School Yard Politics
This article is about economics and the markets and I studiously avoid outright politics. However, current developments are just laced with politics. Putting together a budget should be a matter of routine.
What we have is a situation that amounts to school yard politics. I am reminded of third grade when out for recess. Typically, the bully holds quite a bit of sway. But factions and alliances are formed to overcome obstacles and impediments to get to a place where all eventually would like to be. At least, the current scenario has not devolved into fisticuffs. Yet, we do have the verbal thrust and parry.
I almost feel as if the president does not see that he has any skin in the game. How does one obtain a Nobel Prize for Peace while peace cannot be obtained at home. Are we that far from civil war? Democrats are not signalling that they will bend. We need to see a display of presidential power here. A great negotiator should be able to bring about a result post haste. The way the federal cash flow is being managed would not bring plaudits from the rating agencies.
It is assumed that once the shutdown has ended, all will go back to normal. But there may be some wreckage left over from the storm. Let’s find a way to complete the task.
The Fed made it clear after easing yesterday that the case for an easing in December is not a foregone conclusion. The ten year Treasury cheapened almost instantaneously. We are sitting now at 4.078% or off the recent low of below 4.0%. The curve is just a bit steeper on the long end. The Chair also stated that the economy remains steady despite some signs of cooling. And this view has been formed with the lack of federal data although there are many other available inputs that have been relied on in forming the view. One of the more fundamental assessments is that GDP growth has cooled to around 1.6% from 2.4%. Tariffs were mentioned as being somewhat additive to inflation. It remains to be seen how strong the holiday shopping period will be. We have learned of some large corporate layoffs. There are also reports that hiring is at somewhat of a standstill.
It is too early in the AI cycle to ascribe blame to AI for the reactions in the current labor market conditions. Labor market conditions and the shutdown appear to be having very little influence on the markets. What continues to be a focus of activity in the markets is how AI is driving the momentum. Corporate earnings have been relatively strong in this cycle except for the occasional miss. Most pundits see even higher highs for the equity markets by year end.
As for fixed income markets, operations appear to be quite orderly. Even the focus on Argentina has not created any large ripples. Now that the Fed has cut another quarter point we may see a further pick up in activity before year end. There has also been an uptick in M&A activity.
In the municipal sector, pricings are garnering a good deal of investor interest along with the positive flows to the funds and the ETFs. We will probably see a short pause in the New York paper until after the mayoral election results are out.
The leader in the race according to the polls, Mamdani, remains ahead by a considerable margin. But a lot still can happen. Heavy early voting turnout indicates a lot of interest in this contest. Contests elsewhere have more narrow margins.
One of the great aspects of democracy is that we get to cast the ballot for who we favor on our own. We look forward to the results.
John Hallacy
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