Jobs Day in 'merica. Will the jobs report throw cold water on the recent bond rally and bets for rate cuts or will it lend further credence to the 'lower faster' yield camp (who might also be the 'Fed put' camp)? The impact of the return of striking auto and SAG workers may complicate the interpretation of the data where expectations are in the +180-190K range, though the unemployment rate might be the more important number. It's comical how many economist are discussing the triggering of the Sahm rule, often to the extent of ignoring or disagreeing with Claudia Sahm who created the rule. Yesterday, Claudia put out a post with all the steps involved in the calculations for the rule she created.
Yields are up 4-5bps to start the day with the 2Y at 4.63% and the 10Y at 4.18%
Yesterday's jobless claims data didn't show any signs of a deteriorating labor market. On the equity side, Google and AMD said something, something, followed by the magic word "AI" and their shares went up, taking the market with them.
You probably missed the release of the Treasury OFR's Annual Report to Congress on their assessment of risks to the U.S. financial system and economy. The headline takeaway was "Financial-stability risks have increased since last year’s report and remain elevated in 2023. Multiple indicators signal an upcoming economic slowdown—potentially magnified by persistent inflation, ongoing geopolitical risks, and global conflicts." If you want a summary of their research on various areas of financial risk, you can find it here
XTOD: Just because you have free time doesn’t mean anyone who asks for it is entitled to it.
XTOD: Can Social Security Be Saved by Selling America’s Oil & Gas Reserves?
The proposal: In a town hall hosted by Fox News, former President @realDonaldTrump
suggested that America’s fiscal problems – and specifically #SocialSecurity’s looming insolvency – can be solved by tapping into the “incredible wealth under our feet” in the form of domestic oil and gas.
Our findings: Dedicating current oil and gas leasing revenues to Social Security would cover less than 4 percent of its shortfall, and it would be impossible to fix Social Security even if all federal land were opened to drilling operations.
XTOD: An amazing roller coaster ride for the 10-year treasury yield, despite no meaningful change in expected future primary budget deficits.
XTOD: An income-based explanation for "vibecession": 1) Even though we haven't had an actual recession over the past 2 years, inflation-adjusted personal income per capita (blue) have behaved in a recessionary way. 2) That's true even though "the economy is good" (orange)
XTOD: Blackstone, Digital Realty join hands to develop $7 bln data centers http://reut.rs/4aecEE3
XTOD: The Department of Justice on filed new criminal charges against Hunter Biden, US President Joe Biden's son, accusing him of failing to pay $1.4 million in taxes while spending millions of dollars on a lavish lifestyle https://reut.rs/3uLvAJX
XTOD: After this week’s unacceptable testimony from presidents of @Penn
@Harvard , and @MIT , the Education Committee is launching an official Congressional investigation that will include substantial document requests and compulsory measures including subpoenas to those universities and others. 🚨🚨🚨 https://stefanik.house.gov/2023/12/stefanik-statement-on-committee-on-education-the-workforce-announcing-investigations-into-mit-harvard-penn-following-their-inability-to-condemn-antisemitism
XTOD: On December 7, the #GDPNow model nowcast of real GDP growth in Q4 2023 is 1.2%. http://bit.ly/32EYojR #ATLFedResearch
XTOD: I'm still a bond bear. I still have my target of 5.50% 10-year in 2024. I'm in the "no landing" camp. That is no recession or even a soft landing but continued expansion. (as an aide, I've been critical of the soft-landing forecasts as they don't have an accepted definition, and by some criteria, it can be argued there has never been a soft-landing before). So, I think there will be 2+% real GDP growth in 2024. I'm also in the "sticky" inflation camp that bottoms at 3+% in the long run, not 2% (it only gets to 2% in a full-blown hard landing or recession, which I do not see).
For both above, I've argued the cycle changed in 2020. The labor market is very different (remote work) and more transactional. That means employees are more willing to quit (or strike) as they are fearless in finding another job. This confidence allows them to keep spending.
So 2+ real GDP growth and 3+% inflation = 5+% nominal GDP, which is how I get to 5.50% 10-year in 2024.
A word about what this means for risk assets, like stocks: they will see the headwind of a viable alternative ("TINA" died in 2020). This was the case in 2023 with everything but the "Mag 7" stocks struggling to beat cash ... for the second year in a row.
Dr. Jeremy Siegel has a new edition of his book "Stocks for the Long Run" this year. In summary, the long-term potential of the stock market is now 8%. If investors can continue to get 5+% from the bond market, why take the extra risk of 3%?
On this front, the era of buying indices is now over. Peter Lynch can come out of retirement as we are on the road to transitioning back to a stock-picking environment.
XTOD: Essentialism isn’t about getting more done in less time. It’s about getting only the right things done.
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