Holy volatility, Batman!
Rates shot way up again this morning (before pulling back) in response to an ADP employment report indicating that private payrolls increased by 184,000 in March, far exceeding estimates and hitting a number we have not seen since last July.
So, the question is, will it last, and will the upward trend in rates continue?
Even bond bulls (like Alf Pecatiello) are saying the trend could continue, and we could see rates going to much higher levels … before falling (“bond bulls” expect the economy to weaken still and inflation to fall at some point this year, which will push bond prices up and yields/rates down).
I follow dozens of analysts on a regular basis, and some remain very bullish, while others are very worried. So – who is right?
The Bulls!
On the bull (continued growth) side is Ed Yardeni, who was just on this recent Thoughtful Money podcast. Mr. Yardeni believes that AI, and technology in general, will continue to fuel growth and productivity gains and that the economy and stocks will continue to head north, well into record territory. The comments below the video are not particularly kind though, so I am not sure how many people agree with Mr. Yardeni.
There are numerous other bulls that insist that continued liquidity infusions into the economy by the Treasury and by various funds and financial institutions will continue to propel the stock market and the economy forward through 2024. Michael Howell was on this Thoughtful Money podcast, making this case.
The Bears!
On the bear side though are the famed economists Stephen Hanke and Lacy Hunt.
Mr. Hanke was on this recent Thoughtful Money podcast, explaining why a recession and lower inflation are “baked into the cake,” solely and only because the M2 money supply (checking, savings, money market accounts) shrank so much – and there is nothing anyone can do to prevent the outcome now. It is simply a matter of waiting for the lag effects to set in. Mr. Hanke is in his 80s and has been around the block (and the world for that matter) about 1,000 times now, and his track record is quite good. So, he deserves a lot of credence.
Lacy Hunt was on this recent Hidden Forces podcast. Mr. Hunt’s primary concern is America’s plunging savings rate, which he says always portends very hard economic times. Longer term, he’s also extremely worried about declining birth rates. Mr. Hunt also says inflation is well under control if you take out the inaccurate estimates for shelter costs. Mr. Hunt is also in his 80s, and he too has seen everything imaginable.
Danielle DiMartino Booth has been illuminating the weakness in the labor markets for some time now, pointing out how many full-time jobs have been lost over the last year. She also shared this post this morning in which she explained that many private sector job creations are a result of hiring for “deficit-funded infrastructure and green manufacturing” projects. So, that begs the question of how long we can continue to borrow $3 to create $1 of wealth? But also, if that is what is creating the jobs and keeping the economy afloat through the election, credit to Mr. Biden and Congress for pulling off a miracle (even if it does not last).
Black Swans
There are always potential black swans (or at least gray swans) that could disrupt everything. These include currency crises (Japan’s Yen is tanking, as are many other currencies right now), banking/commercial real estate crises, and overseas recessions or financial crises (from China, for example) spilling over the rest of the world.
The fact that rates edged back down after shooting higher this morning makes me think the bear case might be winning.
