The narrative surrounding the near simultaneously explosion of the Hezbollah pagers is rising. How did it occur and what are the ramifications? “Unnamed” senior US officials report “a sophisticated supply chain infiltration occurred;” a comment made when a US official stated that Isreal was behind the pager attack.
There were reports yesterday that there are further attacks, this time focused on Walkie Talkies as well as additional pagers.
Wow! If this was indeed the case, the odds increase the global manufacturing chain could change yet again. Until 2020, price was the only determinate of a purchasing decision. The cheapest manufacturer and retailer won the business.
This environment than changed to availability as the primary determinant of a purchasing decision as global supply chains were shuttered because of the pandemic, amplified by the West weaponizing the flow of payments and the East weaponizing the production of goods.
It is largely accepted, the thirty years from 1990 (fall of Berlin Wall and Russia) until 2020 (COVID and the Ukrainian invasion) was the only period that countries exported vital productive capacities to one’s adversaries to cut costs, to increase margins and profitability.
A major tenant of the Boomflation economy hypothesis is the re-patriotization of productive capacity to friendly shores.
As noted, purchasing decisions have gravitated from price to availability and perhaps now to security.
Is this a wild thought? All of the above except for the security tenant has been validated by the Federal Reserve, many iconic financial professionals and reputable/apolitical bodies.
Yesterday the Federal Reserve lowered the overnight rate by 50 basis points to a range of 4.75% to 5.0% as the FRB “has gained greater confidence that inflation is moving sustainably toward 2%.”
The Committee said risks are largely in balance of “achieving its employment and inflation goals” and “additional adjustments to rates will be based on incoming data, the evolving outlook and the balance of risks.”
Policy makers are penciling in 100 bps of easing by year end so that suggest two more 25 bps cuts at the remaining two meetings of the year.
Regarding the Fed’s balance sheet, the Fed says they will continue reducing its holdings of Treasury securities, agency debt and agency mortgage back securities.
What impact will this have upon the economy?
The economy has not behaved as many forecasted. Most, including the Federal Reserve, had predicted a recession was going to occur, but economic growth instead accelerated.
As noted yesterday the Atlanta’s Fed GDPNow Index currently suggests third quarter GDP should expand around 3.0% up from September’s 2.5% projected pace. Goldman also raised its third quarter GDP tracking estimate by 0.3% to 2.8%, based upon recently released data.
Wow! The bigger question is why? Is it the result of the re onshoring of productive capacity which may now accelerate if there is another pager like attack?
Equity markets closed nominally lower perhaps under the guise that such was discounted. As Bloomberg noted yesterday this is the strongest market return between a hike and a cut ever.
The Treasury curve steepened as the two-year Treasury was essentially unchanged and longer dated debt increased marginally in yield.
Last night the foreign markets were up. London was up 1.34%, Paris up 2.01% and Frankfurt up 1.51%. China was up 0.69%, Japan up 2.13% and Hang Seng up 2.0%.
Futures are up about 1.5% under the guise that a soft landing is indeed plausible. The 10-year is up 1/32 to yield 3.70%.
