This is the beginning of the end of robust growth in the US

We have more data to absorb, with today bringing the JOLTS report. This used to be a favorite of former TreasSec Yellen but it has lost some of its muscle once it became clear that companies were offering jobs with qualifications so high, no one could fill them. This time Bloomberg estimates openings will fall to 7.1 million in April, the lowest 2020. So, muscle or not, the commentary will be that this is the beginning of the end of robust growth in the US. The fact remains that we have a labor shortage, especially at the skilled end. The Fed will not likely be impressed and that’s the audience that counts.

We got some answers to yesterday’s question—what’s wrong with the equity market? One is that the 50% tariff on steel and aluminum will get TACO’d away in pretty short order. That’s the Trump playbook. Some of his tech bros or other giant donors will complain, and poof! Away it will go.

The second is the observation that Trump is reliably unreliable. Bloomberg reports that Nomura calculated that “betting against S&P 500 futures every time Trump escalates his rhetoric and buying them five days later would have yielded 12% since the beginning of February.”

The third idea is probably equally valid: investors trust the stock market more than the bond market, or rather, the private sector over the government sector. At least this one. The current situation is unsustainable and the tenure of the top guy has an expiration date. Assuming the return of sane and reasonable management, does this not mean that capital longing to be in bonds will come flooding back in 2028?

Now to check the correlation of the S&P with GDP, or maybe forecasts of GDO. The OECD says, according to Bloomberg, “Trump’s combative trade policies have tipped the world economy into a downturn clouded in heightened uncertainty, with the US among the hardest hit, the OECD said. The OECD now forecasts global economic growth to slow to 2.9% this year from 3.3% in 2024. It expects the rate of expansion in the US will tumble further, to 1.6% from 2.8% — an outlook that is significantly lower than its projection in March.”

Off on the side, we have the Reserve Bank of Australia sounding dovish in the latest minutes, and the Bank of Canada meeting tomorrow and facing a softer economy with falling inflation. Inflation fell to 1.7% from 2.3% and before that, 2.6% in Feb, due almost entirely to the drop in oil prices. The consensus is for the BoC to hold rates the same, if only out of uncertainty over trade with the US, but we wonder if the consensus is wrong—a push is better than hiding under the bed.

Forecast

If you scan the headlines, especially opinion headlines, almost every one homes in on the bond vigilantes and the risk to that market. Ray Dalio has a new book (How Countries Go Broke). We bought his last one and found it a dud with questionable reasoning. But never mind—all the hedge fund managers and other big-shot experts are calling for a catastrophic disruption in bonds. Unfortunately for the Chicken Littles, the auctions keep going fine and demand for US paper is not showing distress—so far.

All the same, these warning bells are heard around the world—the reckless budget, reckless trade pronouncements, and reckless destruction of American norms and values leads to the loss of credibility and confidence. It’s hard to see the eurozone as a replacement, so there is a ton of turmoil ahead. The European replacement theory is probably a bigger problem than China.

A sensible and realistic view of the bond market situation today is that fear of a collapse, while logical in a dozen ways, is overstated and premature. It just ain’t happening.  Does this mean the dollar comes back in favor despite everything? Yes, probably, to some extent. We have the usual Tuesday pullback today that can’t be named a consolidation just yet, but the probability is closer to 50% than not. Don’t bet the ranch on the euro recovery. 

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