What if farmers went on strike in the 1880s and demanded that farming had to be done without “automation” and that every farmer receive a guaranteed income in the top 15% of Americans?
If they had succeeded (and farmers were still using horses and single-blade plows), much of the world would be starving, our economy would be a fraction of what it is now, food would cost multiples of what it costs now – and everyone on the planet (but for the farmers) would be worse off.
Almost 40% of Americans worked on farms in 1900, but less than 2% work on farms today and we have food surpluses that nobody could have imagined even 50 years ago – and thank god for that.
This is somewhat akin to the demands of the longshoremen who recently went on strike, demanding much higher pay and that America’s seaports don’t “automate.” HERE is a post on X that shows a fully automated seaport in China.
NOTE: Longshoremen don’t make that much ($100,000 to $200,000 with benefits) and I don’t begrudge them for their demands. I am merely pointing out the long-term issues with their demands.
Strike Will Be Inflationary – But Maybe Not for Long
The above is sort of a sidebar, and it was more a reminder that the Longshoremen strike that is shutting down most of America’s seaports will push up prices for coffee, fruit, autos, seafood, and more.
So – will or did this threat of “inflation” push up rates? Not really.
The bond market (which sets interest rates) responds to two things primarily: (1) economic growth expectations; and (2) inflation expectations.
The port strike will likely have a bigger impact on economic growth than on inflation – so the impact on rates is likely more downward than upward.
In addition, it depends on how “inflation” is defined. If inflation results from an increase in the money supply, it is more long-lived and it impacts rates more.
But, if inflation or an increase in prices is perceived as temporary (due to seaports getting shut down), the markets do not react as strongly.
It also appears that many investors expect the strike to be resolved soon – so rates have not been impacted that much in any case.
Iran’s Attack on Israel
With respect to Iran’s missile attack on Israel, we saw a short-term “flight to safety” like we usually see when geopolitical conflicts arise.
Once again, a “flight to safety” or a “flight to quality” is where investors move money out of riskier investments (like stocks) and into safer investments (like bonds).
This is often temporary, as investors wait to see the outcome of a particular event – such as Iran’s attack on Israel yesterday. The increased demand for bonds caused by a flight to safety pushes bond prices up, which in turn pushes yields or interest rates down.
So, yesterday, rates fell sharply when Iran launched its missile barrage. But, later when news emerged that there were no or minimal casualties, rates started to go back up.
We’ve seen a similar situation play out now numerous times. Rates often fall when geopolitical conflicts start, but they then often edge back up later on when it appears that things might not escalate as much as people initially feared.
I heard several analysts explain yesterday that stocks often do very well after the initial flight to safety period ends and wars carry on, as wars are often perceived as good for stocks (unfortunately) – and that often results in higher rates.
NOTE: These wars and attacks are extremely serious with lives and much larger conflicts at stake. My financial analysis of these wars and attacks does not mean to make light of their seriousness in any way.
Rates are higher today now, as both the strike and the Iran/Israel skirmish already seem to be in the background – with a stronger-than-expected ADP jobs report pushing up rates.
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