The lowly ADP employment report is released in about 30 minutes. Months ago that report would be met with a shrug–numbers were no good (so they said) and only the ‘government’ numbers were ‘official’–even I agreed with this point of view. Now we anxiously await the numbers.
Now we are stretching – looking for every little glimmer of economic slowing – but in such a way as to maneuver a soft landing. Who knows if this is possible–no one knows of course. On the surface one could see a soft landing–but I don’t see it if interest rates do what I think they will do. Falling rates into mid to late in 2024–then heading higher as global investors demand higher rewards for holding U.S. debt. U.S. debt will undergo ratings cuts from all the major ratings agencies by then late 2024–if not sooner.
Back to ADP–the forecast (guesses) is for 128,000 new jobs being created in November. 113,000 were claimed to have been created in October. Slower is better I guess–goldilocks is 110,000–not too hot, not too cold.
The 10 year treasury is trading around 4.2% right now which is up a few basis points from yesterdays close. We have seen darned little movement in income issues this week- tiny bit higher or tiny bit lower. Equities are flattish awaiting news.
Probably doing nothing today – have some dry powder from sale of Hennessy Advisors 4.875% baby bonds, but will have much more on 12/15 when maturities hit on some CDs. Guess I will have to get off the fence once I have more dry powder–no longer can use the excuse of not having dry powder.
this 10YR move seems believable. Bond market is telling the Fed to cut now, not in 2024.
pig pile – bond markets do seem a little bit euphoric
I wouldn’t read too much into the fundamentals. Technicals tell better story here. Hedge funds were short hundreds of billions on bonds that they are really starting to short cover on.
Tim, next year will test each or our “base cases”. I love this site because we can agree and disagree like adults, and learn from each other. Clearly no one has a cyrstal ball, and next year we will all need each other.
Thanks again for all your do! Cheers! WIndy
Right on windyducat – I am continually amazed at the level headed and civil discussion. Sometimes we think we have been through a tough investment year, but let’s face it they are all tough.
Bay area News last night was talking about how a few people who had bought homes in the last 3 years and were selling have seen large drops in the value they received. News likes to report the sensational for shock value. Mentioned a couple who had paid 20 million for a house on Nob Hill in SF in 2020 and after a year on the market dropped the price and sold it recently for 10 million. Lot of tech people who earn 6 figures been getting laid off.
Hello Tim, while I don’t agree with your outlook for long-term rates in the second half of 2024, the best outcome for me would in fact be a reduction in short-term rates coupled with an increase in long-term rates. Cheers.
Stephen—my predictions are like a coin toss – 50/50. Mine are generally based on logic, but the markets don’t often move logically.
Tim, I’ve tried telekensis and rate predicting. The wine bottle refuses to pour itself unless I’ve had far too much of it – then it works. I know this because I’m always astonished when it’s empty. As for rate predicting, the best possible outcome I’ve had is well-below 50% between the 3 possible outcomes of up, down or sideways.
Related: Charles M recently referred to an observation that just as the mob is crowding one exit door there’s frequently a violent reversal in the opposite direction. Maybe for that expectation, been sitting on my hands a bit more lately.
Alpha—yes actually I have learned to temper my own predictions–i.e. not trust them. After 52 years of this stuff I’ve validated my inadequacy in predicting many, many times.
Alpha
I learned a while ago trying to predict rates for most folks is a fools game. In my last job, we had on our finance committee some heavy hitters including one who managed a huge University’s endowment and another who managed a huge foundation’s investments. There were plenty of others with excellent financial experience. Well, I know their batting average on forecasting rates when it came time to do some debt interest rate swap agreements was probably 30% success at best. So if you are getting close to 50%, pat yourself on the back
My takeaway was if these people who manage mega money can’t see into the future accurately, I shouldn’t try to do so. So that is why I stay nearly fully invested all the time – just playing around the margins (ie I may take uninvested cash up from 5% (which I generally keep for opportunities that pop up) to say 10% but that is the extent of it. I would rather be in and collecting my income streams (which is why I don’t put much focus on my account balance) than out and trying to time the market.
There is a general adage that says that the Fed follows the 2 yr treasury when setting their reserve rate. The 400 PhDs they have don’t really factor into it.