Why I Expect a Minimal Rise in Unemployment This Recession

July 9, 2022

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11:00 pm

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68 comments

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Economics

I hone in on those categories below, but the big picture is important too.

Overall Key Points

Decline in manufacturing importance
Education and Health Services was recession proof until Covid
Retail Trade jobs have has stabilized for two decades
Professional and Business Services are hard hit every recession
Construction hit in every recession
Leisure and hospitality was the hardest hit sector in the Covid recession but is normally not hit that hard in most recessions

Job Levels By Category L&H, E&H, PABS

L&H, E&H, PABS Key Points

Professional and Business Services jobs are at high risk and they have recovered to the previous trend.
Leisure and Hospitality, and Education and Health Services are screaming for workers. That might not easily change except in the most brutal of recessions.

Job Levels By Category Construction, Retail Trade, Manufacturing

Construction, Retail Trade, Manufacturing Key Points

Construction jobs rate to get whacked hard on a percentage basis in a housing bust. But that’s a small job segment.
Retail trade rates to get hit having fully recovered.
Manufacturing will not get hit as hard as either the 2000 recession or the 2008 recession.

Rise in Unemployment Rate

Nonfarm Payrolls and Employment Levels

Employment Levels in Retirement Age Groups

Retirement Key Points

Employment and job levels still have not recovered from the Covid recession.
There are over 22 million people age 60 and over who are currently employed.
Millions of those workers will retire.

Age 60+ Employment

In 2022: 22.09 Million
In 2008: 13.46 Million
In 1999: 8.22 Million
In 1981: 7.21 Million

There are over 22 million people age 60 or over who are still working. We have never seen anything like this before, so don’t expect prior recessions to be a model for this one.

Two key groups, Leisure and Hospitality, and Education and Health Services are unlikely to be firing many.

Add in millions of people retiring, then factor in reduced hours in manufacturing instead of layoffs and we may see the weakest rise in the unemployment rate in recession history.

The low so far is 1.1 percent and we may smash that.

That’s the good news. Now the bad.

Why Earnings and the Stock Market Will Get Crushed

Here’s the case for an earnings smash accompanied by a continuation of the stock market crash: Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed

Case for an Earnings Crash

Recession
De-globalization costs
Retirement of 22 million boomers will lower productivity and slow spending
De-carbonization is very expensive, do we even have the natural resources?
End of a 40-year bull market in interests rates
Potential for protracted war in Ukraine
Central bank concern over reigniting inflation
Renewed union push
Wealth impact of stock market decline will itself slow spending
Various bubbles have just begin to pop

For more details and discussion of those 10 points, please click on the above link.

This post originated at MishTalk.Com.

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8dots

1 year ago

When 22 millions elderly retire zoomers will demand higher wages, Chicago Haymarket 1876 strikes be back.

Glazunov cello & piano Elegie Op 17 for Ukraine.

MPO45

1 year ago

Inflation around the world still high and staying there….

link to fortune.com

worleyeoe

1 year ago

Mish,

There are many direct parallels nowadays to 1980, so let’s use the KISS principle. If unemployment rose 3.4% in the 1980 recession, then 3% is a good upper limit to expect. A good lower limit is 1.5%, a tad more than 1990 & 2001 and within that margin of error you’d probably consider consistent with your expectations. Based on past data, I expect peak job claims to come in at 2-2.5M, putting us somewhere between the 1990 & dot com recessions and some of the past recessions that were deeper. If all this was happening later in Biden’s terms, I would be closer to your thinking about the overall shallowness. It’s hard to say how much affect the GOP taking back the House & Senate will have on undoing Biden’s policies that are making energy production worse. I think there are some dark horses though. I think the energy situation is much more dire than 1980 after oil sanctions hit Iran. Russia will continue to make moves to destabilize Europe in terms of energy. Your write up about coal is spot on. We have to be concerned that China’s real estate market could deteriorate further. Our national debt is noose around the Fed’s next in terms of how high they can allow rates & yields to move up to & sustain themselves.

Mish

1 year ago

A disagreement with my view

link to twitter.com

prumbly

1 year ago

Never fear – there are millions of unskilled workers streaming across the border right now, all eager to pay taxes, vote Democrat and contribute to society.

PapaDave

1 year ago

Reply to prumbly

I like the “contribute to society and pay taxes idea”. I hope that some of them have useful skills. And a work ethic. Lord knows we need more of both. It seems that all we have left in this country is people who sit on their butts and spend all their time complaining on blogs. Not much contribution there.

Captain Ahab

1 year ago

Reply to PapaDave

The problem with economic migration is the flow continues until home and host countries have the same standard of living. The current influx is Democrat-driven, unskilled workers falsely called ”asylum seekers”. What would be Biden’s reaction if shiploads of white South Africans came to the USA claiming political asylum?

PapaDave

1 year ago

Reply to Captain Ahab

You make it all about politics with a tinge of racism. (Please note I am not calling YOU a racist. I don’t even know you.) Which means I don’t care what you are talking about. Try making it about an investment opportunity and I’ll be interested.

Captain Ahab

1 year ago

Reply to PapaDave

Before you ‘like’ statements such as “contribute to society and pay taxes idea”, maybe you should compare some average IQs of countries whose citizens immigrated in the past, and the present. BTW, the average USA IQ is 98…

Venezuela 84 and Ireland 92

Haiti 67 and Poland 99

Mexico 90 and Italy 102

Cuba 85 and Greece 92

Philippines 86 and China 105

Is it possible that today’s immigrants fall far short of those who arrived at Ellis Island?

Lisa_Hooker

1 year ago

Reply to Captain Ahab

I was absolutely totally gobsmacked to find out that fully half of the people have an IQ of 100 or less!

Must be something in the water.

How have we possibly managed to get this far?

prumbly

1 year ago

Reply to Lisa_Hooker

Considering that the IQ test was purposely designed to give a median score of 100, perhaps it isn’t so surprising that half of the people have a score less than 100…

Lisa_Hooker

1 year ago

Reply to prumbly

Sorry, prumbly, I was being sarcastic. Although I do recall hearing that President Eisenhower was once surprised when told half of Americans had an IQ of 100 or less. Probably just a folk tale.

PapaDave

1 year ago

Reply to Captain Ahab

Note: I get the feeling you are trying to be promote certain racial ideas here by comparing those relatively useless IQ numbers. Do they make you feel superior or inferior?

For example: Good thing those “superior” Chinese have a wall already. They can keep those “inferior” Americans from immigrating to China.

Now what’s the investment angle here?

If we provide a better education system in all countries we can make everyone in the world more productive, and better at IQ tests, and then China might accept them?

Hmm. How do I make money from that?

worleyeoe

1 year ago

Reply to prumbly

Sarcasim, I assume.

MPO45

1 year ago

Reply to prumbly

The “unskilled” worker part is generally true for the first generation, but second and subsequent generations get education and skills. This has been happening here is 1776.

Lisa_Hooker

1 year ago

Reply to MPO45

Unfortunately for some segments of the population the education and skills are about obtaining Government handouts, subsidies, and grants. We now have 2nd and 3rd generation Welfare specialists, and the Government continues to make room for more.

MPO45

1 year ago

From my perspective there are two economies. While Musk is busy laying off high paid people, other companies are swooping in and hiring them. There will seemingly be forever labor shortages of highly skilled workers and given the dysfunctional state of teaching and teacher labor shortages, the problem will only get worse. The net result is working pros will continue to get paid more and more and unskilled labor will play the hunger games.

link to businessinsider.com

MPO45

1 year ago

Reply to MPO45

And here is an article about the massive shortage of semiconductor engineers as a bonus.

link to theregister.com

Lisa_Hooker

1 year ago

Reply to MPO45

I have noticed a total shortage of BMW dealers willing to sell me a new 740i for $20k. Something must be done about this! Perhaps Government grants?

Raising salaries could lure some semiconductor engineers from Japan or Taiwan or even China (gasp). The big companies don’t have any problem with H1B visas. I know, I watched it happen for years while at a Fortune 50 tech company.

shamrock

1 year ago

If unemployment doesn’t go up significantly can it really be a recession? A recession without consequences.

PapaDave

1 year ago

Reply to shamrock

It matters to Mish. He has been brave enough to call for a recession, while some of his readers disagreed with him. Call it “bragging rights” if you want.

Personally, I would love to see a mild recession with only minor consequences as that would not hurt most oil companies that I am invested in. It is also why I avoid companies that are tied to discretionary spending. They would be hurt the most.

Of course, I would also be happy with a mild slowdown, rather than an outright recession.

My investments would be hurt by a massive recession, so I certainly don’t want to see that. Only time will tell.

Mish

1 year ago

Reply to PapaDave

Plenty of consequences.

Housing gets hit hard. Asset prices collapse. Demand shifts back to low paying service jobs. Long weak period of growth or in and out of recession. Corporate profits plunge.

worleyeoe

1 year ago

Reply to Mish

I total agree with your description, but to me, that doesn’t sound like a 1.3’ish uptick in unemployment that you’re predicting. Does it mean 5%? No, unless some of those really bad things that we all know are lurking on the sidelines collide in to make this nastier than 98% of the “experts” are predicting. 3% is stands a good 75% chance IMO.

PapaDave

1 year ago

Reply to Mish

I understand your call. Which is why I am avoiding the sectors that could be hit the hardest. And focusing on the sectors that will be hurt the least or even do well.

You could be 100% correct. But, as you frequently point out, none of us know the future with much certainty. And I still want to participate in areas that will pay me well to own them.

As you have also pointed out, even Warren Buffett is loading up on Occidental because he believes they will soon be paying out enormous cash flow to shareholders. I believe that I will do even better with a portfolio of Canadian small and mid cap oils.

Lisa_Hooker

1 year ago

Reply to PapaDave

Gee whiz Papa. Which Canadian oil stocks? We’d like to profit too, and can help pump up your holdings.

PapaDave

1 year ago

Reply to Lisa_Hooker

I must have told you several times now. Maybe you never read my responses to your question?

I will try again. Here are a few. The info comes from a chart that Eric Nuttall posts on twitter. I own 8 of these and at least a dozen more.

How fast can these companies pay off ALL debt and buyback ALL shares using cash flow from $100 oil ?

Athabasca : 1.2 years

Crescent Point: 1.8

Vermillion: 2

Baytex: 2

Surge Energy: 2

Enerplus: 2

Whitecap: 2.2

Gear: 2.2

Nuvista: 2.3

Tamarack: 2.7

Lisa_Hooker

1 year ago

Reply to PapaDave

Thank you very much. First time I’ve seen the list. Thanks again.

PapaDave

1 year ago

Reply to Lisa_Hooker

Third time I have posted it. Second time in direct response to you. You’re very welcome. As you can tell, this is my main interest for being here. To both share and receive investment ideas.

And follow Eric Nuttall, Josh Young and Burnsco on twitter.

JackWebb

1 year ago

Reply to Mish

We shall see, but I have a very hard time imagining that those things can happen while the unemployment rate barely budges.

Lisa_Hooker

1 year ago

Reply to PapaDave

I too would like to see a recession.

So long as it doesn’t affect any of YOUR investments in the least.

I worry constantly about your retirement and legacy Papa.

PapaDave

1 year ago

Reply to Lisa_Hooker

That makes, ummmm, two of us!

Captain Ahab

1 year ago

Reply to shamrock

Interesting question. If GNP declines with near-constant labor, the likely explanation is lower productivity. Go through Mish’s ’10 points for an earnings crash’ and lower productivity is embedded in at least half of them. It could be argued that lower productivity is a more serious consequence than lower employment. There is no better sign of a nation in decline.

Lisa_Hooker

1 year ago

Reply to Captain Ahab

A very good sign of decline is depreciation of a nation’s currency. For the US, so far, so good.

PapaDave

1 year ago

The only constant is change. What’s normal for today is not the same as what was normal 10, 20 50, or a hundred years ago. Assuming we have a recession, it will not be like any previous recessions.

Mish correctly points out that the demographics of the population today are vastly different from previous time periods. As are the types of jobs. Most of the jobs created in the last 20 years did not even exist 50 years ago. So a recession will affect jobs differently than in the past. I tend to agree with Mish that there will be far fewer job losses than in the past if a recession has indeed begun.

He also points out that after 50 years of increasing globalization, we are now de-globalizing, which will impact economies all over the world in vastly different ways.

I am not sure if the stock market and earnings will crash as much as Mish expects, but who knows?

Which brings me to my favourite topic; the oil and gas industry.

Here is another industry that has changed dramatically in the last decade. In previous decades, the oil and gas companies regularly spent over 100% of cash flow on exploration and development. They would borrow like crazy to expand production whenever prices were high, subsequently increasing supply dramatically and causing prices to crash.

Today, in the face of huge demand and restricted supply, they are only spending 40% of cash flow on e and p. And they are committed to keeping it there. Which leaves the rest for debt reduction, share buybacks and dividend increases

Why are they acting differently this time? There are multiple reasons but they are all related to the same thing: global warming, and climate change.

Now, before all the crazies start responding that there is no such thing as AGW, let me say that I don’t give a flying f*ck what you think. You are not in charge of these oil companies. And I am not investing in you. I am investing in these oil companies and as such, I only care about what the oil companies believe. And they believe in AGW and are responding to it accordingly.

Let me expand a bit:

In the last several years, the oil companies have been abandoned by many of their lenders, major investors, sovereign wealth funds and pension funds because of ESG concerns.

Without access to borrowed money, many of them have had to resort to self funding of their operations. Which is one reason why they will not be getting close to spending 100+% of cash flow on capex in the future. They simply don’t have access to the funding any longer.

Some smaller companies have had to endure onerous new conditions from their lenders. To get away from these handcuffs, these companies are using high prices and their enormous cash flow to completely eliminate their debt and free themselves. Some of the companies that I have invested in are already debt free.

But most companies are simply paying down their debt to historically low levels. Like 25%

EV or less. They want to keep some leverage. And with their huge cash flow, most could eliminate that debt in 6 month if they had to.

At the same time, since the companies have been abandoned by many of their largest investors, their share prices have dropped to historically low valuations. The industry normally trades at EV/CF values of 6-8. Today many companies trade at 1-3. They are trading at 60% to 80% discounts to traditional norms.

Which is the reason that all these companies are buying back their own shares with that excess free cash flow, and insiders are buying their own company shares like crazy. The companies can earn a far better return from their cash flow by buying their own shares instead of spending on capex. At oil prices of $100, many have FCF of over 30% or even 40%.

If Mish is correct and jobs stay strong during a possible slowdown, that will certainly keep US demand for oil at present levels. I expect oil prices to stay around $100 or higher through the rest of the year

Which means oil company earnings are going to be spectacular. Even if other industries suffer. What a great place to invest for the slowdown.

And many of these firms have committed to returning 50%, 75%, and even 100% of FCF to shareholders going forward.

effendi

1 year ago

Reply to PapaDave

The logical conclusion of what you wrote is the smart oil companies will pay off the lenders, build up a nice cash buffer and then expand production by taking all the opportunists the woke or ESG constrained competitors have passed up.

They are the high growth fantastic long term investments, much better than those who are running themselves down paying out all current profits as dividends or stock by backs.

Most of the world (outside the dying west) will be using more, not less gas and oil in a decade and are currently building new oil refineries (that will last for decades).

PapaDave

1 year ago

Reply to effendi

You are correct; to a point. Some oil companies are in the process of selectively acquiring land positions in order to build future reserves (Freeport, Whitecap, etc). The companies that are doing so tend to be the ones with only 10-15 years of reserves or less. But in many cases they are buying the positions from other oil companies with 30-50 years of reserves, or from companies who consider the positions “non-core”. So it tends to be a bit of a wash.

In addition, since production is always using up existing reserves, companies must expand their land positions on a continuing basis in order to maintain production in the future. Most companies can do this within the 40% average capex budgets. These companies have changed their outlook. It is no longer drill, drill, drill and grow, grow, grow. Today, it is all about generating free cash flow with rationale growth or consolidation.

That huge cash flow is being put to good use. Some goes to growth. But after the pain of the last several years, the companies recognize that there is such a thing as sensible growth and rock solid financials. They are also very aware that all-out growth will continue to make them targets during this energy transition and for ESG lawsuits going forward.

So, first and foremost, they are using their free cash flow to pay down debt to very low levels (or zero). Then they are rewarding shareholders (which of course includes the executives). The boards of these companies have also instituted incentives for executives to be rewarded for generating FCF and profits, rather than past incentives for growing production. So that is what they are going to do.

And the executives and board members are currently personally purchasing large numbers of shares on the open market. That is a tell.

And the companies have all been acquiring shares through NCIB programs because it gives them a better return on their FCF than growth does.

This is not an industry that is deliberately shutting down. It is one that recognizes what the future holds for them, and is taking the most strategic course possible to maintain production or grow it sensibly, while cashing in on high oil prices for as long as they can.

Lisa_Hooker

1 year ago

Reply to PapaDave

Absolutely excellent!

Well written!

Finally, a post with real information and reasoning instead of your typical broken-record rant about your oil and gas investments.

Kudos!

Keep up the good work.

PapaDave

1 year ago

Reply to Lisa_Hooker

Wow! A fan! Maybe it will all go to my head and I will attempt to buy Twitter for a ridiculous price! Lol!

PapaDave

1 year ago

Reply to Lisa_Hooker

I was writing posts like that before and people were complaining that they were too long and boring. So I tried to be more succinct.

You just can’t please people.

Lisa_Hooker

1 year ago

Reply to PapaDave

Papa, most of your earlier post, and I mean over the past months, were (sorry) mostly boring.

And repetitive.

And not particularly informative after reading the first post months ago.

The long ones today are as if you read and edited them more than previous posts.

This one is really well done.

Again, well earned kudos.

prumbly

1 year ago

Reply to PapaDave

We’re not de-globalizing. Take a look at the US trade balance if you don’t believe me. “De-globalization” is just another fictional narrative, like the “energy transition”. It just isn’t there in the data.

PapaDave

1 year ago

Reply to prumbly

I disagree. For 50 years we have gone through very rapid globalization, where the lowest cost of production location always won out. This resulted in lower and lower costs and very little inflation, or in some cases, deflation. However, it also left us in the dangerous situation where close to 100% of production of many crucial items was concentrated in very few locations.

Recent events (pandemic, Russian invasion, China tensions, etc) have shown us that we went too far with globalization. There are supply disruptions everywhere that are teaching us a valuable lesson. Lower costs should not be the ONLY goal.

Security of supply is becoming far more important. Which is leading to more rationale globalization. It does not mean that trade is going to decline. As long as economies continue to grow, so will trade. But growth will be slower, more secure, and slightly more expensive because we have learned our lesson.

That is what is meant by de-globalization.

Matt3

1 year ago

Reply to PapaDave

I agree that de-globalization should happen but it isn’t. Trade blocks are shifting but we are not expanding production in the US and reducing imports. We are using less efficient trade routes and changing some trade (China to Vietnam).

PapaDave

1 year ago

Reply to Matt3

De-globalization does not simply mean “made in the USA”. You are misinterpreting the term. It means ALL countries are looking for better security of supply, knowing full well that it will raise costs and lengthen transport times. Which is exactly what you described. De-globalization is indeed happening.

Of course, this WILL result in more production of some things in the USA. As it will in other countries. You are going to see more LOCAL sourcing where feasible. But this process takes time. For example, it takes 5-10 years to build a modern semi-conductor plant.

It won’t happen overnight, and it won’t result in everything being made here. Sorry to burst your bubble.

RonJ

1 year ago

Reply to PapaDave

From what you are saying, it looks like oil companies are being squeezed by their traditional sources of funding, rather than that they believe in global warming.

PapaDave

1 year ago

Reply to RonJ

That they are being squeezed is true. However, that only explains why they are no longer spending over 100% of their cash flow by borrowing. But their acceptance of the reality of global warming, and their expectation of the need for less oil in the future, explains why they are only devoting 40% of current cash flow to simply maintain or slightly expand their reserves. And why they are buying back their own shares, rather than expand production as they did in the past.

Oil companies have known about AGW since the 1950s. Many of their own scientists have published papers about it. And the industry as a whole has been paying lip service to it for several decades, while also attempting to spread doubt, so they wouldn’t have to change their business model. No one likes change.

And they have a point. While they are aware that their industry is a huge contributor to AGW, they are also aware that they are indispensable to economic growth and our insatiable demand for energy. They are caught between two very opposing forces. The public keeps demanding energy from them while at the same time criticizing them for emissions.

They have now settled on a path that will keep them going concerns for several more decades. Keep producing oil and gas, but at modest rates, and enjoy the huge cash flow they are generating. Spend a little on future growth, ESG and some renewables to try to keep everyone happy. And rake in the profits as increasing demand keeps prices high.

vanderlyn

1 year ago

as others note, if the fed keeps raising rates, which i believe they will, we will have a deep recession in assets. demographics are on the side of good employment opportunities for most as boomers retire and die off. stagflation is nothing we have seen in decades, and i believe it’s here.

vsest

1 year ago

If Europe is out of money who can buy your services and goods? If US can’t defend Afghanistan/Kurds/Ukraine who needs your support? Why would Saudis support $US and not Russian rubles? After all Assad is still with us.

effendi

1 year ago

For the individual worker the unemployment rate is important (less layoffs and less competition for the available positions).

But isn’t the fact that the main reason unemployment won’t be high be because the not in workforce category is rising? Retirees cut back on expenditure and run down their nest egg. Sick people (jab and other) are exploding and are a drain on society, sure their healthcare adds to GDP, but so does smashing windows.

So the overall economy won’t grow as fast as a healthy economy (high employment rates with low social burden). At some point there will be a failure of the system (can the economy support 30% of GDP in healthcare, what about 40%) and at that point there could be near zero unemployment and economic pain.

So unlike past recessions the big factor isn’t the unemployment rate but the percent in workforce rate.

JackWebb

1 year ago

I simply do not see how you can have an earnings collapse (and attendant stock collapse), and not have those reflected in the real economy with rapidly rising unemployment. It’s really, really counterintuitive to me. I salute Mish for his look underneath the hood, and won’t argue too hard. I certainly don’t think he’s out to lunch at all. In fact, I hope he’s not. If I can win on my SPY and MSTR (crypto stalking horse) puts without distress in the real economy, I’d love it.

My gloomy scenario depends on the Fed walking its QT talk and letting the yield curve exclusive of fed funds be set by the bond market. If they follow through on their “jawboning,” the 10-year Note spikes and brings mortgages up with it, causing a housing crash that then turns into retail trade and construction job losses, and then out to professional and business services. I’m not arguing all that hard right now; predictions are difficult and since I’m bearish I am “talking my book” in a sense.

I see a much more fragile real economy than Mish does. We’ll find out, and it won’t be all that long until we do. Mish, I hope your forecast is right. I’d love to be wrong on my lily-livered, unconfident semi-forecast.

Casual_Observer2020

1 year ago

Reply to JackWebb

I don’t see it as fragile but just returning to the slow growth of the 2010s but with higher inflation. Even low inflation won’t help the economy suddenly get up to GDP people clamored for prior to covid. We will slog around 1% GDP and 4-5% inflation. The Fed will continue to hike rates as they should to kill the speculative asset bubble.

worleyeoe

1 year ago

Reply to Casual_Observer2020

There’s $3.9T in short, dated bills & notes that’s part of our national debt. There’s something like $13T that’s 7 years and under, I believe. The Fed can’t let the FFR rise up past 3.5% or the average treasury rate currently about $1.8% get close to 3% and then stay there for anything more than six months or so. To do so will mean a significant spike in interest on the debt, mostly likely to $1T from what will be $600B this FY. FY 2023 tax revenues will slip back from their modest increase over the last few quarters to 2020’ish levels or about $3.71T.

At some point in next 2 years, we’ll be spending more than 30% of gross federal revenues on interest on the debt, assuming the stagflation scenario comes to pass. As such, then at some point the Fed will have to induce a significant recession to justify lowering rates, implementing QE and yield curve policies (all of which are incarnations of Modern Monetary Theory based economic management we started in 2008).

IMO, there’s a lot of energy in the economy, especially the labor market which Wednesday’s report clearly demonstrates. Personally, I hope the June CPI report is at least 9%. According to Wolf Richter, the change in BLS this past spring starting to use actual rent prices as part of its 31% of CPI will continue to push CPI up for about another 9 months. The ATL GDPNow guage was capturing primarily the inventory slowdown.

The Fed is moving way too slow. Their QT plan should have included outright sales of treasuries & MBS, something to the tune of $10B each per month as part of the $95B.

JackWebb

1 year ago

Reply to worleyeoe

Yow! It’s been a while since I looked at the federal debt numbers. To be fair, $4T has become a relatively small share of the total. Do you know what the duration of the whole slew is, by chance?

worleyeoe

1 year ago

Reply to JackWebb

Here’s a nice graph. I was off a little on the bills. It’s $3T, but all of that rolls over in 52 weeks or less. Notes are everything from 2-10 years while bonds are 20 & 30 years.

link to treasurydirect.gov

And here’s the real up-to-date numbers for each from the relatively new fiscal data treasury.gov web site. I’d have to do some more digging, but rest assured of that gargantuan $13.6T in notes, at least 60-70% is three years and under. So if we find ourselves in stagflation for three years where the Fed is forced to keep the FFR up at 3% or higher and the average yield of all securities creeps up towards 3%, then we’ve got a big problem. This is the noose around the Fed’s neck that no one is talking about. The Fed hopes that by the end of the year they get to 3.25% and there’s enough deceleration in the economy, including minimal job losses like Mish is talking about, such that they have the cover to start yield curve manipulation by implementing some level of QE. That’s the big thing that nobody is talking about. We have entered a period of perpetual intervention on the part of the Fed to keep rates down. We don’t pay off debt. We roll it over to new debt at whatever the Treasury thinks is the best rate / maturity combo at that time.

link to fiscaldata.treasury.gov

Here’s a nice table of the 10YT yield. Note that 1/2008 is when it broke through 4% and has never recovered above 4%. Note in 7/2020 when it bottomed at .62%. Can you imagine all the debt that was issued from then through the end of the year?

link to fedprimerate.com

Here’s the best table of them all, the one that actually tracks the monthly cost of total interest expense. They made it harder to calculate from when it was over on the treasurydirect.gov website when it moved over sometime in June. Now you have to Set the date range to 1 year, set it to chart view, and finally choose Category under Pivot View. Then you have to go back to October 2021 and start adding up the two values, public & intragov debts. It’s definitely a pain now which is probably what they want. And under the old website, they gave you the total interest expense by year back though the early 2000’s, so you could make nice YOY comparisons. My math from the old site say we’ve averaged $545B in total interest expense of the last four years.

link to fiscaldata.treasury.gov

Let me know what you think!

JackWebb

1 year ago

Reply to worleyeoe

Give me some time. I am looking, and trying to figure it out. Just wanted you to know that I am not blowing it off.

worleyeoe

1 year ago

Reply to JackWebb

I agree. I see no way out of this inflation morass without two things happening:

#1 A recession that pushes unemployment up to 5% for 1-2 years.

#2 The GOP taking the House & Senate and forcing Biden to renounce this hyper focus on going green, which is need of course but not at the expense of stable fossil fuel prices.

JackWebb

1 year ago

Reply to worleyeoe

Sorry, but I think 5% is quite optimistic. As I wrote above, I truly want to be wrong. If I am, I won’t bob & weave & evade, but instead say that I was less certain about my view than I usually was. If I’m right that this will be as bad in its own way as ’08 or ’79-’82, there’s no predicting what the politics will be other than that the Democrats will be out of power for a very long time. (I presume you’ve seen my other stemwinders about the 1894 and 1896 elections, and William McKinley and William Jennings Bryan, and The Wizard of Oz.)

Probably the only thing Jimmy Carter’s United States had really going for it at the tail end of the ’70s was that the federal debt had been inflated down to <30% of GDP, by which I mean that inflation had cut the burden. It took, what, 12 or 15 years? for the bond vigilantes to begin to forget. If I’m right, this will be the third financial crisis of my adult life, and I think it will be the worst of them. Believe me, I want to be wrong. I want to sit here in a few years and laugh at myself.

Matt3

1 year ago

Reply to JackWebb

Bingo. That’s exactly how we are going to deal with the national debt this time. Inflation about 5%, growth about 1% and the Fed holding rates at about 3.5%. Market flat for many years will be a reversion to mean returns

Lisa_Hooker

1 year ago

Reply to JackWebb

As the devil’s advocate:

With the abortion issue the Democrats win 10 additional seats in the US Senate and additional seats in the US House this November. Subsequently Biden gets approval on a lot of additional spending. The recession deepens. The Government helps voters by sending them more money directly. Plus money to Big Cities with social problems. Mostly Blue cities. This helps inflation to rise. Wages rise to cope with rising prices. Perhaps we get wage and price controls. That’s always been interesting.

Lisa_Hooker

1 year ago

Reply to worleyeoe

Around 5% unemployment is the natural rate in a dynamic growing US economy. It was for years.

worleyeoe

1 year ago

Reply to Lisa_Hooker

For our economy to get to 5% unemployment like Larry Summers said is needed and to stay there for several years, the FFR would have to rise upwards of 5% or more and the average (currently ~ 1.75%) yield of treasuries would have to rise up to at least 3.5%, and mortgage rates would have to rise upwards of 7% and stay there for 12 months or more. All of this would crater the housing market and send the cost of interest on the national debt to at least $1T from what will be $600B this FY. The Fed won’t allow that to happen. Congress won’t allow that to happen. Before all that happens, the Fed Put will come back and the CFPB will bring back rent & mortgage forbearance which together added significant upward inflationary pressures as we move from 2021 into 2022. Nobody likes to talk about it, but it’s true. Our economy is now managed in a Modern Monetary Theory-based manner, without the raising of taxes to lower the money supply. The Fed isn’t going to allow there to be a repeat of the 2009-2010 WAVE of foreclosures and significant rise in unemployment. It’s just not going to happen.

Lisa_Hooker

1 year ago

Reply to worleyeoe

MMT => More Money Today

Casual_Observer2020

1 year ago

I don’t think a normal recession is possible unless there is an appreciable rise in unemployment. This is why I previously stated that we are likely to go in and out of growth over the next few years as Japan has been since the 1990s.

Maximus_Minimus

1 year ago

I believe, the low unemployment theory is likely, but for a different reason: as soon as unemployment become catastrophic, the printing will start again even before it stops.

In the 1929 depression, fortunes turned dust of the reckless are a legend.

In the 21st century sequel, the reckless gamblers were rewarded again and again, so the reckless behavior will continue with asset price increases and inflation.

JackWebb

1 year ago

Reply to Maximus_Minimus

These things have always been about the Fed. I don’t know of any exceptions. So the July and September meetings, and the rate of balance sheet runoff, will be critical. Question of the summer and fall: Will Powell do what he says he’ll do, or is he just another political b.s. peddler? I’d vote for Door #2 and stagflation, but ya never know.

Maximus_Minimus

1 year ago

Reply to JackWebb

The FED and treasury are joined at the hip, the independence is a charade. That’s why all decisions are and will be political, but in a sense that the system has to be preserved rather than party lines.

PreCambrian

1 year ago

So the recession will occur in the near record high of S&P 500 profit margins. Hopefully some of the decline of margins will return to worker wages.

JackWebb

1 year ago

Reply to PreCambrian

A decline in margins will have the opposite effect.

Why I Expect a Minimal Rise in Unemployment This Recession

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