Good Thursday AM,
A succinct market update first… Yields have pushed to new long-term highs on 3 out of the past 3 days; it’s safe to say that bonds are “trending” as opposed to flat/sideways. Covid cases are down sharply week-over-week. Economic data continues to be decent enough. And there are no signs that the Fed will forego a tapering announcement on November 3rd. This trend is not your friend. All we can do is stay defensive and wait for clear confirmation that bonds are turning a corner. For now, we’re lucky that yields haven’t attempted to break up and out of the rising rate channel we’ve been tracking.
And two additional pieces from the WSJ worth sharing...
Transitory Doesn’t Necessarily Mean Short Lived
A top Federal Reserve official warned that extended high inflation through next spring could force the central bank to consider raising interest rates sooner than anticipated. Fed governor Randal Quarles said he still expects higher prices to ease next year as bottlenecks and supply-chain disruptions fade. If the Fed raised rates in response to recent price surges driven by the economic reopening, the central bank could constrict demand at the same moment that supply bottlenecks abate, Mr. Quarles said. “The flipside of that dilemma…is that ‘transitory’ doesn’t necessarily mean ‘short lived,’” Mr. Quarles said. The danger for the Fed is that longer-lasting supply-chain bottlenecks risk leading consumers and businesses to expect higher inflation in the future, which could force the Fed to respond by raising rates, Nick Timiraos reports.
Inflation point made (which is the catalyst for higher rates) and would indicate faster growth is in contradiction to a new report showing the U.S. economic growth slowed to a modest to moderate rate this fall as firms confronted supply-chain disruptions, elevated prices, a shortage of available workers and fears around the Delta variant of Covid-19, the Fed said Wednesday. Many businesses said they expected higher prices and supply shortages to last another year or so. The report, known as the beige book, collects anecdotes from businesses in Fed districts around the country, David Harrison reports.
And this is the one that was most interesting to me as I try to understand why there are more jobs than workers and more people quitting now than in the last 20yrs. Keep in mind that 75% of new businesses fail. I would anticipate more workers in the workforce again within 6 months.
Business owners complain that there aren’t enough workers. Where did they all go? Perhaps one partial answer: They started their own business. Applications for the employer identification numbers that entrepreneurs need to start a business have topped 5 million over the past 12 months, the highest level in records reaching back to 2004, according to the Census Bureau. Filings among a subset of business owners who tend to employ other workers, called high-propensity applications, were also the highest on record. “The jump in intent to form new businesses likely reflects a necessity to adapt in response to job losses during the downturn as well as an opportunity to fill new economic needs amid changing consumer preferences, supply chain issues and novel circumstances brought on by the pandemic,” the Economic Innovation Group’s Daniel Newman writes in a blog post.
A new report from review website Yelp also shows that the number of new businesses opened in the first nine months of 2021 is back above pre-pandemic levels. Leisure, hospitality and beauty businesses helped drive growth this year, though activity flattened in the third quarter—falling especially sharply in September. The hospitality and leisure “industry is still struggling to attract workers, making it increasingly difficult to keep up with demand,” the report said.
Please remain safe and healthy, make today great.
