Will the narrative begin to rise about the shutdown? Some are suggesting October 15 could be a pivotal date as this is when federal paychecks are deposited into one’s account, a deposit that may not occur. October 18 is a rally against the Trump Administration is scheduled. Will these events have any impact?
Fiscal cracks are beginning to emerge in the western democracies. As previously noted, the equivalent to the British, France and German Treasury Secretaries have stated that their respected governments do not have the funds to pay what has been promised to its citizenship much less those who are not citizens.
It is a similar environment in the US. The current government shutdown is about Obamacare subsidies that were temporarily increased during COVID, a temporary subsidiary that is set to shortly expire.
Some have stated that today’s mainstream analysts have become meaningless, vanilla based, lacking pivotal critical information to make informed decisions, equivalent to Janusian thinking, transmogrifying basic financial analysis.
For example, the massive concentration of wealth in several companies believing that AI spending will be around $7 trillion during the next four years. Is this possible? Will revenues increase to generate an acceptable ROI on these funds?
And then there is the decline of foreign reserves in the dollar. Barrons reports that total foreign exchange reserves in dollars has declined from around 80% ten years ago to 58% today for a multitude of reasons, primarily from the forced bankruptcy of Russia via the Biden Administration’s freezing of Russian funds and denial of utilizing the global payment system, to unsustainable spending by the US government, to the collapsing multipolar world and the rise of economic nationalism.
Most do not know or appreciate the privilege that the US has had over the last 80 years of being the primary vehicle for foreign reserves.
And then there is oil. Bloomberg writes that approximately 40% of Russian oil capacity is offline, pushing down the global ceiling. There is little attention focused that Qatar is now protected by US forces. Saudia Arabia is increasing production—perhaps from US encouragement—to offset its massive budget deficit, the result of gargantuan social spending to placate its population and low prices.
It is estimated the Kingdom requires $90/barrel to balance its budget.
None of the above is the focus of any analyst, instead talking incessantly about AI and the yet to be delivered results. Talk about pulling an event forward.
It is written that the most obvious conclusions are those which are ignored. Will any of the three significant points become part of the common narrative with the punditry asking how such was missed?
No one knows the future. In many ways today is different than yesterday as the global trading system has collapsed, western democracies are in a fiscal mess with no plans to resolve the issues at hand
Unfortunately, if history can serve as a guide, it may take a crisis to address the fiscal issues, a resolution that no one will like due to its significant and expansive impact.
Commenting on yesterday’s activity, equites rose on earnings, AI and monetary policy optimism. Treasury yields were flat as the 10-year Treasury auction was met with “mediocre demand.” Today is the 30-year auction.
Last night the foreign markets were mixed. London was down 0.18%, Paris up 0.59% and Frankfurt up 0.68%. China was up 1.32%, Japan up 1.77% and Hang Seng down 0.29%.
Futures are flat as the market is anticipating upcoming earnings season for validation of the AI frenzy. The 10-year is off 3/32 to yield 4.14%.
