The U.S. Economy…Stuff Is Starting to Break

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Okay, we’re going to talk about our economy here in the United States. And it’s not just here, but how should I put it? Stuff’s starting to break. Okay. And you’re going to see a lot more breakage moving forward. And what do I mean by breakage? Okay. Companies, companies that are reliant upon borrowing, companies that are running out of cash that are going to look to borrow.

companies that are going to need to refinance their current debt, they’re going to break, they’re going to start going away. Again, this is nothing new to my longtime listeners. And I want to kind of explain this because we’re seeing a lot of reaction now in the markets. And this is inevitable. Okay, it’s inevitable to have this type of volatility. Our markets are not accustomed to rates being this high, not that rates are actually that high.

because quite frankly, they’re really not. It’s all about the speed and how quickly it has happened. And we’ve gone from basically zero to parabolic in a very short period of time. And many companies were ill-prepared for that. And I’ve been shaken by this. And you’re starting to see, you take a look at some of the bond rates. You had the 10-year.

treasury creep up closer to 5%. I wouldn’t be surprised if it hits 5% over the next couple of months. Again, whether or not you know, the markets are able to absorb it, they’re taking it right now. Again, you’re going to see continue to see volatility moving forward. You’ve had you know, some people actually put out the notion that they can go much higher upwards of 13 to 14%. And that’s

That’s just due to what are known as bond, call them bond vigilantes. That term came into vogue during the 2010 financial crisis that was taking place in Europe with Portugal, Italy, Ireland, Greece, Spain, and all the problems that they have there with, again, people saying, wait a second here, this debt is just way too overvalued and they started selling it. And…

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That’s the case. I mean, we have to borrow a hell of a lot of money. We have to issue a lot of paper for all of Biden’s green dreams. All of Biden’s green dreams, all of Biden’s big government policies, Chips Act, you name it. Lots of money that needs to be borrowed. Lots of printing, who’s gonna buy it? The appetite from China hasn’t been as great. Japan, the same.

Maybe you can get the Saudis to buy a little more. I’m not so sure. The old Euro dollar trade getting a little long in the tooth. So that’s going to be a bit of an issue. And again, you don’t find buyers for this. Guess what’s gonna happen? The price of the bonds are gonna drop and the yields are going to rise. Again, making it more expensive for people to borrow. Who’s gonna end up absorbing all of these bonds? The banks. And when the banks end up

absorbing these bonds because that’s what the Fed will in essence tell them to do. What does it do? It takes away liquidity. So the banks are going to be a hell of a lot less likely. They’re not going to have the capital to lend out to small businesses, to people who want to get a mortgage. Credit is going to get much, much tighter in that case. Let’s go over some of the other things that we’re seeing in the overall economy.

Yesterday we saw the Joltz report, which is the jobs report talking about openings that are out there. I wasn’t buying it. And one of the things about the Joltz report that they put out is, you know, anybody, it costs nothing for a business to have a job opening. It costs them absolutely nothing to post a job open. They don’t have to fill it. But I think many businesses, quite frankly, have learned

their lesson and they almost keep job openings going and they continue to take applications for certain positions. So that jumped to over 9 million job openings in the United States. Do I think it’s 9, 9 plus million? Was it 9.8 million? No, I don’t. Do I still think the labor market’s tight? Yes, I do. But then you saw the ADP report that came out today and it was

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Okay, it was expected to be plus 150,000. It was plus 89,000, which is the lowest jobs edition since January of 2021. And this is the other thing that you’re going to start seeing break in. You’re going to start seeing more and more businesses hunker down. They’ve been doing it. They’ve been doing it little by little, but we’re starting to see more of it. I think more business owners are going to start taking a look at their middle management positions.

and it’s going to be like in the 1990 movies or 1990s movies office space. They’re going to be bringing in the Bobs. What exactly do you say you do here? Was interesting. So Jeffrey Gundlach was a bond portfolio manager, was holding. He was talking about this being interviewed. He’s talking about how he’s holding a Zoom call and he’s got some 40 people on the Zoom call and he ended the Zoom call and he just sat there and he watched.

and clicking off, whoop, all these people that were going away. And then he realized there was still another eight to 10 people that hadn’t signed off. And he realized, again, he couldn’t see them, that they weren’t even there in the first place. They just signed on their computer pretending to be there. And what did he say he’s gonna do? They’re all fired. Yeah, you’re gonna see a hell of a lot more of that.

Companies looking to be more productive. They’re gonna look to cut costs. You’re gonna see middle management jobs go by the wayside in many of these places. US factory orders jumped more than expected in August. Yeah, it’s sign economy strong. Again, what do we tell you? It’s government spending. Government spending. Yep, core factory orders up for 1.4% month over month.

That is the biggest month over month jump since January 2022. But if you take a look at the internals, defense, OK? Excluding defense, orders only grew at 0.8%. Defense orders jumped 18.6%. Something to think about when it comes to your portfolio. Hint, hint, wink, wink. Anyway, again, you’re taking a look around. Porter, New York and New Jersey, cargo volumes down 21%.

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Many retailers out there expecting a little bit slower of a holiday season because of again, inflation costs and consumers starting to hunker down. Again, it takes some time for the Fed’s rate increases to take effect. We’re seeing it now. We’re gonna start to see things break. And this whole, I’m telling you right now, this whole hire for longer thing, I got a sink in suspicion. Again.

I’ve called all these things right. Again, I don’t trade on this though, okay? We don’t trade on this because again, trading you leaves things up to chance. We don’t. We take the chance element out and we de-risk portfolios by owning high quality companies for the long term. By me trying to play the hero and guess what’s gonna happen over the short term, that’s not good.

for anyone and quite frankly we don’t believe in that and that’s not the right way to handle your portfolio. Watchdog on wallstreet.com.