Will the election impact the markets? Historically turmoil in the Executive Branch increases volatility. According to Bloomberg, President Biden sent a 2-page letter to Democratic leaders and donors to quell Democratic infighting about his campaign, saying he is determined to remain in the race and challenging dissenters to end talk of his removal from the ballot.
The letter made it clear that he would “not go quietly,” raising concerns that his campaign will emerge as a choice between a drawn-out power struggle or uniting behind a candidate they believe will lead the party to defeat.
Wow! This is definitely an example where life is stranger than fiction.
Speaking of which, the Godfather of MMT (Modern Monetary Theory), Warren Mosler, says the country is spending like a “Drunken Sailor.”
MMT advocates believe the Federal Government can borrow without impunity. Proponents state since the government spends and borrows in its own currency, federal debt should not be understood in the same way as private household debt, because there is no risk of default. This, in theory, allows for a greater level of fiscal flexibility than what is commonly understood.
Mosler, whose work helped spawn the MMT movement, says he sees a toxic mix of high debt levels and historically large deficits running headfirst into a Federal Reserve that’s still using traditional inflight fighting techniques in the form of higher interest rates.
Neither candidate has addressed the issue. Ironically according to a dated poll 34% of people aged 18-35 –the expected supporters of MMT—rank fiscal issues in their top three concerns.
Mosler states 7% deficit as a share of GDP at a time when the economy is not in a recession is like a “drunken sailor.”
Many including FRB Chair Powell and JP Morgan’s Dimon have stated current fiscal policy is unsustainable and it is not a question as to if but rather when the deficit, and out of control spending, will impact the markets and the economy.
Perhaps changing topics, a recent newswire column stated, “essentially all models are wrong but some are useful,” written in the context that momentum and algorithmic trading is the only manner to perform.
Perhaps the most revealing aspect of the Archegos Trail (A family office that was worth $36 billion on a Monday and then worth negative $20 billion on Friday and was pivotal in the sinking of the legacy and money center bank Swiss bank Credit Suisse ) was the comment about momentum trading using opaque derivatives, futures and options to amass a huge positions in a handful of companies.
An Archegos executive stated “most multibillionaires have employed the same strategy, but Archegos got slammed by bad luck,” not market manipulation or fraud.
Many have rhetorically believed this, but this is this the first time it was acknowledged in court.
Later this week both the CPI and PPI are released. How will the markets interpret the data?
Last night the foreign markets were mixed. London was down 0.19%, Paris down 0.88% and Frankfurt down 0.46%. China was up 1.26%, Japan up 1.96% and Hang Seng up o.01%.
Futures are nominally higher ahead of FRB Chair Powell’s Congrssional testimony about interest rates. The 10-year is off 5/32 to yield 4.30%.
