The average interest rate was over 8.0% in October, and today it is under 6.7%, as rates fell again in response to weaker-than-expected employment data.
Today is “Fed Day,” meaning that the Fed is meeting to announce whether or not it will lower the Fed Funds Rate. Fed Chair Powell’s comments will likely move the markets much more than anything the Fed actually does – so expect volatility later today.
I’m sharing a few interesting factoids below:
A Tale Of Two Economies – Bankruptcies Way Up
“It was the best of times, it was the worst of times,” according to Charles Dickens in 1859 when he wrote A Tale of Two Cities. Dickens could say the same thing now, however, when looking at the American economy.
Government employees and contractors are doing great, but much of the private sector is currently getting its ass kicked – particularly the manufacturing sector.
Both corporate and personal bankruptcies are way UP – which is another indication of how weak the private sector is. NOTE: I will blog about mortgages after bankruptcies tomorrow.
We are seeing private sector layoffs en masse as well, with UPS being the latest to announce. The UPS announcement is particularly foretelling, as UPS volume is another great recession indicator.
Weak Labor Data Pushed Rates Down
Rates fell today largely in response to weaker-than-expected labor data, primarily from ADP (the huge payroll service).
Job creation and wage increases were both lower than expected, and job switching is way down too.
What is interesting is how private sector labor reports are often much more negative than government sector (Bureau of Labor Statistics) reports – which is something that makes many analysts go “hmmmm.”
Is The Fed Like A North Korean Dictator?(taking credit for events that would take place no matter what)
The North Korean propaganda machine likes to give its dictator credit for pretty much everything that happens in the world, after the fact, by proclaiming that he predicted and/or fostered the events – whether it be wars, inventions (he invented the smartphone after all), vaccines, natural disasters or even the sun coming up in the morning.
Everyone is giving the Fed full credit for everything that is happening in the economy right now too. BUT, analysts like George Gammon and Jeff Snider like to remind us that the economy’s gonna do what the economy’s gonna do irrespective of the Fed over the long term, and that the Fed’s narrative only causes short-term blips.
So, no matter what happens today in response to the Fed’s comments – we will likely end up back to where’d have been anyway – even if the Fed had made no comments. In addition, Snider, Gammon and many other analysts don’t believe the Fed has the power to prevent recessions.
But, if the sun comes up tomorrow, I am still going to give Fed Chair Powell full credit 😊
Who’s Buying Record Levels Of Government Debt And Why? (most interesting “factoid” in today’s blog)
Last year when we all realized that the government was going to issue a record level of debt (over $3 trillion!), there was panic in the air. This is because everyone (me included) thought the excess debt supply would push yields into the stratosphere because there would not be enough buyers.
BUT – here we are in early 2024 with the 10 Year Treasury Yield almost 1% lower than the peak we saw in 2023. And this is DESPITE massive rate hikes by the Fed.
In this fascinating video, Jeff Snider makes the case that all of that excess supply of debt was mopped up by all of the excess demand by the huge number of bond investors seeking “safety and liquidity” because they expect a recession. If they did not, they would NOT be buying government bonds and would instead be investing in stocks, businesses or business expansion.
The significance of this cannot be overstated.
