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Weekly Digest – January 6, 2023

Friday, January 6, 2023Volume 4, Issue 1 Limited Control “The chief task in life is simply this: to identify and separate matters so that I can say…

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Friday, January 6, 2023
Volume 4, Issue 1

Limited Control

“The chief task in life is simply this: to identify and separate matters so that I can say clearly to myself which are externals not under my control, and which have to do with the choices I actually control. Where then do I look for good and evil? Not to uncontrollable externals, but within myself to the choices that are my own.”

— Epictetus, Discourses, Book 2, Chapter 5

Ryan Holiday has spent much of his career writing about how the principles of stoicism are applicable to people living in the twenty-first century. Stoicism is often caricatured as having a “stiff upper lip” but is a far more intricately formulated guide for living a good life. In addition to articles on his website, Holiday is the author of several books including The Daily Stoic which contains daily entries intended to serve as prompts for reflection. I purchased the book last month and found the quote from Epictetus shown above when I started reading the first entry on New Year’s Day.

Much human misery originates from trying in vain to do something that is not within our power. No one can do anything about a flight delay or a traffic jam. To get upset about such matters and resort to yelling and screaming will do no good. Similarly, the number of people who actually have the ability to affect the macroeconomy or matters of war and peace is tiny. All ordinary people can do is vote for politicians, and most politicians usually lack the control they claim to have. Control can be elusive.

Indeed, much is out of our control and it is liberating to recognize this and to stop making futile attempts to control the uncontrollable. At the same time, I think that it is important to realize that some things that are out of our control today need not be out of our control in the future if we take small daily steps to improve our position.

Why do many people feel like they have limited control? Sometimes it is because they have no control over their time. Someone with a large family to support and limited financial resources must accept that going to a job that she dislikes is out of her control today. But that does not mean that it is out of her control to be in a better position in the future. Perhaps new skills can be attained or funds saved to provide greater independence and control five or ten years from now. 

There should be a balance between accepting what we cannot change in the short run and the impact we can have in the long run through sustained efforts to change our current position. Just as those who know nothing about stoicism might reduce it to the “stiff upper lip” caricature, those with only a cursory understanding could misconstrue admonitions to accept what we cannot change. More is in our control than we might think, but perhaps not in our immediate control. We have agency over our future condition. I don’t think that the ancient Stoics would argue with this observation. 

Related articles on Stoicism:

The Limits of Our Power, October 28, 2020 (Rational Reflections)
The Illusion of Control, August 31, 2020 (The Rational Walk)
Meditations by Marcus Aurelius, October 2, 2022 (Rational Reflections)
Book Review: How to Think Like a Roman Emperor, June 20, 2019 (The Rational Walk)
Book Review: Soul in the Game, June 20, 2022 (Rational Reflections)

Articles

Berkshire Hathaway Had a Strong 2022. What to Watch in 2023 by Andrew Bary, January 3, 2023. In this article, a reporter who has covered Berkshire for decades provides a recap of some of the major events of 2022, including the Alleghany purchase and a likely decline in Berkshire’s book value due to declines in the equity portfolio. Succession is discussed toward the end of the article. I agree that giving Greg Abel and Ajit Jain more of the spotlight at this year’s annual meeting would bolster confidence among shareholders. (Barron’s)

  • Note: Although Barrons.com is mostly paywalled, there is an arrangement in place where Barron’s stories are available to users of Apple’s MacOS and iOS “Stocks” app when you enter a ticker symbol. No payment is required. h/t @WEBspired on the Shrewd’m.com Berkshire Hathaway message board.

Private Markets Don’t Like to Go Down by Matt Levine, January 4, 2023. Private tech companies dislike “down rounds” — that is, raising money at a valuation that is lower than prior rounds. A down round forces venture capital firms to write down earlier investments. But sometimes a down round is inevitable, either for company specific reasons or because public markets have corrected sharply, as was the case in 2022. Matt Levine discusses how “structure” can be used in deals to maintain the same headline valuation while providing concessions to investors. While this practice fools no one, it allows venture firms to avoid writing down prior investments. (Money Stuff)

  • Note: Although Bloomberg is mostly paywalled, Matt Levine’s articles are also sent out to subscribers of Money Stuff free of charge. You can subscribe here.

Rookie Traders Are Calling It Quits, and Their Families Are Thrilled by Rachel Louise Ensign, January 1, 2023. We can debate whether extended pandemic lockdowns were necessary or not, but it is hard to argue that social isolation and idleness did not take a massive toll on society. The rise of online gambling in securities and crypto was one of many dysfunctions that emerged over the past three years. After a difficult 2022, it appears that at least some of these traders are throwing in the towel. (WSJ)

Darwinian Hero’s Journey in Aladdin by Rob Henderson, January 1, 2023. A timeless formula for stories is that a character faces a situation that disrupts his established life and requires skills above and beyond his current abilities. By struggling through adversity, the character develops the ability to deal with new challenges and is transformed. Eventually, the character prevails over adversity and returns home as a hero. Rob Henderson discusses how the familiar story of Aladdin fits this pattern known as the “Hero’s Journey” and illustrates important principles of evolutionary psychology. (Rob Henderson’s Newsletter)

Why So Many People Are Unhappy in Retirement by Arthur Brooks, May 7, 2020. Rob Henderson’s article led me to this essay about psychological risks facing retirees. Often, a retiree goes through life in a pattern similar to the hero’s journey. This is particularly true for very successful people who find themselves with ample financial resources to give up work. However, retirees can end up aimless and unhappy. If you’re in the midst of your personal “hero’s journey”, you should plan for what Brooks calls “the personal crucible” that awaits at the journey’s end. (The Atlantic)

It’s Time to Work by Nick Maggiulli, January 3, 2023. For those who start with no initial capital, the amount saved from wages is far more important than the returns on early investments. Rather than dwelling too much on optimizing returns, Nick Maggiulli suggests that most people should focus on working and saving early in their careers. Toward mid-career, investment returns will begin to become more of a factor than annual savings. This is sensible advice although I think that the small minority of investors who truly enjoy the research process should begin as early as possible since investing skills are cumulative and compound over time. (Of Dollars and Data)

You are not lazy, and still you are an idler by Shaun Usher, January 2, 2023. After repeatedly helping his stepbrother, Abraham Lincoln concludes that doling out additional money is counterproductive because it facilitates idleness which is simply a bad way to live. “This habit of uselessly wasting time, is the whole difficulty; and it is vastly important to you, and still more so to your children that you should break this habit. It is more important to them, because they have longer to live, and can keep out of an idle habit before they are in it; easier than they can get out after they are in.” (Letters of Note)

A Timeless New Year by Lawrence Yeo, January 4, 2023. Useful advice for those who made New Year’s resolutions: “Hope isn’t enough to create lasting change, especially if it’s contingent upon a social construct like celebrating the turning of a clock’s hands.  What’s more important is that you’ve reframed your identity as a whole, and that you truly believe in this fresh approach to viewing yourself.  Ideally you do this irrespective of what date is on the calendar, and instead focus on the story you want to tell about your own life.” (More to That)

Podcasts

Behind the Memo: Sea Change, January 5, 2023. 20 minutes. Howard Marks briefly explains the backstory and thought process that went into his latest memo, Sea Change, which was published on December 13. I provided a link to this memo in the Weekly Digest published on December 16. (Behind the Memo)

How to Pick Stocks Like Peter Lynch, January 2, 2023. 51 minutes. Clay Finck shares his thoughts on Peter Lynch’s book, One Up on Wall Street, which was published in 1989 toward the end of the legendary investor’s career. In 1990, Lynch retired as manager of Fidelity Magellan after posting an annual rate of return of 29.2% over thirteen years. Lynch was only 46 years old when he retired. (We Study Billionaires)

The Future of Software Creation, January 3, 2023. 1 hour. I’ve been thinking more about software recently, especially after I wrote an article on Journal Technologies last week. While much has changed since I left the industry in 2009, many of the needs remain unchanged, especially when it comes to making software more configurable and flexible without resorting to writing code. This is a good discussion that also touches on how artificial intelligence opens up new possibilities. (Invest Like the Best)

Andrew Carnegie, Henry Clay Frick, and the Bitter Partnership That Changed America, January 2, 2023. 1 hour, 15 minutes. If you think business disputes are nasty today and the past was always more genteel, this podcast provides some historical perspective. Henry Clay Frick was once the man who Andrew Carnegie trusted more than any other to handle the business of Carnegie Steel. But the two had a major falling out that lasted to the end of their lives, and perhaps into the hereafter. “Yes, you can tell Carnegie I’ll meet him,” Frick said finally, wadding the letter and tossing it back at Bridge. “Tell him I’ll see him in Hell, where we both are going.” (Founders Podcast)

J. Edgar Hoover’s 50-Year Career of Blackmail, Entrapment, and Taking Down Communist Spies, January 3, 2023. 53 minutes. J. Edgar Hoover was one of the most important men of the twentieth century. He enjoyed extremely high levels of public approval in the 1950s but his popularity eroded steadily through the upheaval of the 1960s up to the end of Hoover’s life in 1972. Hoover’s reputation has only suffered more in the decades following his death. This is an interesting discussion of Hoover’s life and the dynamics that led to his reputational downfall. (History Unplugged)

Twitter Threads

10-K Diver discusses Gambler’s Ruin using the example of David vs Goliath:

Jonathan Bi explores the changing rules of war in this thread:

The Magpie by Claude Monet 

From Musée d’Orsay:

In the late 1860s, Monet started to extend the need to capture sensations and render ‘the effect’ to all transitory, even fleeting states of nature. Taking Pissarro, Renoir and Sisley with him, Monet tackled the great challenge of a snow-covered landscape, which Courbet had grandly explored with great success not long before. Toning down Courbet’s lyricism, Monet preferred a frail magpie perched on a gate, like a note on a staff of music, to the world of the forest and hunting … 

According to Wikipedia, “The Magpie is one of approximately 140 snowscapes produced by Monet”, some of which I browsed before deciding on this painting.

The Magpie (1868-69) by Claude Monet (public domain)

Copyright and Disclaimer

This newsletter is not investment advice and all content is subject to the copyright and disclaimer policy of The Rational Walk LLC, publisher of Rational Reflections.

The Rational Walk website was founded by Ravi Nagarajan in 2009 who is the author of all its content. The website contains over a thousand articles covering topics ranging from personal finance and investing to book reviews and philosophy. In addition, there is an extensive archive of articles related to Berkshire Hathaway.

Your privacy is taken very seriously. No email addresses or any other subscriber information is ever sold or provided to third parties. If you choose to unsubscribe at any time, you will no longer receive any further communications of any kind.

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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March 9, 2024

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

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2 days ago

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March 8, 2024

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Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250


Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  

2-US_Job_Quits_Rate-1-2

3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 




From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:

IMG_5092

In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%
IMG_5093_320f22

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…

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March 8, 2024

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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