Equites were mixed but long dated Treasuries sold off.  Tapering is about to commence in an environment devoid of liquidity.  As noted several times money center bank inventories are about 90% lower than 12-14 years ago, the result of Dodd Frank.  The bond market however has surged in size.

As also often stated, according to the WSJ during the past 10 years 60% to 80% of net Treasury issuance was purchased by the Federal Reserve because of quantitative easing.  This buyer will become non-existent in about 4 months.

The operative question is who will buy the debt?

Bank America commented about the real earnings yield of the S & P 500.  The Bank stated the S & P 500 currently has real earnings yield of -2.9%, meaning that without continued growth in company results, investors would lose 2.9% when adjusted for inflation.

B of A stated “the last time real earnings yield was this negative was 1947.  In each of the previous four times that the real earning yield was negative, a bear market was the result.”

The Bank further stated expectations that inflation will moderate from 6.7% to 2.5% over the next 12 months may prove too optimistic as this would the sharpest drop in four decades.

The report however did differentiate between the averages and sectors stating that inflation refuges such as energy, financials and real estate should outperform as was the case in the previous four occasions.

Commenting on the JOLTS job openings, openings jumped to the second highest on record, underscoring the ongoing challenge for employers to find qualified workers for an unprecedented number of vacancies.  The number of available positions rose to 11 million from an upwardly revised 10.6 million in September.  The data exceeded expectations by 500,000 jobs.

Separate data from the BLS indicate that there are 7.4 million unemployed workers in October, far below the number of job openings.  To write the incredibly obvious, the environment is producing cost push (wage) inflation where employers are forced to offer higher wages and bonuses to attract and keep qualified workers.

Speaking of such, the quit rate did fall nominally to 2.8% from last month’s record of 3.0%.

What will happen today?

Last night the foreign markets were down.  London was down 0.14%, Paris down 0.02% and Frankfurt down 0.12%.  China was up 0.98%, Japan down 0.47% and Hang Seng up 1.08%.

The Dow should open nominally lower as virus concerns again are rising.  The 10-year is up 7/32 to yield 1.59%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.