Our politicians in Washington, D.C. did what they do best this week by kicking the debt ceiling can down the road until December 16, 2021. Until then, we can switch our focus to the Fed’s November decision on tapering their bond purchases. Does anyone have any Pepto Bismol? Financial markets roared higher on the news of this temporary reprieve, but at what cost? For one thing, the passage of the infrastructure package and the larger social support program that would provide additional stimulus to the economy will likely be delayed until after the debt ceiling is raised. That robs the…
Insights & Advice
Tag: U.S. economy
Markets are on the cusp
It was another tumultuous week in the markets. Volatility spiked as events in Washington and around the world injected an atmosphere of caution and indecision among investors. I expect more of the same. Welcome to October. A month in which I see a continuation of the last few weeks of uncertainty. The political circus in Washington, D.C. is not helping, and is set to continue making headlines in the days ahead. The debt limit controversary is probably the largest challenge investors face this month. Simultaneously, the battle between progressive and moderate Democrats over the passage of two government spending programs,…
Disappointing job gains in leisure and hospitality sectors
The most recent jobs report was disappointing. Only 235,000 jobs were created in August 2021, versus an expectation of 720,000. Leisure and hospitality jobs had led the way this year — until August. For the six months before August 2021, those industries had averaged 350,000 new jobs per month. Last month there were no job gains in the sectors. The drop-off in leisure and hospitality resulted in August’s jobs gains being the weakest monthly gain since January 2021. The weakness was attributed to rising COVID-19 cases. Consumer demand ticked down as the uncertainty regarding new infections went up. U.S. infection…
Economy grows less than expected
The good news first. The economy grew by 6.5% in the second quarter, which was one of the best quarters in recent memory. The bad news: it was a big miss. Economists were expecting an 8.4% rise, but the markets took it in stride. One explanation is that investors are well aware that the macroeconomic data is, at best, somewhat unreliable and prone to large revisions. It is not the government’s fault. The pandemic and subsequent reopening of the economy has made gathering economic data difficult. Another reason investors gave the miss a pass is that consumer spending, the biggest…
Things are heating up
“Don’t touch me; I’m too hot! Y tu lo sabes!” —Usnavi, In the Heights Ouch! Inflation is heating up enough to burn my fingers. Some quick numbers, and then I’ll try to avoid any more percentages. (Emphasis on “try.”) The Labor Department reported that inflation in June 2021, as measured by the Consumer Price index (CPI), increased 5.4 percent, year-over-year. That is the highest 12-month rate since August 2008. For context, commodity prices were booming then; oil prices hit a record $150 per barrel. The so-called “core rate” was up 4.5 percent during that same time. The core rate excludes items…
Market bears are baffled
On a weekly basis, at least one of the main market averages hits another all-time high. But the bears continue to expect a correction. Will they ever be right? Sure, but playing for a pullback is a losing proposition most of the time. You may get it right eventually, but the opportunity cost of staying on the sidelines can be, well, costly, as the bears are discovering this month. A much better way to prepare for the inevitable next market correction is simply to reduce your risk by adjusting your portfolio. That might mean trimming back your more aggressive holdings…
What is causing the labor shortage?
There has been much conjecture, but little evidence, as to why the U.S. is experiencing a labor shortage. Some say it’s because people are lazy and are exploiting the system. Some say it’s because greedy employers aren’t paying enough. Many people have made up their minds about “why” there is a labor shortage before enough evidence has been gathered to support any hypothesis. I possess a third consideration, but I’ll try to stay out of that ideological dog fight and report the facts (and maybe a few opinions). If we are intellectually honest about it, we know that people have…
A week of surprises keeps investors hopping
There were plenty of reasons why the stock market was a bit jumpy this week. Let’s go through them. Two weeks ago, I wrote that I was worried “that we could suddenly see a spike in new Delta variant cases that impacts economic growth. Remember that less than half of all Americans are fully vaccinated. President Biden, his Chief Medical Advisor, Anthony Fauci, and the Fed are all sounding warnings over this risk, yet the markets are ignoring it.” Investors finally caught on this week and began to realize the risk presented by the Delta variant and its impact on…
We ain’t normal
After watching the catastrophe at the U.S. Capitol building last week, it’s clear to me that we ain’t normal. But that’s not the only way to measure our lack of normalness. According to the CNN Business “Back-to-Normal” index, we ain’t normal. The Back-to-Normal index represents how close the U.S. economy is to returning to its pre-pandemic level. As I write this column, the index tells us that the economy is operating at 75 percent of where it was in early March 2020. The index was hovering around 83 percent for most of October 2020. Since then, it has been trending downward….