Good Friday AM,
After a strong morning yesterday, bonds tanked. A weak Seven Year Treasury auction, Mr. Powell’s reiterated commentary from last week’s Fed meeting, and the Fed allowing banks to pay dividends and buy back stock all likely played a part. Each points to a strengthening economy. Inflation though is the real concern of a growing economy and we still see none of that. Personal income and personal spending nose-dived in today’s reports. PCE prices came in at a mere .01%. No inflation in sight. PCE prices account for the goods that we consume and is more valuable than CPI and it is the number the Fed cares about more. There is a trading pattern that is emerging (cup and handle) that, if it forms, would likely lead to a move up in bond prices and down in rates. I hate to recommend floating but that pattern should reveal itself in the next few days. I would still caution that it is risky to float.
Two other alarming little quips to finish the week.
102.3% — The expected U.S. federal debt as a share of gross domestic product by the end of this fiscal year. In an interview with NPR, Federal Reserve Chairman Jerome Powell said that U.S. government debt isn’t at unsustainable levels and that now isn’t the time to worry about reducing it, though he did warn that policy makers should seek to slow its growth once the economy is on firmer footing. 102.3% surely seems unsustainable.
$450,000 — The estimated additional cost per voyage to cargo owners and shipping operators for diverting ships around the southern tip of Africa instead of through the Suez Canal in Egypt. The channel is a vital trade route for oil and a host of consumer goods, but it has been blocked since Tuesday by a 1,300-foot ship that got stuck there, and officials say efforts to dig it out and resume traffic could take days or even weeks, forcing some companies to make alternative arrangements. This will end up creating an uptick in global prices (and possibly inflation) as the delays are going to make oil, livestock, cars, goods all scarce for the next months. Stock up now… 🙂
Please remain safe and healthy, enjoy the weekend (Happy Passover if you are celebrating) and make today great.