Congress, Unemployment, and whats up with the yield curve?
also, coal supplies in the US are beginning to dwindle
Things are getting crazy all over. Today was super stressful in DC. Nancy Pelosi absolutely hates bringing a bill to the floor that won’t pass. Apparently it is too stressful for someone who trades millions of dollars in option contracts. This morning Pelosi met with the hardcore regressive side of her party. They are not interested in budging from their hard-line stance. Biden then stepped up to the plate and made an effort to swing the vote. He stated, "no one got everything they wanted, including me. But that's what compromise is”. This little speech convinced no one to change their minds.
Unfortunately for Joe, the polls are not in his favor. No one is interested in hitching their boat to his anchor. Midterms are coming faster than democrats can get their act together. Their minds are on their political careers, not on helping Joe make something of his presidency.
Concerning employment, things are really humming along as far as the figures go.
Over 448k more people dropped off the unemployment doles. Initial claims reduced by 10k and continuing claims by 237k. Employment appears to be very strong. Sadly, businesses still have lots of help wanted signs out. The pool of labor is shrinking and this is putting heavy pressure on wages. As we get into the 4th quarter, retailers and shippers traditionally hire extra help. I’m doubtful they will be able to find any warm bodies this year. This could put a real strain on 4th quarter shopping. I expect wages to continue to push higher as more and more businesses find out that the help they are searching for just isn’t out there.
Currently, the financial press has been all astir about the yield curve. We have seen a rapid flattening of the curve. This means that there is little difference between short-term and long-term interest rates. I believe there is two reasons for what is happening. The first is that the vast majority on Wall Street are shorting the treasury market. By going short, they are betting that interest rates will rise. However, the market is going to create maximum pain for them before their shorts will pay off. For every short, treasuries must be purchased to close out the trade. As traders are looking at losing money, they begin to abandon their trade and treasuries are bought, causing them to rally. As they rally the interest rates go down causing more pain for those that are short. This is especially true at the long-end (20yr, 30yr) treasuries where the majority have sold short. The Fed data is delayed by a day, but the 30yr - 20yr went negative today.
This is of little interest to me. The 20yr/30yr inversion has happened in the past and it has not triggered a recession. The real yield curve to watch is the 10yr minus the 2yr.
The 10yr - 2yr curve has been especially good at signalling a coming recession. Once it goes negative, there is a short period before recessions have begun. Currently the 10yr minus the 2yr is at 107 basis points or 1.07%.
Lastly, Bloomberg put out an article two days ago looking at the inventory of coal in the US. What they found was quite concerning for those that rely on coal for their electricity.
Inventories fell to 84.3 million tons in August, according to government data released Tuesday. That’s the lowest in records going back to 1997, when Bill Clinton was beginning his second term as U.S. president.
Power plants in the US are on track to burn 19% more coal this year. Regrettably, we are running out of people to mine it out of the ground and inventories are getting slim. This is very bullish for Ramaco (METC) and CONSOL (CEIX). Next week both will announce their earnings for the previous quarter. Ramaco on Monday and Consol on Tuesday. I am not a fan of trading earnings. It is like casino gambling. This is because great earnings reports don’t always translate into traders buying the stock. Sometimes the opposite can happen. Long-term both Ramaco and Consol are going to have outsized earnings and revenue. If either go down, it will be an excellent opportunity to buy.