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September 11, 2017

It was not a Washington deal cut in the middle of the night under the veil of darkness.  It was a bipartisan compromise, albeit uncommon but apparently not impossible in today’s political environment.  A midweek meeting between President Donald Trump and leaders from both major political parties paved the way for congressional legislation that moved the deadline by 3 months for 2 critical topics: the authorization required for fiscal year 2018 spending and separately for the suspension of the nation’s $20 trillion debt ceiling.  The bill (HR # 601), which also included $14.8 billion of funding for hurricane damage, was backed by 79% of the voting lawmakers.  Both issues must now be readdressed by Congress before the new deadline of midnight on Friday 12/08/17 (source: Congress).

Observers of the US debt market historically have kept a close watch on the gap between short-term rates and long-term rates.  As that gap narrows, one interpretation is that bond investors reduce their expectations for inflation and growth and increase their expectations for a recession.  As of the close of bond trading last week, the gap between the 2-year note yield and the 10-year note yield had dropped to 79 basis points, down from 130 basis points (i.e., 1.30%) in late January 2017 (source: BTN Research).

Americans have been walking the tightrope of the “Wildcard Trifecta” that can cause significant fear for stock and bond investors: War, Weather and Washington.  Who could blame a stock market for struggling in the face of what has taken place in the last month?  But in fact, corporate profits remain healthy and interest rates remain low.  The S&P 500 is up +11.5% YTD (total return) and the average 30-year fixed rate mortgage is at 3.78%, its lowest average for 2017 YTD (source: BTN Research).


Notable Numbers

BEFORE AND AFTER HARVEY – The national average price of gasoline had increased just 3 ½ cents per gallon YTD through Friday 8/25/17, the day Hurricane Harvey made landfall in Texas.  In the 2 weeks since then, average gas prices nationwide have gone up another 32 cents a gallon (source: AAA).

FUTURE CAR BUYERS – 1 in every 7 automobiles in the Houston area was destroyed by Hurricane Harvey (source: Evercore ISI).

LESS FROM THERE – The USA imports 22% less oil than it did just a decade ago.  Oil imports averaged 7.9 million barrels a day in 2016, down from 10.1 million barrels a day in 2006 (source: DOE).

BORDER – There are 52 legal ports of entry on the US/Mexico border, running from San Diego, CA to Brownsville, TX (source: US Customs and Border Protection).

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