Thinking about the employment number to be released in 3 hours–I so much want the numbers to be soft, BUT I don’t see many reasons for them to be below the 275,000 (new jobs) expectations–the economic data simply has not been soft enough. Anecdotally, you hear news of layoffs and hiring freezes but whether that translates to the government numbers one never knows.
At this moment the 10 year treasury is at 3.84%–not really too far from the 4.0% or so it hit 10 days ago. Almost without a doubt a ‘hot’ jobs number will send it back to the 4% mark and our accounts, which are maintaining a level 1% above recent lows, will tumble to new lows. It was only a year ago that I was saying ‘all I want is a solid 6%’–now we have the opportunity–are we going to take it? I am–almost each day, although my cash position now is very small.
Economically speaking there is plenty to worry about now – as much as I can remember in the last 20-30 years. On a local basis we need rain–really bad–and this is a huge economic factor in a agriculture state. Barge shipments (for grain) on the Mississippi are being curtailed because of low water conditions–it has been said that some crops may be left in the field for lack of a place to go with it (not sure I am buying that). We had 1/4″ of rain in September and now are 8″ below normal and the Minnesota River is about a week from going dry–actually having no water in it. Globally one has to wonder how Europe (and everyone else really) is going to get through the winter with the global demand for LNG–utility bills are going to be high with the potential to go much higher. As I have mentioned before we buy our propane (for heat and hot water) about a year in advance so my cost is locked in–hopefully until spring. We got caught in a propane shortage a few years ago and paid about $5/gal for a tank of gas–about $2,000–ouch. Last year propane was $1.25 and we paid around $2.00 for prepaid a couple months ago.
At this time I expect we are going to see a 75 basis point rate hike in on November 2. We have 3 chances to reduce that to 50 basis points—the employment numbers today falling off a cliff (not likely) and a sharp reduction in the CPI next week (also not likely). The 3rd item is that something ‘breaks’–somewhere in the world and I am not sure we want that to happen. I think investors should mentally accept this rate increase–yes it may bring a bit more pain–but it is pain with a silver lining–higher yields to be taken advantage of by investors.
So it is time to buckle up my seat belt–equity markets could go straight up or straight down at 8:30 a.m. (central)–where it ends up no one knows. Or maybe it will surprise us and trade flat all day (I really doubt it).