Mari

Econ and Math @vanderbiltu and @nyuniversity fan of macroeconomic models, markets, and matrix multiplication

[Mari @mariquantified]

Yesterday's PMI data showed that US business activity reached a more than 5 year high. This is what makes the energy shock especially tricky because it's colliding with an economy that has a lot of momentum. Normally, an oil shock hurts demand.

The Fed responded to the oil shock with a 25bp raise last week, but oil prices are still elevated (and the supply shock is still persisting).

The key question now is how much inflation reflects a temporary supply shock vs excess aggregate demand because it impacts the proper policy response. If demand stays this strong, the Fed has a stronger basis for tightening because it reduces demand without relying on oil prices to fall to do the disinflationary work.

[Mari @mariquantified]

I might make this a series

https://t.co/t2E3hN9FBC

[Mari @mariquantified]

@liensofnewyork asked me where we are in the credit cycle.

I actually did not give him an answer, but my view is that we're late in the credit cycle. The confusing part is that we aren't seeing all of the standard signs of late-cycle stress (bottom up isn't migrating to the top yet). Investment grade and BB/B spreads are fine but CCC and private credit are shoddier. If markets can keep this contained, we can avoid any broad major stress. However, if CCC stress starts migrating into B/BB and lending standards tighten, we’re heading towards a contraction.

[Mari @mariquantified]

Much of my undergraduate research focused on how the Russia–Ukraine war affected emerging market development, so with renewed attacks on Black Sea ports, shipping routes, and one of the largest missile assaults of the conflict, I thought I'd revisit the topic from a different angle.

Supply risks are pushing wheat prices higher just as export season begins. Rising wheat prices feed into global food inflation, especially in emerging markets. June's negative core CPI print was pleasantly surprising, but against a backdrop of global supply shocks, it may be noise that markets are once again underpricing.

[Mari @mariquantified]

@jturek18 Please please please

[Mari @mariquantified]

Hotelling’s Law in full force

[Mari @mariquantified]

@P_Remarks Yeah fuck you if you aren’t using k means clustering or principal component analysis

[Mari @mariquantified]

The infrastructure vs application divergence is important because it plays into capex and real productivity and earnings. Are companies leveraging AI and making money or are they just burning capital?

[Mari @mariquantified]

We're still running in circles around the outcome of the macro implication of AI, but the one thing we can be certain of is that it will increase productivity. What we're less sure of is the road to getting there. Demographics, deglobalization, dumb policy, and deficits add to this uncertainty. What we can look at to better understand this transition is AI infrastructure (NVDA, AVGO, SMCI) vs AI application stock performance (OpenAI, PLTR, CRM), cyclicals vs defensives performance, and real yields.

[Mari @mariquantified]

Inflation numbers this, inflation numbers that. The bigger story is productivity. If productivity growth remains elevated, the US can support stronger real wages, lower inflation pressure, and growth at the same time. The Fed can only do so much. Warsh can do whatever he wants to rates, but he still can't create productivity. The next cycle may be more about what firms can produce (and how effectively they leverage AI to do it).

[Mari @mariquantified]

@RohOnChain I have made $0 from understanding Markov Chains.. probably because I did not watch this video

[Mari @mariquantified]

This was inspired by my dear friend Lisa who asked me for a quick rundown of the US economy #shoutoutlisa

[Mari @mariquantified]

TLDR outlook post:
-inflation: ~3.2-3.5% core PCE- well above Fed's target of 2% (oil prices, AI capex, sticky wages keeping price pressures elevated)
-unemployment: ~4.2%- slowing labor market but not too dire (higher interest rates are hitting demand, fewer job openings, labor supply shock from reduced immigration)
-big picture: economy is slowing but not breaking. biggest risk imo is a stagflation-esque environment where inflation remains structurally above target while growth weakens

[Mari @mariquantified]

The Fed is boxed in with inflation being too high but growth not being weak enough to cut. Long run inflation expectations are anchored but it seems like confidence is eroding. It is the Schrödinger’s cat of rate cuts

[Mari @mariquantified]

TLDR: I spent much of my senior year studying the impact of the Russia-Ukraine war on EM economies. Inspired by my college research, I'm currently working on a framework that integrates submodels to capture how war shocks propagate across emerging economies.

[Mari @mariquantified]

US markets can shrug off the effects of higher rates, weaker growth, and sticky inflation. The drop in the S&P has remained relatively small and understated. However, as expected, poorer countries and households are hit much harder.

This is a classic EM divergence trade:
- Energy exporters benefit from price spikes
- Importers get the bad end of the stick

[Mari @mariquantified]

The S&P 500 closed down for the fifth straight week despite Tuesday's rally. Rates and commodities are already pricing for tighter conditions and supply shocks. Yet, equities don't look like they're down enough. This drawdown (more so a readjustment) will persist until equity expectations align with our macro reality.

[Mari @mariquantified]

@Mike_Pence It’s less of a win when he enacts 10% global tariffs under sec 232

[Mari @mariquantified]

AI is a BIG driver now. However, demand swings are still outpacing progress. Businesses are hyper-cautious on hiring and capex because policies are up in the air. Howard Marks (@HowardMarksBook) said it back in December, and it won't be any more interesting when I say it, but this is not a classic bubble. AI can (and is) transform(ing) the economy, but still disappoints if productivity is slower than the capex cycle, competition stifles margins, and the discount rate stops falling. This isn't exactly "irrational exuberance" anymore. AI just largely rests on the cost of money (i.e., discount rates) and WHO actually captures the value that AI creates

[Mari @mariquantified]

Immigration outflows and self-deportations are driving a shrinking labor force that data hasn't quite caught up to yet. It's lower output and a more inflationary equilibrium. Paired with de-globalization, we are going to start seeing structurally tighter and tighter labor markets, and, unfortunately, this is a policy problem outside of the Fed's wheelhouse.