, not so bad, blabla… 

This is a terrible print for the Fed. There’s no sugar coating it. They will need to react to it one way or another.  Supercore (that’s core services ex housing) is up a fucking 85 bp m/m. That’s what Fed likes to watch. That’s the largest monthly jump since April 22.  Shelter accelerated. Medical care, recreation and tuition all ripped.   First foregone conclusion: cuts need to be pushed back. For now it’s June for the 1st full cut. Might still be a bit too ambitious.   Second conclusion: now just above 90 bp of cuts FY 24, also way above the Fed guided 75 bp, which is starting to look a bit too optimistic.   Someone check on Claudia Sahm

XTOD: Core CPI comes in hotter than expected, 0.4% in the month of January--which is a 4.8% annual rate.  I'm not a big fan of second derivative forecasting but those of you who are should be worried. Annual rates:  12 months: 3.9% 6 months: 3.6% 3 months: 4.0% 1 month: 4.8%

XTOD: Now is the part where we shift from "See, it was transitory all along!" back to "This is really holding us back, we need to raise the target."  Get ready to start hearing it again, because it's coming!

XTOD: Inflation - it's like trying to lose 20lbs. The first 10 come off like butter. The last ten are a root canal.

XTOD: Because the proper benchmarks for volatility laundered returns are only other volatility laundered returns.

XTOD: I've become convinced that if Biden is going to actually run for president in an electorate where 90% of independents are worried about his age, he should say fuck it and talk about his age *constantly* but only in the context of Trump being 4 yrs younger and 4x crazier

Daily Economic Update: October 9, 2024

I wrote this before the airing of HBO's documentary "Money Electric: The Bitcoin Mystery" where rumors have been swirling that the real Satoshi Nakamoto will be unvieled which will reportedly send "shockwaves" through markets and the election.  I guess I'll take the under on the impact of this documentary and side with Charlie Munger's sentiment on the importance of Bitcoin, perhaps best summed up in his quote: "It's like somebody else is trading turds and you decide, ‘I can't be left out.’"

Chinese stimulus hopes fading for now. Oil prices fell despite uncertainty around the Mid-East turmoil, but for now mixed messaging around the possibility of an Israeli attack on Iranian oil, coupled with a lowered expectations for Chinese stimulus might be helping to slow the recent price spike.  Speaking of uncertainty we have Hurricane Milton and uncertainty of the path as well as the secondary and tiertiary knock on impacts that could arise from the storm.  Lastly, on uncertainty, yesterday's NFIB Small Business Optimism highlighted this quote:

"Small business owners are feeling more uncertain than ever,” said NFIB Chief Economist Bill Dunkelberg. “Uncertainty makes owners hesitant to invest in capital spending and inventory, especially as inflation and financing costs continue to put pressure on their bottom lines."

This reminded me of a quote by legendary economist Irving Fisher, which I referenced here:

 "Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."

Perhaps a feeling that the Fed is willing to let the inflation rate run a little hotter in order to provide more certainty for the labor market will paradoxically create instability for the labor market by causing business uncertainty due to inflation.  

Speaking of the Fed, Jamie Dimon spoke on BBG noting he thought the Fed was right in beginning to cut rates, but he really focused on structural issues such as regulation, deficits and geopolitics.

Bond markets didn't love the 3Y Note Auction with a 0.7bp tail and a poors showing from indirect bidders (generally foreign demand).  The 2Y is 3.97% and the 10Y is 4.03%.   Nonetheless equity markets were up, because tech only goes up.  The latest Atlanta Fed GDP estimate for 3Q is 3.2%, a number I don't think many expected for a year that has had a 5 handle interest rate policy.

On the day ahead the highlights will be the FOMC Minutes and the 10Y Note Auction.

XTOD: IOW, NGDP growth > 5%. Aggregate demand growth remains robust. No slowdown in sight.

XTOD (long but good read by Michael Pettis, here's 1 of 11) : 1/11 Adam Tooze suggests that "If your aim is restoring the competitive position of US industry, a large dollar devaluation would do more than a sprinkling of industrial subsidies."

XTOD: "Microsoft has become more cautious about paying for ever-bigger server  clusters for OpenAI as the cloud giant aims to ensure it won’t take a  loss on costly data centers that may not generate consistent revenue in  the coming decades"

XTOD: NEW FROM US:Roblox—Inflated Key Metrics For Wall Street And A Pedophile Hellscape For Kids  https://hindenburgresearch.com/roblox/ $RBLX 

XTOD: Lou Simpson: “The essence [of investing] is simplicity.” https://pbs.twimg.com/media/GZXWSwSX0AAHoRM?format=jpg&name=900x900

XTOD: Simplification is the art of organizing your life around purpose.