Payrolls rose 339,000 for May. That was well above the 190,000 expected – and what seems like a robust report. Is the economy really that strong? The devil is always in the details. From mine, I think the Fed will likely pause on a rate hike this month despite the so-called ‘upside surprise’. For example, there is some ‘soft’ data in the report – soft enough for the Fed to not pull the trigger. Wage growth slowed and the unemployment rate ticked higher. Good news from the Fed’s lens.
Could $1.1 Trillion in ‘T-Bills’ Suck Out Liquidity?
Over the weekend, financial media reported a deal in principle to raise the debt ceiling. Based on all reports, the deal sets a two-year spending cap, kicking in October 1. Now if Washington DC agrees to at least slow its spending – they’re likely to be doing it during an economic slowdown. And this could have a near-term impact on economic growth and the valuations of risk assets. What’s more, if Treasury are permitted to issue $1.1 Trillion in fresh T-bills – what will that do to liquidity? Will banks deposits start looking for a (higher return) home?
Ignore the Debt Ceiling Noise
Mainstream media remain fixated on ‘debt ceiling’ negotiations – warning of a “financial catastrophe” if this doesn’t get done. This is the 78th time we have hit the so-called debt ceiling. And how many defaults has there been? Zero. A deal will get done. And if we are presented with a sell-off in markets – then it represents an opportunity.
Expensive and Risky
Stan Druckenmiller – one of the greatest investors of all time – is issuing a stark warning. Tread carefully. He echoes much of my sentiment of the past few months; i.e. not only do I think the market is fully valued at 19x forward earnings — it represents meaningful downside risk. What concerns me most is what the market assumes will happen over the next ~6-9 months. E.g., at the time of writing, it sees rates being slashed three times this year. Is that realistic with Core CPI YoY is still traveling around 5.5%? It also sees earnings growth. Will that happen opposite a recession? It’s a long list of assumptions…
For a full list of posts from 2017…