Good Morning on this fantastic Thursday,
Unemployment claims out today and came in a little less than market expectations. Non-farm production was horrible as expected and construction spending dropped even more. None of this sounds like a well-functioning economy. On top of that, the savings rate has gone negative and credit card debt is at an all-time high and for many, maxed out. Despite the weakening economy, bonds continue to get the snot beaten out of them. The 10-yr is at 3.26 and mortgage bonds are off 40bps today and 100bps for the week. The only positive sign is that the relative strength indicator shows we are so far over the oversold metric, we should see a correction very soon.
Dan Rawitch came out with a few well written lines this am. “The Powell whammy lives on. His desire to crash the markets has succeeded. If there were any questions about whether or not we were in a bear market, Powell made that clear by his words. I feel strongly that the bond market would rally if not for that Jackson Hole speech. Between horrible economic news and great reports on inflation, Powell should be talking about making a pivot, as opposed to inflicting more pain. He literally said that consumers should expect pain. The message could not have been more clear. He does not care about the economic destruction he is causing. Ultimately, this will force him to pivot and cause the mother of all bond rallies. But not yet.”
Markets have priced in 75bp hike for September (I still think we get 50bps) and another 75bps through the rest of the year (I think we get another 50bps). On top of that, I see the Fed having to pivot sooner and drop rates in early 2023 despite so many Fed talking heads saying no way.
Tomorrow is a big big day with the jobs report coming out.
If the numbers show more than 300k new jobs as the market expects, we will see bonds sell off some more. It is tough to imagine that right now seeing the hits we have taken this week, but we can’t rule it out.
Just be careful here…
I thought this was an interesting piece from the WSJ. In 2019, when Congress refused to pay for a wall on the Mexican border, then-President Donald Trump declared a national emergency and announced he would build the wall with money earmarked for other purposes. Democrats accused him of trampling on the Constitution’s separation of powers. Some Republicans warned that a future Democratic president could use the same tactic to fund his or her own priorities. They were right. Last week President Biden declared that under a 2003 law, a national emergency—in this case Covid-19—empowers him to cancel student debt for up to 27 million people. The parallels are inexact. But the money at stake is far larger. Mr. Trump wanted $7 billion for his wall; Mr. Biden’s debt cancellation could cost $500 billion over 10 years, while related provisions could double that,
And, I have to share I am a bit concerned about the changing weather.
Not that I am reaching to the movie “The Day After Tomorrow,” but there has to be something going on with California having the worst dry spell in 1,200 years and European officials say this year is on track to be drier than any time in the past five centuries. WHAT?
Please remain safe and healthy, make today great!
