There’s still no political agreement to avert a Treasury default and so the possibility, however remote, is inching closer. What are the risks? Well, the floor is wide open for discussion–no one’s really sure where we’re headed because we’re in uncharted waters when it comes to Treasury defaults. Sort of. Donald Marron at the Tax Policy Center writes: “Actually, the United States Has Defaulted” by way of a brief, limited episode of default in 1979 on some T-bills. Meantime, what are your biggest concerns for the crisis du jour? Unsure? Not to worry as pundits have assembled an abundance of doomsday scenarios. Should you be worried? Yes. Why? Well, consider what our so-called leaders have produced so far–an unnecessary and entirely avoidable crisis that puts the US economy at risk. How much confidence should we have for expecting enlightened leadership to suddenly return in the days ahead? When you’re in the back seat of a car with a drunk driver who’s managed to avoid running off the road so far, it’s wise to reserve judgment on the outcome of the trip. As for pondering the worst-case scenarios, here’s my short list for thinking about the future if the unthinkable becomes reality:
Monthly Archives: October 2013
Jobless Claims Surge On The Blowback From The Backlog
Talk about a reversal of fortunes! Last week’s filings for new jobless claims soared 66,000 to a seasonally adjusted 374,000, which is the highest weekly total since March, according to a division of the Labor Department that’s still publishing economic reports. A substantial slice of the increase is reportedly due to playing catch-up with the data in the wake of a computer glitch that affected updates in several states. According to Bloomberg, “The issues in California accounted for about half the jump in applications last week and the dismissal of non-federal employees after Congress failed to compromise on a budget accounted for about another 15,000, a Labor Department spokesman said as the data was released to the press.”
US Retail Sales: September 2013 Preview
Tomorrow’s retail sales report for September will be postponed due to the government shutdown. When (if?) this update is published, US retail sales are expected to rise 0.3%, according to The Capital Spectator’s average econometric forecast. Keep in mind that this forecast is impaired because it doesn’t reflect an update of the R-2 model (see definition below), which relies in part on the latest payrolls data to project retail sales. Unfortunately, the September employment report from the government is still a mystery due to the budget impasse in Congress. Using the available numbers, the Capital Spectator’s average forecast of a 0.3% rise for September retail sales represents a slight rise from the previously reported 0.2% gain in August. Meanwhile, the Capital Spectator’s average projection for September is above several consensus forecasts based on recent surveys of economists.
The Wide, Wide World Of Bond ETFs
Bonds are in the news these days, and not necessarily for bullish reasons. Between the threat of rising interest rates and the possibility of a Treasury default in the US, the notion of fixed-income as a safe haven is under pressure. But while it’s tempting to lump all bonds into one category, the reality (as usual in the capital markets) is far more nuanced. Indeed, if someone gives you their view on the “bond market,” your first question should be: Which one?
Janet Yellen… In Her Own Words
President Obama today is expected to nominate Janet Yellen, who’s currently vice chair of the Federal Reserve, to succeed Fed chairman Ben Bernanke, whose term ends in January. The confirmation hearings in the Senate may prove to be rocky, given her critics among the hawks. In some respects, she’s more dovish than Bernanke. But her nomination, overall, would be a relatively safe choice, particularly at this point, given the uncertainty looming over the economy thanks to the budget battles in Washington and the potential for a Treasury default later this month if Congress doesn’t raise the debt ceiling. It doesn’t hurt that she topped the list for accuracy among Fed forecasters, according to a recent study by The Wall Street Journal (“Federal Reserve ‘Doves’ Beat ‘Hawks’ in Economic Prognosticating”).
Macro-Markets Risk Index: 8.7% | 10.8.2013
What’s the economic fallout from the ongoing budget battle in Washington? It’s hard to say at this point, although there are signs that the macro trend is wilting, according to a markets-based profile of US economic conditions. The Macro-Markets Risk Index (MMRI) closed at 8.7% yesterday, October 7. Although that’s still at a level that suggests that business cycle risk remains low, the declining trend is worrisome in the current climate. At yesterday’s close, MMRI is near the lowest level of the year. If the impasse in Congress rolls on, which may deteriorate into a Treasury default as well, it’s likely that we’ll see MMRI slip further. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply a bias for economic growth.
Asset Allocation & Rebalancing Review | 7 Oct 2013
The federal government’s partial shutdown is no closer to resolution, but so far the markets are shrugging off Washington’s fiscal stalemate. It remains to be seen if the indifference will endure if the deadlock in Congress continues and the threat of a self-inflicted default draws closer. “On [October] 17th, we run out of our ability to borrow, and Congress is playing with fire,” says Treasury Secretary Jacob Lew. “If they don’t extend the debt limit, we have a very, very short window of time before those scenarios start to be played out.”
Book Bits | 10.05.13
● The Fall of the Euro: Reinventing the Eurozone and the Future of Global Investing
By Jens Nordvig
Summary via publisher, McGraw-Hill
The euro started out with great promise, but it has seen major problems in the last few years. What will happen if Germany decides to drop the euro? Greece? Italy? Spain? How will your investments be affected? The financial crisis of 2007-2008 may have had its epicenter in the United States, but it exposed fault lines inherent in the euro. Some have given way, resulting in crises in Greece, Spain, Ireland, Cyprus, and other European nations. But if action isn’t taken soon, the whole European financial system might give way to a crisis the likes of which the world has never seen. Jens Nordvig describes the potential outcome as “financial anarchy.” The Fall of the Euro is a detailed exploration of this precarious situation. As Nomura’s global head of currency strategy, Jens Nordvig is among the world’s top experts on the euro, and he provides the information, insight, and authoritative analysis you need to make the wisest investment decisions possible.
Another Attempt At Estimating September Payrolls
Today’s September employment report from the Labor Department has been postponed and rescheduled (maybe) for release down the road. The source of the delay, of course, is the ongoing shutdown of the federal government, courtesy of the budget battle in Congress. As a result, the official data remains a mystery at the moment, but that doesn’t stop us from considering the published numbers from other sources in an effort to develop some perspective on last month’s labor market profile. For instance, this week’s updates on the manufacturing and services sectors from the Institute for Supply Management offer useful proxies for inferring the hard data on payrolls. In particular, the employment components in the ISM Manufacturing and Non-Manufacturing reports are especially valuable.
Jobless Claims Stick Close To A 7-Year Low
The government’s employment report for September that’s theoretically due for release tomorrow will probably remain a mystery this week, courtesy of the government shutdown. In contrast, today’s weekly update on jobless claims has been spared Washington’s axe of fiscal mayhem, at least for this week. New filings for jobless benefits inched higher by 1,000 in today’s report, settling at a seasonally adjusted 308,000 for the week through September 28. Apparently some corners of the Labor Department are better than others at dispensing economic numbers when Congress is suffering from a fiscal hissy fit. In any case, the key takeaway in the data du jour is that claims continue to bump around at levels within shouting distance of a seven-year low. An even stronger message in today’s release is the news that the year-over-year rate of decline is still running at relatively deep levels, which is an unequivocally bullish sign for anticipating the near-term trend for the labor market.