Confounding And Confusing Events 9/20/21
Market Watch recently wrote that traders were bracing for a quadruple witching, as equities suffer another mid-month stumble. The quadruple witching comes from the expiration on last Friday of individual stock options, stock index options, stock index futures and single stock futures. All of this has the potential for great risk to the market and to expose weaknesses. One can read the decline over the past week, although probably not totally attributable to the four items I noted above, and I suspect many investors aren’t even aware of these, is also other factors such as the variant surging, supply lines continuing to struggle, and of course, the inability of employers to add needed employees.
Market Watch is reporting that the US budget deficit looks to improve slightly with the help of higher corporate tax payments which are a direct result of increased profits as we come out of the pandemic (at least for now). This is something of a surprise, but given the huge deficits which we have run for the last 5 years, I suspect it will only make a small and insignificant dent in this process. Clearly, the assumptions made by the Trump administration about increased Treasury revenue because of decreased taxes has not taken hold. The only thing that is a surprise here, is that they are surprised.
If you rented a car lately, you probably noticed that prices are sky-high and availability limited. This is caused by a number of factors, including a reduced car inventory because of the chip shortage which obviously trickles down to the rental car companies, this creates a mismatch between supply and demand, and thus, the ability to rent a car and the cost of it will continue rise through 2022, and probably stay in place until close to the end of 2022. The only thing that could positively impact this would be the negative impacts of the COVID variant on travel, thus, driving down demand and reducing car prices. We will have to wait and see.
Maine potato farmers are predicting a record harvest as they see demand going up for potatoes as restaurants reopen, which may be short lived as we have pointed out because of the increase in the Delta 19 variant and its impact on the economy. We, of course, would be very happy on so many levels to see potato sales increase because that would mean that we have restaurants that are open, a lesser level of COVID, and we have prosperous farmers who will spend money on farm equipment, buying seed, and in their local economy, which are all good things.
The White House is floating a trial balloon related to increased or new tariffs levied against China to combat its industrial subsidies. The question I suppose is, is this just a trial balloon, or is this a serious attempt to get feedback to determine whether or not this is a good idea. I am generally against tariffs because in the short term at least, they negatively impact us in the United States because we continue to buy from China, and the Chinese are passing along the tariff cost. If, in fact, tariffs had the desired effect – changing behavior, which they have not had to date, then that would be acceptable. It is not clear to me that China is inclined to modify its behavior under virtually any circumstances, so why the Biden administration, after watching the failures of the Trump administration would walk down the same path seems somewhat illogical.
Continuing our trade conversation, there are shortages in labor, materials and transportation, as virtually everything is being impacted by the onset of low inventories. The reasons why are myriad. The idea that given resurging demand, clogged assembly lines because of the inability to secure materials, the concomitant rise in inflation all create a number of economic problems for us, but actually should not be a surprise, and I think Chairman Powell has been quite clear that he is not surprised, and that this is something that is going to take some time to work its way through the system. We certainly hope so, and a plodding approach is what is appropriate here.
Many nations are facing a declining population, but it hit some harder than others, and a recent story about Latvia in the Wall Street Journal gives insight into the impact. The Latvian decline in population is a combination of low birth rates, exodus of younger people and limitations on immigration. The US doesn’t face the first two issues significantly at this point, but does the third, and we need to be very careful that we are allowing sufficient immigration to continue or at least remain steady, but also to ensure we have the employees for the jobs we need done.
It should come as no surprise that American’s incomes fell in 2020, when one looks at the level of unemployment and the amount of unemployment insurance which was being paid out, including the special payments. The loss of income, and in particular, in many cases, the loss of the second income for households had a substantially negative impact on household incomes, which hopefully will recover as we move forward in the next couple of years. Household incomes were down 2.9% to $67,500 from the prior year. When adjusted for inflation, one can see that the decrease was, in effect, substantially greater in terms of the ability to spend, and therefore, positively impact the economy.
The Iranian government has reengaged with the US and other nations and, in fact, has agreed to place cameras and other measuring devices back into their nuclear facilities so that, in fact, their activities can be monitored. This is a very good first step and irrespective of the rants that are frequently evidenced from the right, and in fact, from Israel are when compared to what our capacity is to impact the Iranian nuclear program, a series of reasonable and rational steps. No one is fooled into thinking that this is a process that will go smoothly, and in fact, that the Iranians likely will cheat, the end game here is to slow their process down, and hope over time that we see regime change. This is not to say that I am suggesting we should engage in regime change, but in reality, that is only way, ultimately, this process will be stopped.
Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.
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