First of all, we would like to take a minute to remember all those that lost their lives some 17 years ago today. We will remember that day for quite some time, in fact it was on this day, a sunny crisp Tuesday morning that our phone lines went down to our trading partners inside One World Trade Center at Cantor Fitzgerald. We knew right there and then that something was up and we watched it unfold right before our eyes. Being on the floor of the CBOT, we evacuated and left the city for fear that we might be targeted next. We will never forget those and their families that were so tragically affected that fateful day and we will acknowledge their memorial this time every year for as long as we can.
Before we get to the markets, we have to talk about something that concerns us. This week the government failed to gather enough senate votes to pass a budget resolution. We have been down this path before and it is just further testament to the ineptitude of those in congress to put the people first and their political agendas aside. We can’t say that we are the least bit surprised. What you may not know is the larger on going operation sweep to put to justice the bad actors responsible for the massive collusion of government agencies vs the then president nominee and now president elect Trump. Not only that, but there are massive implications for Hillary Clinton, the DNC and a firm called FusionGPS that compiled the so called “Trump Dossier.”
Last Friday saw the release of the US CPI report. It rose a paltry 0.1% mom, with yoy growth dropping to a meager 1.7%. The bond market saw this as a go ahead to rally as yields fell across the board with the US 5yr Treasury falling 8 basis points on the week. Rationale is that the FED is now going to have to consider the fact that inflation is not gaining traction and that further hawkish balance sheet talk and rate hikes, may have to move to the back burner. As our readers know, the FED really can't raise rates or reduce much of anything, thus their tactics of hawkish rhetoric, which is nothing more than wasted air is there only weapon. Adding to this already slippery slope for the FED is the fact that in the 4th quarter the US Treasury is going to issue around $500 billion worth of debt, which is basically the total amount of debt issued in the previous prior three quarters combined! So would it make sense to raise rates with benign inflation and the massive influx of debt coming down the pipe line? We think not, but once again, we know that raising rates is a bank subsidy, but even so, the conditions on a fundamental economic basis certainly do not warrant a hawkish campaign.