An Open Question

An Open Question

“We’ve got the tools, why don’t we use them?”, Joe Biden asked, on Friday afternoon.

He was referring to the federal government’s capacity to relieve economic suffering for millions of Americans simply by passing legislation.

Of course, Biden knows the answer to that question. If anyone knows why it is that US lawmakers habitually fail to deliver for the very people who put them in office, it’s a career US senator.

That’s not a personal jab at the President. Rather, it’s simply to state the obvious, which is that legislative paralysis and generalized dysfunction have been fixtures of the US political scene for decades. Donald Trump’s reign just injected a potent dose of actual, genuine animus into what, previously, was better described as petty partisan bickering among a group of people who, ideological differences aside, were united in their steadfast refusal to get anything done. Indeed, the rancor stoked by Trump makes yesteryear’s partisanship seem quaint.

But when it comes to getting his stimulus proposal through Congress with bipartisan support, Biden isn’t just battling to overcome the hostility of the Trump era and he’s not just fighting to cut through the usual Beltway permafrost. He’s also grappling with outdated thinking around debt and deficits, something Bloomberg’s viewers were swiftly reminded of when, just after he finished speaking Friday, the network cut straight to a discussion about the prospect of higher yields tied to deficit spending.

More amusing still, one of Bloomberg’s anchors had just mentioned that the week passed with barely any movement at all in 10s. Treasurys ended mixed Friday on below-average volume as options expired. The 10-year is basically just loitering at 1.10% looking for direction.

We’ve had supply (last week), the realization of the “blue sweep” (on January 5/6), Biden floating a $1.9 trillion stimulus plan, and Janet Yellen chatting with lawmakers (earlier this week) about a 50-year bond. And yet here we are, with 1.25% looking like Mount Everest (which is taller than previously thought, by the way).

“The Biden administration has its work cut out for it on containing the pandemic and getting a fiscal package passed to support its efforts,” SocGen’s Subadra Rajappa wrote. “The relative stability in Treasurys is at odds with the exuberance in risky assets, as bonds favor caution over optimism,” she noted, adding that “the 10-year should remain in the 1.00-1.20% range in the near term.”

“All else being equal, we’d lean toward a near-term bout of bull flattening given the bulk of the most bearish developments have already been priced in and done so largely on expectations alone,” BMO’s Ian Lyngen and Ben Jeffery wrote, in their weekly US rates wrap. “For example, current inflation is running at just 1.6% for yearly core-CPI in contrast to 10-year breakevens at 2.09% — this implies a lot of lowflation to be recouped.”

So, I don’t know folks. The “bond vigilante” story just doesn’t ring true for me. Especially not considering Powell still has WAM extension in his back pocket.

Anyway, equities were higher for the week. Big tech rose more than 4%, but small-caps managed another weekly gain too.

Everybody’s a winner. Well, everybody but Bitcoin, which had a rough stretch amid all kinds of rumors and confusion. As usual, proponents claimed there was not, in fact, any confusion. Only people who don’t know enough about make-believe digital tokens, which traded in a wild range between “loaded Honda Accord” and “lightly-used, base model Lexus RX350” this week.

The dollar — a real currency — rose for the first day in five Friday. Oil fell.

The week’s economic data was predictable. China is growing. The US labor market is in dire shape. America’s factories are doing ok, but the services sector is another matter. The US housing market is on fire. The eurozone is headed towards a double-dip downturn. And the UK is a mess.

The virus refuses to yield. On Friday, Boris Johnson said there’s some evidence that the new variant is more deadly. He also said the vaccines appear to be effective at preventing it. In the US, cases may have peaked, but fatalities — that most macabre of lagging indicators — have yet to show a notable improvement.

Biden, in the same series of remarks cited here at the outset, said that while his administration is moving heaven and earth to get people vaccinated, there’s nothing that can alter the trajectory of the pandemic in the very near-term. What lawmakers can do, however, is alleviate some of the associated suffering.

Whether they will or not is an open question.


6 thoughts on “An Open Question

  1. It’s early, early days, but after four years of anti-democratic chaos emanating from 1600 Pennsylvania Ave., I think investors might be willing to “pay up” for decency and competence.

  2. Earlier this week, on a dare, I correctly recited the first twenty elements of the periodic table. This got me quickly rebuffed as being a nerd. Quibbling about a two foot height difference in Mount Everest?

    1. The Everest thing is important because it drives home the point that our understanding of the world (or universe) is only as good as the granularity of the data available. I believe it was Isaac Asimov who stated that the original concept of the earth being flat was the best explanation for the data available at the time. Gradually that changed to round, pare, then lopsided pare as more information became available. With the right tools we’d probably know Everest is different today than last week.

  3. It may be that Pelosi and company are looking ahead to the next bout of Senatorial elections. Covering the Republican party with as many coats of tar and feathers as they can prior to the election in hopes of reclaiming a workable majority in the Senate and to keep the house firmly Democratic. With this they hope to end the Republican stranglehold on having a working government.

  4. “Everest (which is taller than previously thought…)”
    Even more so considering rising sea levels. How high is anything if not measured by the level of the sea? Don’t answer that. It’s a trap.

  5. I guess we might have some early indication of whether R Senators will play ball with Trump impeachment. The dilemma there is clear : Either condemn Trump, trying to reclaim the R party and retain some dignity but that implies cooperating with D. Or give Trump another pass out of fear of his base.

    The calculus for the stimulus is somewhat different but I haven’t heard a reasonable explanation as to why the R wouldn’t pull another 2009 “oppose everything” strategy. Worked well enough for them back then.

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