Daily Economic Update: January 25, 2024

New all-time highs on the S&P as tech/nasdaq stocks lead the way.  The S&P PMI's exceeded expectations and showed service sector expansion.  IBM beat and Tesla missed and DuPont shares were ugly. Yields were higher after a 5Y Note auction that tailed 2bps.  The 2Y is ~4.38% and the 10Y is ~4.17%

I recently wrote about the "cruel irony of investing" and Ben Graham's ideas around the difference in investing on the basis of projection vs. protection here, and that might sound like a call to avoid optimism...it's not.  I recently enjoyed a post by Joachim Klement titled When Optimism Becomes a Dirty Word .  In the article Klement fleshes out an argument that pessimism and doom and gloom hold back societies by decreasing entrepreneurship and productivity over time, he might be right.

Simon Sinek is definitely an optimist.  He defines optimism as "the undying belief that the future is bright"  while also providing that it is not blind positivity or ignoring difficult circumstances.

I don't find optimism incongruent with concepts like "margin of safety".  In fact I think it's quite congruent with the wisdom of Graham and his protege Warren Buffett.  In Buffett's words, "In order to succeed, you must first survive."  For anyone who is familiar with the basics of compounding, you have a growth rate on the bottom and an exponent. While you can get really large outcome by having a high growth rate, for those who study the best compounders they find that it's the exponent that matters the most.  That exponent is time and you can't enjoy compounding if you or your portfolio aren't around.

Author Morgan Housel likes to say "save like a pessimist, invest like an optimist"  meaning you can only be an optimist in the long run if you can survive all the short-run setbacks.  Housel has also recently written about Optimism it's worth a read.  In a talk Housel gave when discussing optimism and his first book, The Psychology of Money, Housel provided:

 Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way. 

,,,,But the most powerful and important book should be called “Shut Up And Wait.” It’s just one page with a long-term chart of economic growth.  Physicist Albert Bartlett put it: “The greatest shortcoming of the human race is our inability to understand the exponential function.”

One thing that can risk interrupting compounding unnecessarily and not allowing you to achieve the long-term optimism is excessive leverage.  "It pushes routine risks into something capable of producing ruin."   We've talked about leverage recently...go back to January 10th post on Howard Mark's "Easy Money" memo. 

On the day ahead it's the Q4 GDP Advance, Durable Goods, Jobless Claims, 7Y Note auction. ECB expected to hold, we’ll see how hard they push back against rate cuts priced in.

XTOD: I'm finding the idea that the US experienced a series of small, sector-specific recessions in 2022-2023 more and more compelling. If so, that would lower the odds of the economy generally losing momentum now.

XTOD:  "Profit: While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits." - TSLA

XTOD: Sobering chart on commercial real estate and the Fed's tightening cycle. This  time is different! https://imf.org/en/Blogs/Articles/2024/01/17/us-commercial-real-estate-remains-a-risk-despite-investor-hopes-for-soft-landing

XTOD: Berkshire Hathaway spikes to record highs on news of the upcoming release of ChatBRK which will be “trained” on Buffett and Munger letters and interviews. Berkshire will also change the URL of its website to brk dot ai and will unveil a new nft logo.

Daily Economic Update: November 15, 2023

Softer than expected CPI readings fueled the "everything rally" yesterday.  Big move lower in yields with the 2Y down 20bps and 10Y down 18bps. Equities had their best day since the spring with S&P up nearly 2%.  Deficits and downgrades are shrugged off for another day and there is some optimism on Govt shutdown front and maybe optimism on the fentanyl front (optimism the flow will slow due to Biden-Xi deal, not optimism because investors are using fentanyl).  We also moved closer to kicking the can on the government shutdown out another couple of months into 2024 as the House passed a CR last evening.

This morning, yields are up 3-4bps with the 2Y at 4.85% and 10Y at 4.47%.  Across the pond, UK inflation came in below expectation at 4.6% annualized, well below the 6.7% it posted last month.  With respect to inflation, in an interview from Mexico, Jamie Dimon indicated he didn't believe we can declare victory against inflation quite yet.  

On the day ahead we'll see if Retail Sales data and PPI data can keep the everything rally alive.

XTOD: A great number.  Pay particular attention to the 6-month trend, which Powell had emphasized was stuck throughout 2022. At the beginning of this year, the 6-month core CPI reading was 5.3 percent; it's now 3.2 percent, even as the economy added 1.9 million jobs

XTOD: Remember all those charts that show how missing the best 10 trading days in the market will cause your performance to be cut in half?   Today is one of those days...

XTOD: 'Inflation is out of control. Have you been to the grocery store lately?!' he complained as he climbed into his $80k truck after taking a 2 week vacation to Europe

XTOD: New potential rules for FHLBs will likely kill the Fed funds market and hasten the move to SOFR. FHLBs will have less cash to invest, and be encouraged to invest in deposit accounts rather than fed funds. There will also be slight rewiring of funding mkts

XTOD: Lawmakers grill FDIC chief after sexual harassment report http://reut.rs/47rPEjb

XTOD: THREAD. The fear that AI will cause mass unemployment is rooted in a zero-sum mentality that fundamentally misunderstands how economies evolve. That fear is pervasive. It is misplaced.... Much of the concern about technological advances eliminating the need for human workers is rooted in a zero-sum mentality that fundamentally misunderstands how economies evolve.....Yes, new technologies will be able to perform some tasks relatively better & at lower cost than humans. Yes, this will lead businesses to use technology, not workers, for those tasks. But the process of creative destruction creates as well as destroys.....This is not just a theory. Despite rapid technological advances over the past five decades, it has not become more difficult for workers to find jobs. There has not been an upward trend in the unemployment rate....Looking ahead to the next several decades, my main concern is not too many workers, but too few. Falling fertility rates and rapid population aging will reduce the rate of workforce growth in the United States and across much of the developed world......A world in which AI eventually replaces all human workers would look a lot different from ours. While one of today’s fundamental economic problems is how to make the best use of scarce resources, that possible future is one of abundance... In this world, technology meets all our needs and inequality as we currently understand it no longer exists. Why accumulate wealth in a world of abundance?...On the other hand, such a world could also exacerbate inequality, particularly if a relatively small number of people own the machines that are generating all the income.

XTOD: Aiming for the best is a recipe for misery. The problem isn't high standards—it's always looking for better alternatives. There's no such thing as a best job or best apartment. There's only a good fit for you.  A key to happiness is accepting options that meet your standards.

Daily Economic Update: January 16, 2025

Investors expressed optimism with their trading following yesterday’s inflation report, sending stocks higher and yields lower by double digit basis points across most of the curve.  It was really the core CPI component that showed the most promise, with the MoM measure at 0.2% and the YoY measure at 3.2%, both below estimates. The headline numbers were in-line with estimates at 0.4% and 2.9% for MoM and YoY respectively.  Egg prices, oil prices continue to be volatile components while economists express some optimism over rents and alternative rent measures seem to indicate rents are no longer rising.  All that said, I don’t think it’s lost on anybody that these numbers are still above the Fed’s target and there is a big uncertainty around the impact of Trump policies and more specifically tariffs.

Bank earnings looked pretty solid across the board with some big beats on top line and earnings.  Reports of Israel and Hamas reaching a cease fire also seem optimistic.

The S&P traded up to 5,950, the 2Y yield fell back to 4.30% and the 10Y yield moved down to 4.66%.

On the day ahead it’s Retail Sales and Jobless claims as the highlight in data, but the Bessent hearing might be the real highlight.

The  last couple of weeks have brought the concept of “Term Premium” back on the radar. I was on this topic back in October and generally throughout 2024.  Remember me talking about trading steepeners?   As a reminder, Term Premium is the additional yield that investors require to move out on the yield curve, it’s the compensation for taking on additional interest rate risk. Conceptually, Term Premium, is a departure from a “pure expectations” theory of the yield curve, a theory that posits that yields on longer-dated maturity bonds are simply the average of the expected path of short term rates.  Term Premium would add to that expected path of short term rates and compensate the investor for uncertainty and other factors. Most of the talking of late is about how higher government debt levels can and do put upward pressure on longer-dated yields due to increased supply and investors require extra compensation to absorb that supply,  but of course there are other theories around term premium. A school of thought might say that when the term premium is high-enough it entices investors to move into bonds and perhaps not search for return through other investments.  Of course that rest on a premise that bonds are a substitute for stocks

While the Treasury curve has steepened and shows signs of increasing term premium, it’s kind of crazy that the SOFR swap curve remains super flat.  Negative swap spreads are a post for another day or another career era.

In completely unrelated news, Matt Levine wrote about a CFPB (Consumer Financial Protection Bureau) lawsuit against CapitalOne, which you can read about at a million places, just Google it. Anyway, I only write about it because I vividly remember calling CapitalOne after noticing they hadn't adjusted the rate on the 360 Savings account while simultaneously launching a new account at the higher market interest rate. I remember calling and asking why they couldn't just adjust the rate on my existing account, only to be told I would have to open a new account to get the new rate. Anyway it will be interesting to see how this ultimately shakes out.

XTOD: It’s funny to me that people who had money in the Madoff Ponzi scheme and the FTX fraud had better recovery rates (a -6% loss & an +18 to 43% profit respectively!) than any SPAC investor from 2021, most down by -90 to 100%.  Literal frauds were a better investments than SPACs!

XTOD: Stocks were down on news of a stronger economy  Now they are up on news things might be cooling off  Investing is easy

XTOD: If you are buying fintech “growth” stories, but have to worry about credit losses in a recession ($AFRM, $CVNA, etc.) or catastrophic insurance losses ($LMND), then you aren’t really buying a “growth” stock. You are buying a very pro-cyclical derivative.

XTOD: OUTLOOK-AT-RISK | JAN 2025  Downside risks to real GDP growth remain at historically normal levels, with the estimated conditional distribution of average growth over the next four quarters close to the unconditional distribution.   Charts | Data https://nyfed.org/41kwlUL

XTOD: Everything from a job offer to a marriage proposal is a yes to one thing and a no to hundreds of thousands of other opportunities. It’s easy—the universal default—to get pulled into the quicksand of half-hearted yesses and promiscuous overcommitment, ending up stressed and reactive, wondering where your time has gone.

https://x.com/ecommerceshares/status/1879112543274447055

https://x.com/awealthofcs/status/1879528060401397982

https://x.com/RealJimChanos/status/1879196701539618817

https://x.com/NYFedResearch/status/1879553035321426026

https://x.com/tferriss/status/1879205414480355587

Daily Economic Update: March 26, 2026

Consumer Confidence: Recession Bells or Just My Tequila Blues?

Consumers are not exactly brimming with confidence - just ask them.  The Conference Board “Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—dropped 9.6 points to 65.2, the lowest level in 12 years and well below the threshold of 80 that usually signals a recession ahead.”  

Turns out people don’t like declining stock prices paired with inflation.  Inflation is so solved that survey respondents increased their 12-month ahead inflation expectations from 5.8% to 6.2% - hold my tariffed tequila.

Tariffs, Inflation and the Demand Puzzle

Survey data always comes with paradoxes. If consumers expect their income, wealth, and prospects to decline, why do they also expect inflation to rise? Tariffs, duh—imports taxes juice prices - right?

But if consumers are tapping out and demand is shrinking, can tariffs really drive inflation the way people expect?  Typically, when consumers feel increased uncertainty around their income and wealth, they tighten their wallets - shifting the aggregate demand curve left. Higher taxes, like tariffs, usually cause the same shift. So if demand is cooling, could supply side constraints still push inflation higher?  That’s the stagflation scenario in a nutshell. 

Two weeks ago, I sniffed it - now it’s a whiff I can’t un-smell. My TRASH ETF’s popping popcorn.

Expectations: Where Psychology Meets My 401k

Expectations sit at the crossroads of psychology and finance.  As author Morgan Housel puts it: “The valuation of every company is simply a number from today multiplied by a story about tomorrow.” Strip away the narrative, and you’re left with cold, hard valuation models like the Gordon Growth Model - where the future is just a set of assumptions out to Judgment Day, just waiting to be discounted.

This is why Warren Buffett is the G.O.A.T. He can simultaneously remind us that "The most that owners in the aggregate can earn between now and Judgment Day is what their business in the aggregate earns.”  and “Be fearful when others are greedy and greedy only when others are fearful.” 

What’s Priced In? The Eternal Market Question - Just Ask Mr. Market

The most important question in investing: “What’s priced in?”Markets are a constant tug-of-war between rational optimism and collective delusion—which is exactly why differences in opinion make a market.

The parable of ‘Mr. Market’ is a lesson worth remembering.  None of this thinking is new -  just refer back to our discussions the week of January 21st when we started every day with a Jesse Livermore quote from Reminiscences of a Stock Operator.  

Owners vs. Lenders: The Fundamental Trade-Off

The question of what’s priced in, what do investors believe, and what are they willing to risk is fundamental to Howard Marks’ thinking on asset allocation—the decision to own vs. lend.

Owners have no promise of return; lenders have a contractual fixed outcome—assuming, of course, the borrower makes good.

Risk vs. reward. The oldest trade-off in the book.

Final Thoughts: Narratives on Fumes?

Markets, like expectations, are built on narratives. The line between collective delusion and rational optimism is a blurry one—it’s why “differences in opinion make a market.” The key is knowing when the story still holds... and when it’s running on fumes.  

My tequila’s narrative? Tariffed to oblivion—hold on or sell?

The Day Ahead: Durable Goods or Durable Pain

The S&P at 5,776, 2Y at 4.03%, 10Y at 4.33% —stocks crawled up, yields yawned. Durable goods, home prices, 5Y note auction—at this stage data is just a tariff on our sanity.

XTODs

XTOD: The White Sox have been eliminated from playoff contention

XTOD: Following the arrival earlier today of 2 B-2 “Spirit” Long-Range Strategic Stealth Bombers, with the 509th Bomb Wing from Whiteman Air Force Base in Missouri, at Diego Garcia in the Indian Ocean. Communications between the bombers and ground stations in San Fransisco have confirmed that another flight of 2-3 B-2s from Whiteman are currently crossing the Pacific Ocean destined for Diego Garcia. This is seeming like a much larger buildup than would be needed for strikes just against the Houthis in Yemen.

XTOD: Shell CEO discloses some more colour about the company's vast in-house commodity trading business, which includes oil, gas, LNG and others: the unit hasn't had a single loss-making quarter in at least 10 years

XTOD: *AT&T SAID IN EXCLUSIVE TALKS TO BUY LUMEN’S CONSUMER FIBER UNIT (BN)

*AT&T DEAL SAID TO VALUE LUMEN UNIT AT MORE THAN $5.5 BILLION (BN)

AT&T showing the classic telecom playbook: Buy assets from distressed competitors, incorporate them poorly, repeat

XTOD: If you work in PE and one of your portcos came into ur office in NYC today.  They’re at the bar and they hate u and think you’re retarded. Not divulging specifics here because I’m not snitching but this is very real and I am doing my best to not crack up at these blue collar dudes shitting on the finance bros they met with today and how they “don’t understand how the company works”

XTOD (some interesting replies to this one): For folks who left banking, PE or similar finance roles, what was the exact moment you decided to leave?  Would love to hear more stories of people who left behind the golden handcuffs  What caused you to make the jump and what did you pursue instead?

https://x.com/MLBONFAX/status/1904261374265717207

https://x.com/sentdefender/status/1904587565123985753

https://x.com/JavierBlas/status/1904523965453750491

https://x.com/junkbondinvest/status/1904598522453713134

https://x.com/GordonGekko420/status/1904311634815783333

https://x.com/BoringBiz_/status/1904585856255427041

Daily Economic Update: April 1, 2025

Powell Rangers & Tariffed Tequilas: March 2025 Market Madness

Alright, let's dive into the financial circus that was March 2025.  March kicked off with markets still reeling from February’s “growth scare.” The S&P 500 wobbled, and investors squinted at economic data like it held the meaning of life—or at least their 401(k) balance.

The “t” word, tariffs! They were still the economic equivalent of that annoying song you can't get out of your head. Remember the pause on Mexico? Me either, but that felt like a brief moment of sanity in a world increasingly fueled by tariffed tequila dreams. But the talk of "reciprocal" tariffs kept the markets on edge, wondering which beloved consumer good would be next in line for a price hike.

Inflation remained the uninvited guest at every economic party, with Atlanta Fed President Bostic pretty much telling everyone the Fed's 2% target was a pipe dream for the foreseeable future. Rate cut hopes for 2025 were fading faster than my spring break suntan. The Fed, those Powell Rangers, were still in data-dependent mode, which, as usual, meant they were just as confused as the rest of us.

Consumer confidence took a nosedive, hitting a 12-year low and flashing recession warning signs, though some of us were probably just feeling the effects of tariffed tequila. The "Expectations Index" was well below that ominous threshold of 80. So, consumers weren't exactly brimming with optimism.

AI continued to be the shiny object distracting everyone. The CoreWeave IPO hiccup raised some eyebrows about the sustainability of the AI boom, even with $NVDA potentially playing the role of knight in shining armor. Was AI the answer to stagflation, or just another overhyped tech bubble waiting to burst? The jury was still out, and probably still trying to figure out what AI actually is.

Speaking of bubbles, the private credit market was getting some scrutiny too. Despite the rapid growth and attractive expected returns compared to equities, the inherent risks weren't being ignored entirely.

Market performance in March saw the S&P 500 attempting to recover from earlier dips, but volatility was the name of the game. The Magnificent 7 were showing some cracks. Bonds were reacting to inflation data and Fed speak, with the 2-year and 10-year Treasury yields doing their usual dance.

Some random happenings that caught the eye:

• The rise of burrito-backed loans – yes, you read that right. Consumers taking out loans to fuel their DoorDash habits via Klarna. Peak 2025 finance? Maybe.

• ARK Invest apparently lost more money than any other fund manager in the past decade. Ouch. 

• The Berkshire Hathaway meeting was apparently going to cost you a cool $5,680 a night for the Hilton across the street. Start saving those burrito loan proceeds!

Investor attention was highlighted as a crucial driver of how markets react to macroeconomic news. So, all those doomscrolling hours might actually be market research? Doubtful.

Overall, March felt like a continuation of the uncertainty that had been brewing. Tariffs, inflation worries, and the ever-present AI hype kept the markets guessing. Consumer confidence was shaky, and the economic outlook was about as clear as mud after a few too many tariffed tequilas. Nobody really knew what was going on, but that, as always, didn't stop anyone from having a strong opinion. And as Mark Twain wisely said, "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". 

So, take all of this with a healthy dose of "I don't know" and maybe go watch some baseball. It's probably less confusing than the markets right now - despite the early season controversy over torpedo bats.

Some March Learnings:

• Beware of first-order thinking and understand second-order effects - be careful reaching quick and certain conclusions in a world mired in uncertainty and complexity

• Market narratives drive pricing, but can be fleeting - the line between rational optimism and collective delusion can be blurry

• Question conventional wisdom and “what’s priced in” - what’s thought to be priced in isn’t always understood

• Recognize the importance of long-term perspectives and patience - Zoom out. Your investment horizon is longer than a news cycle. Most of this is just noise—unless, of course, it’s about your tequila budget

Because You Already Forgot January and February

Missed the first two months of the year? Don’t worry, the themes haven't changed: AI savior complex, tariff tantrums, and inflation drama. 

The year kicked off with everyone and their mother trying to figure out if AI was going to save us all or just lead to sentient paperclips. DeepSeek threw a wrench in the GPU-guzzling narrative, making everyone question if $NVDA was the next Pets.com

Trump was back and so were his beloved tariffs. Every other headline was a new tariff threat from champagne to tequila, making happy hour increasingly unhappy. 

The Mag-7 have shown cracks, bonds have been all over the place reacting to inflation data, Fedspeak, tariffs and the overall uncertainty. Gold has hit new record highs - e tu Bitcoin?

The first quarter of 2025: a swirling vortex of AI hype, tariff tantrums, inflation anxieties, and enough market volatility to give you whiplash. Nobody really knew what was going on, but that didn't stop the financial news cycle from spinning wildly. As always, blame Canada.

So what awaits us in April and beyond?

Hold on, let me grab my crystal ball. Obviously eyes are glued to April 2nd ‘Liberation Day’, but the correct answer when asked about the financial future is “I Don’t Know.”  As for advice, what we covered a couple of weeks ago might be the best I can muster.

We start April with the S&P at 5,612, the 2Y treasury yield down at 3.90%  and the 10Y yield at 4.21%. In due time, we’ll see if the April narratives will be different from those of March.

XTODs

Will return tomorrow - not an April Fools.

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: June 3, 2025

Sorry, Busy Rating Private Credit Deals

Sorry I was busy rating private credit deals and didn’t see what happened in markets yesterday. Have you seen these headlines, rating agency Egan-Jones has rated some 3,000 private credit deals with a team of just 20 analysts.  I figure I can get to work and rate a solid 150 deals in the next couple of months if I stop writing this blog.  Why do private credit ratings matter and why is this even a story? Well it matters for institutional allocators who want to invest their insurance or pension capital in private credit funds.  It’s unknown to me whether banks look at any of these ratings, but the story of banks effectively “re-tranching” themselves by lending to private credit funds rather than making the loans that private credit makes to mid-market businesses. Nonetheless it’s not lost on everyone that a loan carrying a double-digit interest rate is probably pretty risky, but investment grade?  Nevermind I’ll just get back to the stack of 150 deals I’ve been assigned and rate them as high as I can.  

Rating private credit deals is probably more interesting than hearing about tariffs.

Will Trump and Xi meet this week? 

Despite signs that things are moving the wrong direction between the U.S. and China’s trade dispute, there was some optimism that Trump and Xi might speak as soon as this week.  And some optimism is all you need to send stocks higher.  The S&P edged up to 5,936.

Bonds didn’t fare as well, with the yield curve steepening some despite weaker than expected manufacturing data.  As of the time of this writing, the 2Y yield was 3.95% and the 10Y 4.45%. The narrative surrounding yields continues to focus both on the short-term inflationary impact of tariffs and the longer-term deficit concerns. 

Or maybe yields and stocks are all just a growth story, after all the Atlanta Fed GDP Now is estimating 4.6% GDP for 2Q.

Double My Steel Please

On the day we’ll get some labor market signals from the JOLTS report and await whether tariffs on steel and aluminum go up to 50%.

Back to rating—only 149 deals to go,” or “If you need me, I’ll be printing triple-Bs.”

XTODs

XTOD: It’ll soon be 2 years that Real US 10s rates have been at or around 2%.   The only other recent period when a sustained level close to or above 2% was observed started in late 2005 and ended with GFC.  2% real is very taxing.

XTOD: In the US housing market, there are currently 34% more sellers than buyers. Sellers haven't outnumbered buyers by this much ever in data going back to 2013: Redfin. Redfin expects home prices to drop 1% by the end of the year as a result. h/t 

@RenMacLLC  https://redfin.com/news/sellers-vs-buyers-price-impact/

XTOD: On June 2, the #GDPNow model nowcast of real GDP growth in Q2 2025 is 4.6%: https://bit.ly/32EYojR. #ATLFedResearch Download our EconomyNow app or go to our website for the latest GDPNow nowcast: https://bit.ly/2TPeYLT.

XTOD: this is gold https://pbs.twimg.com/media/GsF5LXQaUAQYKYA?format=jpg&name=900x900

XTOD: 60% of young adults say their lives lack purpose.  Here are 7 questions that can help you find direction: 🧵….4. What’s your sentence? One sentence. That’s it. 

“He helped people find their voice.”   “She made science accessible.”   “They made work better for everyone.”  Distill your life into a sentence—and aim toward it.

https://x.com/INArteCarloDoss/status/1929652381253300673

https://x.com/lisaabramowicz1/status/1929683538301145313

https://x.com/AtlantaFed/status/1929563954889543786

https://x.com/Jayyanginspires/status/1927955356300259676

https://x.com/DanielPink/status/1928184642697580687

 

Daily Economic Update: June 12, 2024

The big day is here.  Is CPI > FOMC today?  What will the Dots show (2 cuts vs. 3 in March and rising longer-run neutral rate)?  

Yesterday's NFIB Small Business Optimism Survey showed an increase in optimism, albeit still below average, along with rising uncertainty.  My favorite line from the report was this (underline is mine): "The government’s share of GDP has grown as has government employment, but hiring more IRS agents is not going to improve consumer well-being. Unsustainable debt levels, including the national debt, risk destabilizing events in financial markets. And, the election promises to bring major changes in the tax and regulatory environment, regardless of who wins. All of this presents a very uncertain outlook for small business owners and uncertainty is the enemy of progress."

The 10Y Auction looked strong trading 2bps through where WI was trading on strong foreign demand and with it yields fell on the day.  The 10Y ended at 4.41% and the 2Y at 4.85%.  Stocks hit new record highs...Oracle, Apple...AI.

Anyway, just remember this is the most important Wednesday of your career, don't blow it.  

XTOD: Roger Federer: "In tennis, perfection is impossible... In the 1,526 singles matches I played in my career, I won almost 80% of those matches... Now, I have a question for all of you... what percentage of the POINTS do you think I won in those matches? Only 54%. In other words, even top-ranked tennis players win barely more than half of the points they play. When you lose every second point, on average, you learn not to dwell on every shot"

XTOD: I'm one of the few Biden supporters who *does* think that society should prioritize marriage and kids.  Family is the best technology we have for mass-producing meaningfulness. Without family, most people will be left to seek meaning from bullshit jobs or misguided activism.

XTOD: Was curious about fertility demographics people have been discussing, so pulled some data myself this morning.   Even though I knew it, striking how much of the childbirth change is from age 15-25.  Also didn’t appreciate how much the college education trends might explain some of this

XTOD: Big new annual report on kids shows "decades of lost progress" due learning loss during - and even after - Covid.  Math & reading scores keep falling.  Many kids just simply stopped going to school, with nearly 15 million "chronically absent" even post-Covid in 2022.   This while tens of billions of the 2021 "reopen schools" money still hasn't been spent.   Tough but necessary read.  

Keep in mind that no western nation kept kids out of school nearly as long as we did.  Most not even close.    Tough but necessary read.  We owe so much to making it up to the kids. 

2024 KIDS COUNT Data Book - The Annie E. Casey Foundation

XTOD: JUST IN: Tuttle Capital just filed for a Congressional Trading ETF $NPEL  The ETF will invest in the stocks that sitting members of 🇺🇸 Congress and/or their spouses have reported owning through public disclosure filings - Bloomberg

XTOD: In 1958, a 20-year-old Hunter S. Thompson wrote a letter to a friend with his advice on finding his life purpose.  It is a work of art.  5 brilliant lessons on finding purpose (everyone should read this):....Lesson 5: Live by Design, Not Default  You get one shot. Stop playing games by default. 

You have the power to choose how you live your life. That doesn't mean you will choose, but you always have the power to choose.  Find the Ninth Path. Live life by design, not default. https://pbs.twimg.com/media/GPtlA3lbsAI8Bhn?format=jpg&name=small

Daily Economic Update: May 13, 2025

 “Insidious non-tariff trade barriers.”

Insidious non-tariff trade barriers, that’s the terminology Treasury Secretary Scott Bessent repeatedly uses when discussing some of the challenges with fully getting to fair trade with China.  We talked about certain ways countries support their exports in this post back in February and as of now it doesn’t seem much progress has been made in addressing those issues. 

Nonetheless the 90 day pause on reciprocal tariffs, leaving just the 10% baseline plus the 20% fentanyl surcharge remaining, was welcome news to the market - sending the S&P up over 3% to 5,844.  

Term Premium

Ahead of today’s CPI report, rate cuts are being priced out. We're down to just two cuts for the balance of 2025 and we’ll see if the CPI report changes that.  The reason for the repricing seems to largely be the market pricing out near term tariff induced recession risks.  The 2Y Treasury ended the day reclaiming a 4 handle, ending at 4.04%.  

Out on the curve it’s been a minute since we talked about it, but “term premium” could still be a a topic to key your eyes and ears on, as the bond market continues to reassess the amount of excess yield they need to move out on the yield curve and remember topics like deficits and the loss of U.S. exceptionalism, oh and that whole topic of the credibility of the Fed.  Seems to me there could be plenty of reasons we shouldn’t forget about the fact that term premium can be a time varying variable.

CPI

Even with the U.S.-China reciprocal tariff pause, do we still have to worry about bullwhip effects?  Before we worry about that, the market will be looking for signs of tariff related impacts in the inflation data. Of course market participants also won’t really know what to do with any tariff related inflation data in the coming months because there is little agreement as to whether the inflationary impact of tariffs is temporary or more permanent. 

In the meantime could hotter than anticipated inflation coupled with trade optimism lead to even less certainty of rate cuts in the year ahead?  And what would Trump think about that?

XTOD’s:

XTOD: You’ve got to hand it to President Trump. He has convinced everyone that a 30% tariff rate on China, and a 13% average tariff rate on the world (was 2.5% in 2024), are both normal and manageable. Nothing like a 10-percentage point levy on this $30 trillion beast called Global Trade. The Art of the Deal is working brilliantly.

XTOD: As I predicted in the game of chicken between Trump and Xi it was Trump to blink and chicken out. The tit for tat trade war escalation started by the US would have spiked US inflation, led to massive supply chain disruptions and would have triggered a serious US and global recession that would have doomed the GOP and the MAGA grand goals by the 2026 mid term elections . So Trump had no choice but to blink while receiving almost no concessions from the Chinese side, not even an agreement like the one in 2019 to buy more US goods such as ag goods. Such modest concessions may emerge during the 90 day period where negotiations will take place to “reset” trade but so far Xi is the clear winner of this trade war .

XTOD: NEW TONIGHT: Our reaction to the House Ways & Means and Energy & Commerce bills out today, ahead of tomorrow's markups... or, "A Tale of Two Committees."  

The Ways & Means draft includes trillions of dollars in new and expanded tax cuts – some temporary and some permanent – along with some new savings to offset a small portion of them.  The Energy & Commerce Committee, meanwhile, put forward over $900 billion of offsets. 

Taken together, the two bills are likely to add trillions of dollars to the debt and set the stage for hundreds of billions or trillions more if expiring provisions are extended.  The following is a statement from CRFB President  @MayaMacGuineas : https://crfb.org/press-releases/tale-two-committees.

XTOD: 21 lessons from “A Few Lessons From Warren Buffett” (an 81 page book full of Buffett’s wisdom)

1.  A funny thing about life: if you refuse to accept anything but the best you very often get it. 

2. The truly big investment idea can usually be explained in a short paragraph.

3.  Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.

4.  Loss of focus is what most worries Charlie and me.

5. When a problem exists, whether in personnel or in business operations, the time to act is now.

6.  The roads of business are riddled with potholes; a plan that requires dodging them all is a plan for disaster.

7.  A compact organization lets all of us spend our time managing the business rather than managing each other.

8.  Nothing sedates rationality like large doses of effortless money.

9.  The most elusive of human goals: Keeping things simple and remembering what you set out to do.

10.  Just run your business as if: (1) You own 100% of it; (2) It is the only asset in the world that you and your family have or will ever have; and (3) You can't sell it for at least a century.

11. The right players will make almost any team manager look good. 

12.  Just tell me the bad news; the good news will take care of itself. 

13.  Our managers have produced extraordinary results by doing rather ordinary things—but doing them exceptionally well.

14.  It's difficult to teach a new dog old tricks.

15. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.

16. Charlie and I are not big fans of resumes. Instead, we focus on brains, passion and integrity.

17.  Our experience has been that the manager of an already high-cost  operation frequently is uncommonly resourceful in finding new ways to add to overhead—while the manager of a tightly-run operation usually continues to find additional methods to curtail costs, even when his costs are already well below those of his competitors.

18.  Tomorrow is always uncertain.

19.  The trick is to learn most lessons from the experiences of others.

20.  In allocating capital, activity does not correlate with achievement.

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

Download more of Buffett’s ideas into your brain by listening to episode 202.

https://x.com/EconguyRosie/status/1922003307394170911

https://x.com/Nouriel/status/1922006232958959960

https://x.com/BudgetHawks/status/1922068936272527380

https://x.com/FoundersPodcast/status/1921895490003624201