June 1, 2023

When Fighting is a Good Thing

 Much of the media rhetoric yesterday focused on the fighting between democrats and Republican, and I couldn’t help wondering if that circumstance is what partisan politics is all about, no side gets what they want, maybe, except us? Today the Senate takes up the vote and, in my opinion, it will be more contentious. Whereas the House didn’t really debate the Debt Ceiling Bill, but rather argued over its contents. In the Senate, suggestion of amendments will come up, probably to no avail and 60 votes will need to happen to pass the bill on to the President. Not sure which politician is willing to upend a process this important, but I’m confident that history will repeat itself and the bill will pass.

 I bring this up because the markets have spent most of year rising with the help a few big name stocks. Names you’re familiar with such as NVIDIA (NVDA), Microsoft (MSFT) and Alphabet (GOOGL) are all the new stars of the AI show. But for those watching closer, the rest of the sectors such as Healthcare, Industrials and even within technology, only adequately performed. This has left the technical condition of the broad indexes around neutral, and in my opinion, not a bad place to be.

 Tomorrow the Unemployment Data will be released and then the inflation and other economic data in the weeks to come. What was curious this week was the release yesterday of the Fed Beige Book, which is a collection of commentary on recent economic conditions, accompanied by any suggestions regarding a rate hike at their next meeting on June 13th thru 14th. For now, there is chatter from various voting members of the Fed that there is a likelihood of “skipping” this meeting, but not evading any upcoming challenges should it need to raise rates. Most of the focus this week has been on the word “skipping” and therefore the consensus appears that there is a 25% chance the Fed will raise rates. I find this curious since beginning in early April the interest rate market led by the 13week Treasury Bill saw rates increase 23.3%, 14%% for the 5yr Treasury Note, 10% for the 10yr Treasury and 9% for the 30yr Treasury Bond. I bring these up for two reasons. The first is my often written observation over 30yrs, which is the bond market has never needed the Fed to rase rates. Everything form mortgages to credit cards are all based on treasury rates and these changes have shown up in data suggesting, in my opinion, that a pullback in excessive spending is gaining some momentum. That would slow the economy from the consumer and justify the Fed skipping a rate hike at the next meeting. My second point is, the bond market has already dictated the increase in rates, so even for extra security, why shouldn’t the Fed increase their rate measure which will have almost no impact on the taxpayer? After all, the issue is all about inflation and while it may have peaked, which I agree with, it shouldn’t be ignored.

 Essentially, I’ve written about a number of different situations, external or otherwise, over the past few years. Those mentioned above have been with us for over a year and now they share a much more transparent certainty today than even six months ago. The markets love certainty, when it comes and for now the economy, inflation and everything that distracts is reaching, in my opinion, an endpoint. Patience still helps, but so does being prepared. And we are.

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