Market Recap

Posted on October 8, 2021 by Gemmer Asset

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Market Recap


Somewhat of a listless week for the markets with no clear theme other than a general fascination with what is happening with energy prices around the world.  The main economic report in the U.S. was Friday’s employment report, and it was basically a dud.  The economy added just 194,000 jobs in September, far below the 500,000 expected by economists.  As it turned out, only 2 out of 71 economists polled predicted a jobs number below 200k.   Good job people!!


Most of the weakness in hiring was found in government employment, as you can see below.



But the growth elsewhere was underwhelming.  One positive in the report was the fact the unemployment rate declined by 0.4% to 4.8%.



But even this was influenced by a shrinking labor force.  The key unanswered question that comes from this latest report is whether hiring is weak due to economic weakness or due to a lack of qualified candidates.  If it’s the former you’d expect wage growth to stagnate.  However, wages were up 0.6% month-over-month (+4.6% year-over-year).  Another argument against economic weakness is the fact that there are now 3.3 million more job openings than unemployed people in America. That’s a new record.



This is the last jobs report before the Fed meeting in November.  The general consensus is that it does little to dissuade the Fed from starting to trim the size of their monthly bond purchases.


Every Few Years We Try to Shoot Ourselves in the Foot


One definition of insanity is doing the same thing over and over and expecting a different outcome.  This seems to encapsulate the debt ceiling issue.  Once again, the media is full of breathless headlines about a possible default, only for there to a be a last-minute resolution to kick the can.  Oh my.


As you can see below, the debt ceiling has been raised a few times the last few years.



From what I can tell, only the U.S. and Denmark have a debt ceiling.  Prior to 1917, Congress authorized each individual bond issue.  But as you can imagine, this quickly became a touch unwieldy, so Congress allowed the Treasury Department to issue bonds as it sees fit, albeit constrained by a Congressionally-set debt ceiling. 


Put simply, Congress (the Legislative Branch) stopped micromanaging Treasury bond issuance to fund spending authorizations (thus leaving it as a function of the Executive Branch) but still retained its authority to ensure a division of powers by limiting the total amount of debt issuance.


One key point lost in the media frenzy is the fact that raising the debt ceiling itself doesn’t authorize new spending (Congress approves the budget separately); it merely allows the government to continue paying its previously-authorized spending obligations.   To not raise the debt ceiling means the government either has to not pay previously-authorized spending obligations, or default on its national debt, which is accumulated over time from previously-authorized spending obligations.


In other words, the idea of fiscal constraint is relevant when deciding on new spending and taxation plans, but not relevant during debt ceiling disputes, which are about prior spending plans.  Thus, we have a periodic circus around the debt ceiling with a lot of meaningless rhetoric that ultimately blows over.  As Greg Valliere noted on Thursday:


‘BOTTOM LINE: It’s always a good thing to avoid a crisis, even if it’s for just two months. Another extension is probable, kicking everything into the 2022 election year. The debt ceiling is still a maddening issue, but it’s not going to lead to default; that was always unthinkable — when faced with that threat, everyone blinks.’


Charts We Found Interesting


1. Infection rates continue to fall.



2. As do hospitalization rates.



3. A recent study on China’s population estimates an almost 50% decline by 2100. That is simply staggering – I still can’t get my head around that number.



4. Ahh, magazine covers as contrary indicators. On January 22nd, 2015 Time magazine published the following….



5. …and here are gasoline prices since that date. There were a couple meaningful dips but gas definitely isn’t cheap.



6. China (and India) are running out of coal.



7. Could this be a sign that the logjam at the ports is finally starting to ease?



8. Another reason to love France – baguette vending machines!! My waistline is thankful
these don’t exist in the U.S.





Have a good weekend.




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