Markets surge while watching developments in the MidEast war

Dow soared 511 (still under 33K), advancers over decliners a mild 5-2 & NAZ went up 146.  The MLP index slid back fractionally to the 243s & the REIT index recovered 1+ to the 321s.  Junk bond funds crawled higher & Treasuries had modest selling, raising yields.  Oil was off almost 3 to the 82s & gold added 9 to 2008 on war fears in the Mid East (more on both below).

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Americans are more worried about the state of the US economy than they were 1 year ago, despite the resilient job market, slowing inflation & an unexpected surge in growth during the 3rd qtr.  The spike in pessimism largely stems from fears over the Federal Reserve's aggressive interest rate hike campaign, which has pushed borrowing costs to the highest level since 2001, according to a new Harris Poll.  The survey found that 57% of middle-class Americans think higher interest rates are having a negative effect on their household finances.  On top of that, about 44% said they were stressed about the economy, up from 40% one year ago & 39% in Mar.  Fed officials voted at their Sep meeting to hold interest rates steady at 5.25-5.50%.  However, policymakers also left the door open to an additional increase this year, & indicated they will hold rates at peak levels for longer than previously expected.  The Fed is scheduled to meet 2 more times this year & investors widely agree the central bank will hold rates steady at the upcoming Nov meeting.  However, some traders expect that the Fed will approve a 12th rate increase in Dec following the blowout GDP report last week, which showed the economy grew at a 4.9% annualized rate from Jul-Sep.  The pace far exceeded expectations & marked the best gain since 2021.  Hiking interest rates tends to create higher rates on consumer & business loans, which then slows the economy by forcing employers to cut back on spending.  While the federal funds rate is not what consumers pay directly, it affects borrowing costs for home equity lines of credit, auto loans & credit cards.  Higher rates have helped push the average rate on 30-year mortgages above 8% for the first time in years.  For Americans who carry a balance from one month to the next, the steady increase in rates over the past 18 months could be costing them hundreds, even thousand, of $s.  While inflation has declined from a high of 9.1%, it remains above the Fed's 2% target.  The Labor Dep reported that the consumer price index rose 0.4% in Sep from the previous month.  Prices are up 3.7% from the same time one year ago.

Fed's fight against inflation is weighing on middle-class Americans

The United Auto Workers (UAW) & General Motors (GM) have agreed to a deal that will put an end to collective bargaining talks between the union & Detroit automakers following more than 6 weeks of targeted US labor strikes.  GM is the final Detroit automaker to reach a deal with the union following historically contentious talks.  Tens of thousands of workers across the country went on strikes after the sides failed to reach agreements by a Sep 14 deadline.  2 sources familiar with the GM-UAW talks said negotiations occurred last night & to reach an agreement.  Ford (F) was the first to reach a tentative agreement with the union, on Wed, followed by a deal with Chrysler parent Stellantis (STLA) on Sat.  The 4½-year tentative agreements must still be ratified by members at each of the automakers.  The headline economics of the deals, such as 25% wage increases, were patterned off Ford's initial deal.  The raises & benefits cumulatively boost the top wage to more than $40 an hour, including an increase of 68% for starting wages to over $28 an hour, the union said of the Ford & STLA deals.  The strikes have collectively cost GM, Ford & STLA Bs of $s in lost production.  Ford said that the union’s strike has cost it $1.3B & the deal, if ratified by members, would increase labor costs by roughly $850-900 per vehicle produced.

GM, UAW reach tentative agreement to end labor strike

With all the chaos & heartbreaking loss of life around the world today, few noticed the Treasury Dept drop a financial bomb.  The deficit for fiscal year 2023 was $1.7T, growing 23% in a single year as the Treasury used $879B just to service the federal debt.  But "Bidenomics" means the worst is yet to come, & multi-trillion-dollar deficits are the new normal.  The impetus for these massive deficits is federal gov spending, which tipped the scales at $6.1T last year.  Receipts, meanwhile, were $4.4T, woefully short of the $5T previously forecasted.  A slowing economy & counterproductive tax increases were key drivers behind the $457B drop in receipts from the prior fiscal year.  Yet, even these reduced revenues would have resulted in a balanced budget if Pres Biden had simply allowed spending to return to its pre-pandemic level.  Instead, Treasury outlays are up 38% today compared to pre-pandemic times.  That’s why it's so deceptive for the Treasury to have recently announced that the deficit is $1T lower than when Biden took office.  Elevated spending levels in 2020 should have been one-time emergency measures, but the Biden administration institutionalized $6T budgets by simply replacing pandemic-era outlays with the Biden agenda.  Even worse, the $1.7T deficit in the last fiscal year was really a $2T deficit.  It was reduced only in a technical sense by $300B when the Supreme Court blocked Biden's student loan handout scheme.  The Treasury has merely reallocated that money to be spent in fiscal year 2024 because the Biden administration is hellbent on achieving its unconstitutional student loan bailout.  In other words, the unfunded spending has merely been moved from one ledger column to another.  Of that $300B, tens of Bs have already been allocated to selective student loan bailouts, while the rest will fund a broader bailout beginning next summer, known as the SAVE repayment plan, an end-run around the Supreme Court's ruling against the Biden administration.  But just looking at the spending that is officially included in the last fiscal year is terrifying.  It has resulted in a truly unprecedented level of federal debt: now more than $33.5T.  The breakneck pace of borrowing is increasing almost daily, with the Treasury borrowing $500B just in the first 3 weeks of the current fiscal year, which began Oct 1.  As the federal debt & interest rates rise, the cost of servicing the debt has completely exploded, eclipsing all but 2 line items of the Treasury's report: the Social Security Administration & the Department of Health & Human Services.  Interest payments even surpassed all military spending in the bloated Dept of Defense budget by $103B.  Despite this being an obviously unsustainable path, the Biden administration is doubling down, promising more gov spending & multi-trillion-dollar deficits forever.  Financial markets are beginning to wake up to the fact that the Treasury eventually won't be able to pay its debts, & that day may arrive soon.

The worst is yet to come for Americans after financial bomb gets dropped

Gold futures ended higher for a 4th session in a row, with prices finishing the session above $2000 an ounce, their highest since the end of Jul.  Gold for Dec climbed $7 to settle at $2005 an ounce.  That was the first settlement for a most-active contract above $2000 & highest finish, since Jul 31.  Prices for the precious metal have have been rising largely due to a fear trade with the eruption of the chaos taking place in Israel.  Confirmation can be seen in the fact that interest rates have continued to rise right along with the $, all while inflation has remained relatively muted & directionless.  The strength in the yellow metal cannot be attributed to any of the typical drivers.  Israeli forces advanced to the outskirts of Gaza City.  Against that backdrop, gold has been supported by a safe-haven bid & the potential for a wider Middle East conflict.

Gold Prices Settle Above $2,000, at Highest Since End of July

Crude prices tumbled almost 4% as the market looked beyond the war in the Middle East to focus on what the Federal Reserve might do or say at its interest rate decision on Wed.  Concerns over how US jobs numbers for Oct will turn out on Fri also kept oil traders on the edge.  West Texas Intermediate (WTI) crude for Dec, settled at $82.31, down $3.23 (3.8%).  The US crude benchmark has been in yo-yo mode for a week now, rising or falling more than 2% in a session, as the Israel-Hamas war raging on the Palestinian territory of Gaza had markets on the tenterhooks.  Last week, WTI finished down 3.6% & is due to finish Oct down 10%.  Brent crude for Dec settled at $87.45, down $3.03 (3.4%).  Last week, the global crude benchmark fell nearly 2% & is on track to end Oct down 9%.

Oil Down Almost 4%, Surrendering War Premium Amid Fed Focus

More economic data is coming as Oct comes to an end.  In addition, the huge increase in gov spending is very worrisome.  Unfortunately, many (especially in gov) think of the long term as the day after tomorrow.  The corollary is the future will take care of itself.  Not so!!

Dow Jones Industrials