Bill Owens

Chairman Powell’s comments last Tuesday eased investors concerns about how hard the Fed would push to control inflation, and whether or not it would have a balanced approach in an effort to ensure that the economy continues to grow while raising rates and discontinuing its purchases and would not create a recession. This appears to be a sensible approach and is well within the bounds of moderate economic policy.

The US created 199,000 jobs in December, not the 422, 000 that were expected which means:Democrats are quite upset at Senator Manchon and are attempting to reinvigorate their proposed spending bill. One of the ironies of this entire process is, of course, the vilification of Senator Manchon versus the praise heaped on Senator McCain.

It has been reported that lithium, the commodity that is the principal element from which lithium batteries are made is skyrocketing in cost, and in fact, has increased in the range of 240% during 2021. This has occurred for a variety of reasons. One obvious factor is the increase in demand, and secondarily, the cost associated with securing licenses and permits in order to extract and convert the lithium into a substance that can be used in batteries. It is also important to note that there is not a shortage of the natural resource, but rather the inability to extract and process it which is also impacted by the extremely high cost of set up.

The value of US/Canada energy trade had dipped in line with lower consumption, and lower commodity prices in 2020. This is reversing itself at this juncture as commodity prices have obviously increased, particularly for oil and other energy products, and the economy is now, at least partially reviving. This shows just how dependent Canada is on energy exports, and how it effects the overall balance of trade between the United States and Canada.

The Infrastructure Investment and Jobs Act which was recently signed into law provides roughly 1.2 trillion of funding, of which 550 billion is new money which will be directed 51% towards modernizing and making improvements to transportation and infrastructure, with the majority of that funding reserved for highways, roads and bridges.

Commentator Bill Owens checks in with his thoughts on events of the past week.

John Deere’s union ratified a six-year contract ending a prolonged strike, which began on October 14th. The package contained a 10% wage hike, one-time bonus of $8,500, and a 5% raise in 2023. Obviously, those are significant pay increases, and reflect the need for employers to increase wages to recruit and retain workers. This wage package clearly will contribute to inflation, which is something of a double-edged sword.

The Stock Market recently took a tumble as inflation has increased somewhat dramatically over the last 60 days. We’ve also seen an increase in long term treasury yields which have made, on a percentage basis, a substantial increase which is based upon inflation and the anticipation that the Feds will increase rates in the very near term if inflation continues at its current pace.

In an ominous sign, China and Russia are conducting joint navel drills in the waters off Eastern Russia and China, primarily in the Peter the Great Gulf. This joining of military forces is potentially symbolic of a closer alliance between the two main military powers other than the United States. Given the actions of China towards Taiwan and Japan, it is clear that China, and now Russia, are likely to be more aggressive in the Pacific which is problematic and may portend generally for greater joint activity which we will have to be on high alert for. This has both military and economic consequences.