Daily Economic Update: March 11, 2024

The Federal Reserve is in it's blackout period leading up to their March 20th rate decision.  The week ahead features an important (aren't they all important?) CPI data print on Tuesday,  followed by PPI and Retail Sales on Thursday and UofM consumer sentiment on Friday.

Like the Fed, every so often it's good to cut the noise out of your day, especially in financial markets news.  As Warren Buffet said in the latest Berkshire annual letter [referring to his sister): "She is sensible – very sensible – instinctively knowing that pundits should always be ignored. After all, if she could reliably predict tomorrow’s winners, would she freely share her valuable insights and thereby increase competitive buying? That would be like finding gold and then handing a map to the neighbors showing its location."

So like I did back in December 2023  for the remainder of the week, you'll get one quote/excerpt a day from whatever books, article, transcript, etc. I have laying around.

Speaking of NOISE, here are two quotes to consider to start your week:

"Noise, the grand dynamism, the audible expression of all that is exultant, ruthless and virile.... We will make the whole universe a noise in the end. We have already made great strides in this direction as regards the Earth.  The melodies and silences of Heaven will be shouted down in the end."

                            -C.S. Lewis, Screwtape Letter #22

"that’s the problem is our modern world, with all of its noise, produces a state of constant alert, and that is not optimal. And this would all matter less, but that amid that noise, there is also signal. In the realm of information theory, the term signal refers to the desired meaningful information. While noise is the unwanted interference, transposing this concept into our daily lives, the signal is the crucial work. It’s a heartfelt conversation. It’s the key insight. The noise is everything that distracts or detracts from that, and this constant exposure to noise makes it hard for our brains to filter out the essential from the non-essential. When bombarded by too many stimuli, too much noise, the brain struggles to identify and process the signal. You know the feeling. You’re trying to write a report, and your email notifications keep pinging, annoying emails interfere with the signal writing the report, affecting the quality of your decision-making and clarity, and all of this leads to mental fatigue or cognitive fatigue when the brain is overused. Similar to how our muscles tire after prolonged exertion, constant noise, and distractions demand the brain to switch tasks frequently.

You know what it’s called – context switching. Each switch uses up cognitive resources leading to rapid depletion of our mental energy. So this is why after not even a day but a few hours with constant interruptions, even if they’re minor, you can feel as exhausted as if you’ve done intense physical labor. The fatigue isn’t just about the mental effort of the main task but about the additional energy expended in managing and shifting between distractions, and the fatigue has a compounding effect. As you become more tired, your capacity to differentiate between noise and signal diminishes further, making you even more susceptible to distractions, which in turn increases fatigue. So there’s a vicious cycle that can severely impact mental wellbeing. "

 -Gregg Mckeown, podcast ep. 233 

Daily Economic Update: May 30, 2025

Matt Levine’s Titled His Column: Tariffs Are Illegal

As you already read, yesterday started with the news that Federal courts blocked Trump’s tariffs. By the afternoon the Trump Administration appealed and the tariffs were reinstated. It seems likely this will end up in front of the Supreme Court, but as some analysts have pointed out, there are other avenues the administration can use to impose tariffs, though each seem to have some limitations. In the meantime some reports continue to state that the trade negotiations between some countries and the U.S. continue.

To state the obvious, the future of tariffs is uncertain and if there’s one thing markets hate, it’s uncertainty.

But What If You Need Uncertainty?

I’m sure you know that Fisher Black is famous for his work on option pricing and the famous Black-Scholes (and later Merton) model.  And you might remember my post where I mentioned the DIKW theory of knowledge, where the “I” stands for “information”, or data made useful, where we can make useful inferences.  So what does this have to do with Fisher Black, well back in 1986 in a paper titled Noise he made the point that uncertainty is a necessary condition of financial markets. 

Black defined information in markets as data that allows us to estimate true value and everything else as noise, simply data that appears informative, but really adds nothing to our ability to estimate true value. 

He argues that absent this uncertainty, in the form of noise, is essential because without it “there will be very little trading” in individual assets. Further providing, “Noise trading is trading on noise as if it were information. People who trade on noise are willing to trade even though from an objective point of view they would be better off not trading. Perhaps they think the noise they are trading on is information. Or perhaps they just like to trade. With a lot of noise traders in the market, it now pays for those with information to trade. It even pays for people to seek out costly information which they will then trade on.”

So the next time you hear someone complain about how much uncertainty topic XYZ creates, just remember without that uncertainty there would be no liquidity and markets lose meaning.

“Differences in opinion make a market” or as Dune put it: “to know the future absolutely! All of it! What fortunes could be made — and lost on such absolute knowledge, eh?” but “what a hellish gift that’d be. What utter boredom! Every living instant he’d be replaying what he knew absolutely … Ignorance has its advantages.”

Perhaps The Real Uncertainty Is The Limit Of Central Power

What do tariffs and “the whiskey rebellion" have in common, almost everything or maybe nothing.

Tariffs today and the whiskey tax of the 1790s may seem worlds apart, but they share a common thread: a federal government, burdened by debt, reaching for revenue in pursuit of what it defines as national interest.  Today, that national interest is domestic manufacturing and national security, specifically strategic sectors like steel and semiconductors. In the 1790s, the interest was the westward expansion and asserting control over the Northwest Territory. Today, the tariff actions imposed by the executive branch, which supposedly will be paid for by exporting countries, but in reality are paid by the importer (though who bears the actual tax incidence is debatable), are the actions that are justified in supporting the national interest.  Back then it was a Congress enacted tax on whiskey distillers, part of a plan to fund the war debt and build federal legitimacy in the west.  Both tariffs and the whiskey tax appeared to unevenly economically squeeze some groups more than others: back then western PA whiskey distillers bear a heavier burden than eastern counterparts, today it’s small and medium sized businesses feeling the tariff brunt.  

The policies of today and of yester-year were viewed by some as being too top-down, and solutions that ignored economic realities. Thankfully today’s resistance is judicial and procedural, as contrasted by those of the 1790s were resisted with rifles. The overarching parallel is one as old as this republic, which is one of the limitations of central power.  Whether it has been frontier stills or modern ports and factories, American history is filled with moments where citizens have questioned the reach of central power.  The song remains the same, who decides, who pays, and who pushes back.

Speaking Of Pushing Back On Central Power

Trump invited Powell to the White House to tell him to lower rates.  Powell reiterated (at least through the Fed statement) that the Fed will “make decisions based solely on careful, objective, and non-political analysis.”   For all the media hype around Trump and Powell’s relationship, it’s really not a new political story.  Paul Volcker has written about pressure from politicians on himself during his tenure in his memoir.  Nevertheless, I’ve written about this tension a few times and perhaps my favorite lens to view this falls under the concept of “fiscal r-star” which you can read about in this post from back in January.

Maybe We Need Information - But All We Get Is Data
In data, we got a slight improvement in GDP in the second estimate with 1Q estimated to be -0.2% vs. the previous estimate of -0.3%, but consumption was revised down. With all the “noise” and speculation of whether there was tariff front-loading, etc. in 1Q, it’s hard to know what to make of these estimates.  Over in jobless claim land, claims remained low.

And the treasury was able to sell the 7Y note at 4.194%, printing 2.3bps through where WI was trading with again signs of strong foreign demand.

We ended the day with the S&P 500 up slightly to 5,912.  The 2Y yield moved down to 3.95% and the 10Y yield down to 4.42%.

PCE hits this morning. Let’s see what new uncertainty it can gift us.

XTODs:

XTOD: "I encourage you to continue pushing the boundaries of our knowledge, to ask the difficult questions, & to pursue the answers with rigor & dedication. Your efforts today will shape the policies of tomorrow, influencing the economic well-being of millions." https://federalreserve.gov/newsevents/speech/kugler20250529a.htm

XTOD: If $WFC Asset Cap gets lifted that’s huge capacity to absorb Treasuries & Agencies… already they have started to buy CLO AAAs…

XTOD: The stock market isn't where you get rich. You get rich developing skills & using those skills to provide goods & services to other people for income which allows you to save. 

The stock market is where you allocate some of that savings to help protect & plan for future spending.   Index funds are a wonderful stock market savings vehicle as they're low cost, diversified and will likely beat 80%+ of higher fee strategies.

XTOD: When there is a lack of clarity, people waste time and energy on the trivial many.  When they have sufficient levels of clarity, they are capable of greater breakthroughs and innovations – greater than people even realise they ought to have – in those areas that are truly vital.

XTOD: Investor Rick Buhrman on the kindness of mastering your craft:

INTERVIEWER: What is the kindest thing that anyone's ever done for you?​

BUHRMAN: ... our oldest son, Theo, who just turned seven, spent the first six months of his life in several NICUs. He was eventually helicoptered to Indianapolis at Riley Hospital for Children. And while we were living in that NICU for almost a half a year we saw a lot of kids who passed away. Most of those kids were not as sick as Theo was.

I don’t know exactly why Theo survived, but I know that a major part of how he survived was because for several decades leading up to that moment, numerous nurses, nurse practitioners, respiratory therapists, doctors, surgeons had committed themselves wholeheartedly to mastering their craft. I can give you tons and tons of examples of these people. And I know that in the moment, it wasn’t necessarily viewed as kindness.

But maybe in some sense, the kindest thing that all of us can do is to pursue something radically that in some way is in service to others, because you just don't know how it's going to change the trajectory of human life. And so for all of those medical practitioners, none of whom I'm sure are listening to this, I owe everything to, because they gave me the gift of being Theo's dad.

https://x.com/DavidKotokGIC/status/1928163547520880992

https://x.com/gamesblazer06/status/1928160833852281106

https://x.com/cullenroche/status/1928102254336168440

https://x.com/GregoryMcKeown/status/1928164457848655978

https://x.com/ericvishria/status/1928191518294299156

 

Daily Economic Update: May 21, 2025

Not 7

The S&P 500 index’s 6-day winning streak ended yesterday, with the index closing at 5,940.  The recent 6-day winning streak was better than any of the current winning streaks in the MLB (the Reds are currently at 5 at the time of this writing). There were no major catalysts on the day as investors await further tariff or tax news.  The latest news on the tax bill front was that there remain about a dozen GOP holdouts.

Playing Hard To Get With Key Levels

Bond yields remain largely range bound: with the 2Y Treasury yield flirting with 4%, the 10Y Treasury yield flirting with 4.50%, and the 30Y Treasury yield flirting with 5%. It’s like investors are dancing with levels, the 2Y loves 4% unless something comes along to have them reassess the Fed’s path.  The 10Y loves 4.5% unless they fear growth or inflation. And the 30Y loves 5% as they weigh the U.S. deficits and geopolitics.

There was Fedspeak yesterday, but I didn’t listen to it.  Though one central bank did act and that was the RBA which cut rates 25bps to 3.85%, one of the drivers of the cut was, you guessed it, trade uncertainty.

We’ll have another light data day today, with the 20Y Bond auction as the highlight.

On a light news day, I’m going to keep this short and try not to contribute to the noise. 

Speaking of Words

One thing I did find interesting was financial writer Kyla Scanlon, of “vibecession” fame, posted on X recently about how she was “Reading CS Lewis again and banging my head into the wall because of the continuous realization that it always the same problems just a different time in history.”  and posted an image with an excerpt from Lewis’ Screwtape Letters, referring to the following passage:

“Once they know that some changes were for the better and others were for the worse, and others again indifferent. We have largely removed this knowledge. For the description of ‘unchanged’ we have substituted the emotional adjective ‘stagnant’. We have trained them to think of the Future as a promised land which favored heroes attain - not as something which everyone reaches at the rate of sixty minutes an hour, whatever he does, whoever he is.”  - Screwtape

If you’re unfamiliar with the Screwtape Letters, google it, but it’s written as a series of letters from a senior devil to a junior devil regarding the best ways to keep humans from virtue.

In my opinion the central idea underlying Kyla’s X post was that human nature never changes.

But Here’s The Cool Thing

I smiled because I beat her to the punch last year, referencing Screwtape on the topic of noise.  .  In fact in March 2024, I referenced this from The Screwtape Letters and one of my favorite quotes on “noise”, also from The Screwtape Letters here (and as follows):

"Noise, the grand dynamism, the audible expression of all that is exultant, ruthless and virile.... We will make the whole universe a noise in the end. We have already made great strides in this direction as regards the Earth.  The melodies and silences of Heaven will be shouted down in the end."

But The Point Really Is This

The point really is that I read the “About” section on Kyla’s Substack and (1) I should probably switch to substack (2) I should probably write a book and (3) while..”The goal of my newsletter is for it to *always* be free - but there is work that goes into writing, of course! If you think the content is valuable or would like to buy me a coffee once a month :-) I would sincerely appreciate your support.”

Do you think I could charge you $10/mo.  for this blog?  If so, feel free to let me know in the comments or better yet Venmo me.

I’ll hold my breath.

XTOD’s:

XTOD: Google introduces real time translation for video calls

XTOD: The Google demos today are insane. Somewhat ironic given the origin of OpenAI being "we shouldn't let Google dominate AI", but right now, Google has the global lead in every price point and every latency for LLMs, and for image gen, and video. Plus they own the complements

XTOD: Every day for the next 10 days is a palindromic date (the same number backwards):

5/20/25   5/21/25  5/22/25   5/23/25  5/24/25 5/25/25 5/26/25 5/27/25 5/28/25 5/29/25

XTOD: Cash-strapped Harvard joins with Franklin Templeton, to sell its (troubled) Private Equity and Private Credit assets to retail investors..... Like we said.....

XTOD: "Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris—I wanted the independence. I desperately wanted it."   — Charlie Munger

XTOD: 1. Find an activity you love to do. 2. Build a business around that. 3. Never stop.

https://x.com/0xgaut/status/1924895003593089457

https://x.com/todayyearsoldig/status/1924912266228728091

https://x.com/rcwhalen/status/1924794462141648969

https://x.com/InvestingCanons/status/1924624613641683366

https://x.com/FoundersPodcast/status/1924857378454851936

Edward Quince's Wisdom Bites: The Power of the Right Filter

In an age of relentless information, the most valuable skill might be the art of ignoring.

We are constantly bombarded with data: economic reports, market movements, expert opinions, and social media trends. Yet, as the blog's philosophy often suggests, "the more data you get, the less you know what’s going on". This concept, known as the "Noise Bottleneck," implies that large quantities of data can be "toxic," as the ratio of "spuriousness" (noise) to valuable "signal" increases the more immersed one becomes.

The author has highlighted the "irony of maintaining a daily economic update blog while firmly believing it is best to ignore all of the noise and false stimuli". This underscores a core message: "Clarity comes from subtraction, not addition. Remove the noise, the distractions, and the unnecessary. What truly matters will emerge".

Consider the wisdom of the "wise old owl" that Rockefeller used to recite: "The more he saw the less he spoke, The less he spoke, the more he heard, Why aren’t we all like that old bird?". This speaks directly to the power of discernment and filtering. It's about prioritizing insight over raw data.

The human "need for certainty is the greatest disease the mind faces", making us susceptible to these enticing, yet often misleading, narratives.

To navigate this landscape effectively, you need a filter.  This focus on the long-term helps to filter out much of the daily "noise" that consumes attention but offers little enduring value. Remember also that "time is the best filter. It is the only filter I trust".

By cultivating the discipline to filter out the trivial and focus on fundamental, timeless principles, you can gain a clearer understanding of the world and make more robust decisions.

Edward Quince's Wisdom Bites: Beyond the Headlines — Decoding Central Bank Signals

 Welcome back to Edward Quince's Wisdom Bites. In today's hyper-connected world, the cacophony of financial news and opinion can be overwhelming, especially concerning central banks. Every Fed official's speech, every FOMC minute, and every shift in a "dot plot" is dissected, generating an "omnipresent stream of opinion" that can drown out genuine understanding.

The financial services industry itself, as Ben Graham noted, fuels this constant "demand by investors (including speculators) to be told by someone else what to do," leading to an endless supply of forecasts and noise. The infamous Jackson Hole symposium, for example, often generates immense hype. While the Fed "acts largely through expectations," meaning speeches can seem important, the enduring truth is that "actions speak louder than words".

The sheer volume of information creates a "Noise Bottleneck": "the more data you get, the less you know what’s going on". This high "noise to signal ratio" makes it difficult to discern what truly matters. To navigate this, cultivate the art of subtraction. As one wisdom bite noted, "Clarity comes from subtraction, not addition. Remove the noise, the distractions, and the unnecessary. What truly matters will emerge". A practical rule: "If it won’t matter in 5 YEARS don’t give it more than 5 MINUTES attention".

The goal isn't to react to every fluctuation, but to develop a strong filter. Embrace the wisdom of the old owl, a favorite of Rockefeller: "The more he saw the less he spoke, The less he spoke, the more he heard". Sometimes, the wisest response to the constant barrage of central bank news is simply to "Don't just do something, sit there!".

Edward Quince Wisdom Bites: The Signal Amidst the Noise

In an age where information is abundant and often overwhelming, the real challenge isn't finding data, but discerning what is meaningful from what is merely noise.

The author of this blog has often highlighted the "irony of maintaining a daily economic update blog while firmly believing it is best to ignore all of the noise and false stimuli". This isn't just a personal quirk; it's a reflection of a core principle: "the more data you get, the less you know what’s going on". The financial services industry, as Ben Graham noted, will always supply forecasts because "Nearly everyone interested in common stocks wants to be told by someone else what he thinks the market is going to do". Yet, these predictions are often unreliable, even from so-called experts.

This perpetual demand for answers creates an environment ripe for "charlatans" who offer "vague, simple messages often wrapped in a well crafted veneer that is alluring". The fundamental human "need for certainty is the greatest disease the mind faces", making us susceptible to these enticing, yet often misleading, narratives.

So, how do we navigate this? The answer lies not in consuming more, but in filtering more effectively. As the blog has suggested, "Clarity comes from subtraction, not addition. Remove the noise, the distractions, and the unnecessary. What truly matters will emerge". This involves a disciplined focus on timeless principles and a willingness to "not have an opinion on everything—and shouldn’t listen to those who do". Remember, "If it won’t matter in 5 YEARS don’t give it more than 5 MINUTES attention".

Ultimately, the goal isn't to predict the unpredictable, but to cultivate intellectual humility and discernment. By focusing on what you can control – your goals, your process, and your long-term perspective – you build resilience against the constant barrage of fleeting narratives and unnecessary complexity.

Edward Quince's Wisdom Bites: The Enduring Echoes

In an age drowning in data and relentless forecasts, the most valuable skill might just be the art of ignoring. As this blog often suggests, "the more data you get, the less you know what’s going on". This "Noise Bottleneck" means vast quantities of information can become "toxic," increasing the ratio of "spuriousness" to valuable "signal".

We're often told that some economic data point is "the secret to the future" or "the most important CPI print of your lifetime". But as the sources reveal, predicting economic variables like GDP growth, employment, inflation, and the 10Y Treasury Yield is essentially a coin flip. Mark Twain famously quipped, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so". Morgan Housel added, "if you’ve relied on data and logic alone to make sense of the economy, you’d have been confused for a hundred straight years". This constant deluge of information often leads to a "noise to signal ratio" that makes it harder, not easier, to understand what's truly going on. This is why we advocate for embracing uncertainty and developing a filter to tune out the overwhelming "noise".

This blog aims to be an intellectually humble source of timely, diverse perspectives that empowers you to become more informed and discerning. So, keep your popcorn stockpile high, focus on what truly matters, and remember: progress comes bit by bit.

Your behavior matters more than your forecast. 

Stop trying to be spectacular. Start being consistent. 

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

The less the prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs. 

Your time is your most valuable asset. Leverage it wisely by focusing on what truly matters

Edward Quince's Wisdom Bites: The Human Calculus of Value – Beyond Prices and Pundits

Welcome back, discerning investors, to Edward Quince's Wisdom Bites! In our fast-paced world, where markets swing on every headline and narratives shift quicker than a meme coin's price, it's easy to get lost in the "noise and false stimuli". But as this blog consistently reminds us, true understanding comes from looking beyond the superficial, embracing uncertainty, and focusing on timeless principles. Today, we dive into a recent memo from investment titan Howard Marks, "The Calculus of Value", a piece that, despite its August 2025 publication date, offers profound insights perfectly aligned with our core investment philosophies.

Marks, known for his incisive market observations, opens his August 2025 memo by reflecting on the 25th anniversary of his "bubble.com" memo. He updates his perspective on asset values, building on his previous conclusion that while U.S. stock market valuations were "lofty but not nutty", they didn't necessarily signal a bubble due to a lack of extreme investor psychology.

Marks distinguishes between value and price, a fundamental concept for any investor:

• Value is subjective – what an asset is "worth" at a point in time, and it cannot be definitively found, "not even by AI, as far as I know".

• Price is concrete – it's simply the amount you pay to obtain something.

The essence of good investing, Marks asserts, is accurately estimating this subjective value and then purchasing it at a reasonable price. He notes that while his education at the University of Chicago taught a purely mathematical discounting process of future cash flows and earnings to determine a fair price, "in the real world, price is set by a different discounting process, which consists mostly of people applying their subjective opinions and attitudes about what the asset and its earning power are worth".

This brings us to Benjamin Graham's enduring analogy, which Marks also highlights: "in the short run the market functions like a voting machine, reflecting assets’ popularity. But in the long run, it’s a weighing machine, assessing assets’ value". Marks himself refers to a "calculus of value" that seems "entirely logical and almost mathematical," but crucially, it's "applied by people who aren’t". This human element – the subjective opinions and attitudes – is what truly drives pricing in the market.

Marks observes several factors currently "firing investor imaginations" and contributing to bull markets:

• The positive psychology and "wealth effect" from recent gains in markets, high-end real estate, and crypto.

• The belief that, for most investors, there's "no alternative" to U.S. markets.

• The excitement surrounding "today’s new, new thing: AI".

A central theme in Marks' memo, and a powerful warning, is the "this time is different" cliché. He quotes Sir John Templeton, who said that "20 percent of the time things really are" different. Marks struggles with this paradox, stating, "I just have no idea which of those two concerns is more valid today" – whether it's the cliché always bearing scrutiny, or the failure to recognize when things actually are different. He emphasizes that failing to recognize genuine shifts "stands between the average investor and superiority".

Marks' "The Calculus of Value" deeply resonates with this blog's core investment philosophies, particularly its emphasis on intellectual humility and filtering noise. Marks' admission that he has "no idea" which side of the "this time is different" paradox is more valid exemplifies the very "I don't know" mentality this blog advocates. It reinforces that "Nobody knows anything, and that's okay", particularly when it comes to complex market dynamics.

His distinction between objective value and subjective price underscores the importance of focusing on underlying fundamentals rather than getting swept up in market popularity or "fleeting narratives". The "calculus of value" being logical but "applied by people who aren't" perfectly illustrates how human nature and behavior "matters more than your forecast". It's a reminder that emotions and psychology, rather than pure logic, often dictate short-term market movements.

Marks' call to understand "the other side of the issue," as per John Stuart Mill's quote ("He who knows only his own side of the case knows little of that"), aligns with the blog's promotion of critical thinking and seeking diverse perspectives beyond mere "group think". This intellectual rigor helps cut through the "noise bottleneck" that bombards investors daily.

Ultimately, Marks' memo, like the timeless wisdom shared here, urges investors to move beyond the "daily deluge of financial 'news'" and the "constant pressure to do something". Instead, cultivate patience – because "the big money is not in the buying and selling, but in the waiting". It reinforces the wisdom that "Never interrupt compounding unnecessarily" by reacting to every "new, new thing".

In a world constantly seeking instant answers and quick gains, Howard Marks' "The Calculus of Value" serves as a powerful reminder of enduring investment truths. It reaffirms our belief that true success in finance, and in life, comes from embracing intellectual humility, discerning value from price, filtering out the pervasive noise, and adhering to patient, long-term principles. As always, "Clarity comes from subtraction, not addition". So, understand the human element, scrutinize every "this time is different" narrative, and let your discipline triumph over market drama.