Who will win today?
As we watch the returns all must remember the country has survived 235 years. This is not going to be the last election and if the American people don’t like the policies they get, more changes will be made in the years ahead.
This is particularly true regarding the federal budget; the last two budgets have had unprecedented deficits considering we are not at war and unemployment is low. This issue must be addressed in the years ahead
As inferred, I euphemistically believe tomorrow the deficit may become the major issue. Neither candidate has discussed how they would address it as such would be equivalent to committing electoral suicide.
It is not a revenue issue but rather a spending issue.
Interest expense is now 17% of the budget. If nothing changes—interest rates or forecasted spending—interest expense will be 25% of the budget in “several years”. This is insane. This is unsustainable.
Many are focused on the outcome of this week’s FOMC meeting. I rhetorically ask does 25 bps really make a difference? Will it really help the consumer or corporations? If a spending decision or interest rate risk management is that sensitive to a 25-bps reduction, that decision should be rethought.
Equities have discounted at least 100bps of reductions by year end 2025. If this mantra is challenged, volatility may increase. As widely noted, the markets have been discounting an aggressive Fed for over two years. Will hopes be dashed again?
Perhaps more attention should be focused on the bigger issue at hand…the deficit.
Last night the foreign markets were up. London was up 0.17%, Paris up 0.15% and Frankfurt up 0.19%. China was up 2.32%, Japan up 1.11% and Hang Seng up 2.14%.
Futures are nominally higher. Citicorp writes the options markets is pricing in a 1.8% move in either direction tomorrow. The Bank further writes the swings will likely be most obvious in individual stocks and sectors as been the case this election season. The 10-year is off 5/32 to yield 4.31%.
