The recent election amongst the myriad of high-profile issues presented a number of ballots measures for the issuance of bonds (typically referred to as “munies” or tax-exempt bonds) for projects like New York State the bond offering was $4.2 billion bon for water infrastructure, environmental and climate change mitigation projects. This was typical of what happened throughout the country, as $57 billion out of $63 billion of ballot measures passed. And as other states report the results of their municipal debt authorizations, it could go to $90 billion. Apparently, municipal debt offerings tend to hover around $250 billion, so this will be a sizable increase. Some of the funds going into purchasing these municipal bonds will be the result of pay[1]offs, and thus, the level of bonds outstanding may not increase as much as it would initially appear. It is certainly interesting that interest rates are rising, there are threats of a recession, and yet, states and municipalities are borrowing at these levels.
Some Fed officials are indicating that the inflation fight still has a long way to go. I mentioned a few weeks ago the 5-5-5 theory, and with inflation still in the 7.5% range, that means that it needs to be pulled down a minimum of 2.5 percentage points to meet that 5% standard. We are currently in the 3.75% to 4% for the fed funds rate, and thus, there is room for substantial increases even to reach 5%, and if the feds intent is to move above 5% in the short term, and then pull back to 5%, that seems like a reasonable approach, and one that we can reasonably anticipate occurring.
Retail sales climbed 1.3%.
Intelligence being collected from drones shot down in the Ukraine, indicates that many of the parts come from companies in the US, Europe and other allied nations (but primarily the US and Japan) which is causing concern, and investigations by the US government. This seems to me to be a significant failing on the part of our export control laws if, in fact, this turns out to be true. On the flip side, many of these parts are used in any number of other pieces of equipment so determining their use may be trickier than one might imagine. It also appears that some of these parts may be making their way to Iran visa via China. The Wall Street Journal recently observed that the control of the House by the Republicans will return Washington to a city of divided government, and likely will see divisions within the GOP, resulting in the inability to move major legislation, and much chaos. Unfortunately, what we won’t see is realistic negotiation and compromise, which is really what we need.
One other interesting contrast of note from the midterms is that Florida under Ron DeSantis proposed and implemented a redistricting map that created four new Republican seats, and it was upheld by the Florida courts, while in New York, a similarly partisan map was thrown out by the courts. This, likely, resulted in significant Democratic losses, N.Y. and when combined with the gains in Florida, it gives you the calculus for a Republican majority.
Retail sales rose in October 1.3%, which is normally reflective of a strong economy. As we have noted before, GDP is more than 65% impacted by consumer spending. This is, again, another confusing sign about where we are going in terms of recession, etc. On the flip side, you have Bezos of Amazon saying we are definitely going into recession and laying off 10,000 people, then you have Musk and Twitter laying off thousands, so it is very difficult to truly assess where we are Don’t forget inflation declined in October, as well.
Mr. Biden’s visit with the Chinese Chairman seems to have been more successful than one might have anticipated, as the leaders appear to have agreed to disagree on issues, but nonetheless, are willing to work together. This is certainly important if we have a crisis in the future, in as much as these men will be able to pick-up the phone and talk to one another. Obviously, we will not know the outcome until we have such an event, or we begin to see at least exchanges between them on a wide variety of subjects. The situation in Taiwan is clearly a major issue that does not appear to me to have a near term resolution.
The Chinese economy contracted slightly, and the British reached an inflation rate of over 11%. The Japanese suffered an increase in imports and a slowing of private sector spending, as Covid 19 and rising prices (inflation) created fear in that economy. The British, on the other hand, are taking an aggressive approach by raising taxes, and cutting public spending. The Yen has weakened. All of which means?
Scientists disclosed that they have found the earliest evidence of cooking by humans in Israel. The meal is a 6.5-foot-long fish which was cooked 780,000 years ago. It sounds like a feast. I wonder if it had other gourmet touches?
There also appears to be significant ticket splitting, which, at any level, is a good thing, as it means people are making decisions about how to vote, rather than simply going down the ballot for one party or the other. An analysis of recent voting shows that party-line voting in Arizona, Nevada, Pennsylvania and New Hampshire among Republicans consistently fell below the party’s national average according to exit poll data. In New Hampshire and Pennsylvania, it was seven points below; in Arizona, six points below; and in Nevada, about two percentage points below, while the Democratic candidate received approximately that increase in votes. The other factor that this analysis shows is that these Senate nominees who were closely tied to former President Trump lost.
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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