DOGE-cession freakout
The zeitgeist is shrill, but what's it all for?
Things do not appear any more or less dicey than they’ve been, so why the freakouts?
recapping the current-state of dicey (and the lack there of)
freaking out about Temu & Shein (and looking for actual evidence of tariff-effects)
freaking out about LMEs and ‘the most non-distress since Lehman’ (and looking for actual evidence of distress)
steel prices, now that’s a thing
a footnote missive on DOGE
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DOGE-cession freakout
If it seems like the financial media is getting a bit panicky, that’s because it is.
Is there any reason to panic? Not really, no, or rather, there are few (if any) new reasons to panic. (Of course, it’s Nvidia day, so perhaps by the time you read this, there will be some fresh hell, but not as of this moment).1
To be clear, things have been delicate for a while, but also mostly chugging along.
The risk that unreasonably high expectations for growth would underwhelm (and the downside risk to sky high valuations, and the leverage those valuations support) has been looming for well-over a year.
That extend-n’-pretend might run out of runway before “rates went back to [ab]normal” has been true since it got started.
Likewise, for anyone willing to notice, a healthcare-driven economy rapidly catching-up to a status quo ante (that was imperfect to begin with)—but this time with even more debt—should not be confused with a fast-growing economy. It should, however, invite the question “what happens when we’re all caught up?”
That the catch-up is/was funded by unsustainable borrowing, is likewise, not a cause for celebration, and never has been.
Still, it remains the case that (despite diligent efforts to discover some evidence to the contrary):
the biggest, most valuable companies have been impressively profitable;
smaller, less valuable (but more levered) companies have been impressively resilient; and
while no one is hiring, it’s also true that no one is firing (and no one is quitting), which means the Almighty Consumer is cautious, but living very much within its means.
that healthcare makes all the jobs, with a price-insensitive Uncle Sam footing the bill, certainly helps keep the show on the road.
and, you know, a generational breakthrough in probabilistic technology (plus a miracle impulse-control drug) definitely don’t hurt.
All of this still appears to be the case, and there’s no real catalyst (other than the steady progression of time, perhaps) that would change it, one way or another.2
Are we in the clear? No way. But, have we taken some sudden wrong turn? Also, no.
If I’m missing something, please let me know.
Of course, none of that appears to have dissuading the chattering class from going full-on chicken-little (for reasons one can only assume have to do with the guy in charge, and that’s disappointing).
Consider . . .
Temu and Schein in free-fall!!!
Bloomberg (which is probably the biggest offender) clanged the warning bell “Temu, Shein See US Sales Drop After Trump Targets China Trade.”
Now, Random Walk is also wondering whether and to what extent tariffs and the de minimis (non)exemption kill the goose that’s been laying the golden e-commerce egg. So, naturally, the story caught my attention.
I mean, look at these terrible sales for the fast-fashion stars:
Weekly sales for Temu and Shein plummeted right when the tariffs kicked-in!
Argghh, Trump’s “targeting” is going to ruin us all!
But is that really what’s going on?
It seems reasonable to expect some kind of effect on sales, but that’s awfully quick. And who uses weekly comparisons anyway, for something as seasonal as retail shopping?
To Bloomberg’s credit, they do clarify, that actually, it’s probably nothing:
[T]he drop so far is only as big as the traditional post-Christmas falloff in spending on these platforms . . . Other factors like seasonality, market competition and macroeconomic changes may also be weighing on sales
So, basically, it’s a chart foul, but you’d have to read past the pictures and headline, to learn that.
That said, I was curious if there was some other data that would support Bloomberg’s bombastic headline (even if Bloomberg itself made no effort to do so).
I would summarize my findings as “maybe, but also, maybe not?”
From the Adobe digital price index, the data shows emphatically “no effect”:
Prices were substantially cheaper across all categories (but grocery and medical supplies) YoY.
If tariffs were going to cut into sales, you’d expect higher prices to be the driver. And Adobe is showing none of that (yet, at least). The data is only through January, however, so there’s still time.
What else?
I took a look at some transaction data, as well, this time from Earnest. The data is specific to Temu, and it’s a little more supportive of immediate tariff effects.
Average ticket sizes are growing:
While transaction count is falling:
But nonetheless, sales are rising:
If sales are rising despite fewer transactions because each transaction is itself larger . . . that could indicate that prices have gone up.
But, my access to the data cuts off the first week of February, so I can’t even see the post-tariff picture.3 In all events, it’s not the strongest case, but could-be, maybe, there’s something there.
Elsewhere, there’s some anecdata, as well.
Shi, a Chinese seller of arts and crafts products on Temu . . . tells WIRED that the company raised prices on his goods by 50 percent this week, while the number of orders he received on Friday decreased by about 30 percent compared to normal. . .
Lorianna Calhoun, a Shein shopper, tells WIRED that of the roughly 170 items that were once on her Shein wish list, 40 now appear to be unavailable . . .
A Reddit user, who asked to remain anonymous for privacy reasons, shared screenshots with WIRED that show half the products in their Shein shopping cart also became unavailable on Thursday, primarily items from Shein’s Sheglam cosmetics line
So, an anonymous Temu seller, a Temu shopper, and a reddit-user, all report higher prices and disappearing inventory.
Put it all together, and what do you think? Are you persuaded of the direct causal effects of Trump’s “chaos?” No, I wouldn’t be either.
Look, I get it. If it bleeds it leads, but be better.4
The most non-distress since Lehman!!!
Here’s another one, near and dear to Random Walk’s heart.
Again, Bloomberg with the banger of the headline:
Executives are mentioning “distress” less than ever before, so we should RUN FOR OUR LIVES!!!
To be clear, Random Walk is no stranger to searching for signs of chicanery under the hood.
Indeed, Random Walk has variously flagged the increasing prevalence of non-bankruptcy, extend-n’-pretendy workouts (aka “Liability Management Exchanges”) as possibly hiding the distress within for way longer than its been fashionable.
LME mentions rise, while distress mentions plummet . . . to the lowest level since right before the Global Financial Crisis!!!
So, sure, swapping LMEs for defaults is definitely a trend worth following.
But you’ll notice that (a) there was no corresponding uptick in LMEs back in 2007; and, more importantly, (b) the available evidence continues to check out just fine.
From the latest Schroders Credit lens (which I believe is BSL-only, and not private credit, but still):
High Yield coverage ratios looking good:
Earnings are growing, but debt is not:
Interest expenses are rising, but growth is decelerating rapidly:
Cash is in-line with prior levels:
In general, leverage-to-earnings is lower than before:
That’s a pretty clean bill of health, if I’ve seen one. If there’s a catastrophe in the offing, it’s not showing up in this data, at least.5
But, still, Bloomberg wants us to know that we’re experiencing the most non-mentions of distress . . . since Lehman. Yes, be distressed, by the lack of “distress.” Since Lehman.
C’mon now. “Since Lehman” is like Godwin’s Law for market Cassandras.
For a publication that was pondering the mystery of the ‘vibecession’ less than a year ago, it’s hard not to notice the shift in mood.6
Front-running steel tariffs? Now, that’s a thing
The point is that despite all the hand-wringing and teeth-gnashing about “chaos” and “fears” and “uncertainty,” very little new evidence has actually entered the picture.7
An ISM squiggle? Sure. Happens all the time. The Consumer Confidence survey? Don’t get me started.
That isn’t to say there are no measurable impacts of Trump’s policies.
Front-running steel and aluminum (and gold) appears to be a real thing:
Aluminum imports eclipsed a 5-year high.
And prices have responded accordingly, and manufacturers will definitely feel that (if they haven’t adequately hedged).
But is there some other reason to put threat-levels on high alert (any more so than before)? If so, I’m not seeing it.
All I’m seeing is another lame edition of Orange Man Bad, and it’s no fun.
Other links
Mario Draghi says ‘everyone hates regulators’. Again, this is coded as a partisan issue, but it’s not. Stiflers stifle, so don’t get all indignant when you discover that all the stifling has, in fact, stifled, and the obvious solution is “stop stifling.”
Steve Cohen says, “I agree with Random Walk.” Well, in not so many words, but slowing growth, secularly higher inflation, and a (belated) attempt to wean ourselves off unsustainable borrowing (that is driving a good chunk of ‘growth’) is basically the Random Walk base-case.
Ozempic makers says AI is finally reliable enough to produce sensitive documents. How could anyone be pessimistic?
What do mass federal layoffs mean for the labor market? Not nothing. But remember, it can’t both be true that “cutting the federal workforce does nothing to the deficit” and also “we all gonna dieee!!!!”
Warren Buffett on Japanese Investments. They’re great.
Previously, on Random Walk
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Dodge Momentum Index looks strong again, for what it’s worth:
That December downturn seems a distant memory.
Could tariffs, low-immigration, and curtailment of the government gravy train combine to form some general catalyst? They certainly could. Just haven’t seen the evidence, yet.
There are no profound changes to e-commerce generally, either, at least in the JPM panel
JPM Spend Tracker
Card-not-present is a little ahead of last year. If anything, card-present is lagging.
. . . or get off the high horse, which would also be acceptable.
It helps that higher rates have crowded out private sector borrowing, in the main.
And ‘vibecession’ was a patently stupid and easily falsifiable notion to begin with!
I also find it perplexing that people seem to think there is a systemic issue with bureaucratic bloat, incompetence and overreach, but any systematic approach to restructuring is completely off-the-table. To the contrary, all of bureaucracy’s natural defenses are designed to immunize itself from bureaucratic change—“oh, you’re right, there’s too much red tape, we’ll get a committee working on that right away.” Bureaucracy’s sole weakness, however, is against executive action.
Take it as a given, then, that the only path to reform (which most everyone agrees is an existential need) are sweeping, Milei-like cuts. A piecemeal approach to a systemic problem is a failure from the get-go (and you end up, like Europe, with a 1,000 page report on how technocrats are suffocating the continent to death). Furthermore, if cuts are sweeping, then it’s safe to assume there’s an error-rate—that’s the tradeoff to eschewing careful deliberation (which, again, must be eschewed to make any headway, at all).
No one undertaking a challenge this massive will bat .1000. That some good things (and people) will be broken and/or fired is a given. That some subset of those broken good things will be broken beyond repair, is also a given (because making mistakes that are immediately fixed is no cause for concern, at all). The relevant question, then, is whether those irreparable harms ultimately outweigh the (again) existential need to right this sinking ship.
It’s obviously way too early to know one way or another, but if the alternative to DOGE is maintaining the course (because again, the choice is all or nothing), then it sure seems worth a try.
And all the shrieking “DOGE made a mistake,” has veered from constructive feedback (“don’t fire the nuclear engineers”) to feckless handwaving. If one’s view is “yes, we agree it’s a dire situation, and there’s no plan to fix it because it’s just too hard, with too many moving parts, and too many suckles on the teat, and there’s nothing we can do, but play out the string,” but also “that man trying to fix it must be stopped because all the moving-parts and teat-sucklers are kicking up dirt” then the ‘insurmountable’ problem may well be your expectations for how things ought to (not)work.
Plus, it’s weird to be more bothered by an occasional misstatement of what’s been saved or cancelled than the fact of even one multi-million dollar (let alone billion dollar) boondoggle. I mean, what deference is owed to a form of management that produced the California high speed rail? (“Yes, let’s get a congressional hearing on that, right away!”)
If you want a radical improvement of “state capacity,” this is how it’s done. There is no gentle way. Of course it’s chaotic. If it wasn’t chaotic, it would fail. “Don’t hurt us because think of all the paper that will no-longer be pushed” is what bureaucracies always say—it’s part of why they push so much paper. And for all the hand-wringing (based on wildly incomplete information), no one—not a single one—has proposed some viable alternative.
Fin.