The Fears Over The Debt Ceiling Are Unfounded
In his podcast addressing the markets today, Louis Navellier offered the following commentary.
Unfounded Fears Over The Debt Ceiling
The political football that is known as the debt ceiling negotiations has temporally caused Treasury bond yields to meander higher.
Treasury Secretary Janet Yellen in a Bloomberg interview said “If Congress fails to lift the debt ceiling, it really impairs our credit rating. We have to default on some obligation, whether it’s Treasuries or payments to Social Security recipients.”
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Naturally, what Secretary Yellen said will not happen, since it is political suicide, so the fears over the debt ceiling are unfounded, since in the end, the debt ceiling will be lifted after each side strives to score their political points.
Treasury Secretary Janet Yellen is talking at 10:05 am EST this morning from London. Her stern warnings on the debt ceiling are expected to be turned up, so Treasury yields may continue to rise to the fear of a default.
The debt ceiling negotiations between the White House and the House of Representative are now at an impasse. Representative Garret Graves, one of House Speaker Kevin McCarthy’s chief negotiators said “Bottom line is that we’re going to have to see some movement or some fundamental change in what they’re doing.”
Grave added that “Right now, we don’t have additional meetings set up.” The work requirements over food stamps is apparently one of the stumbling blocks.
The probability of a partial federal government shutdown, which happened several years ago is rising. I still do not expect that the Treasury Department to default on Treasury interest payments or Social Security payments.
However, pensions payments for Federal government retirees may be delayed a few days. Any partial federal government shutdown is not expected to last more than several days. The bottom line is most of our elected leaders are lawyers who love to “jam” each other during negotiations.
That is all that is happening at the present time, so investors should not panic, since the political postering will likely continue through at least Secretary Yellen’s June 1st deadline for the federal government running out of money.
No Deterring Buybacks
Companies in the Russell 3000 have announced $600 billion in stock buybacks this year, which is in line with 2022’s record corporate buyback pace. The 1% corporate tax on stock buybacks is apparently not deterring new stock buybacks, which helps companies engineer earnings surprises by shrinking their stock float.
In 2022, the companies in the Russell 3000 announced $1.27 trillion of share repurchases and completed $1.05 trillion in buybacks in 2022.
The energy disruption from the massive forest fires in Alberta is reducing North America supply and helping the other energy stocks that I continue to hold. A collapse in gasoline inventories before the Memorial Day weekend bodes well for refining stocks, since the U.S. will soon be approaching peak summer demand.
Finally, OPEC+ meets on June 4th and further production cuts may be announced. As a result, I am planning on continuing to hold many energy companies, especially those that posted strong quarterly results and positive guidance.
June 4th will be a big day for energy stocks and I suspect another OPEC+ cut on top of the recent 1.6 million per day cut could be in store. The summer months represent peak demand for U.S. energy consumption, so I expect crude oil prices will rise.
I should add that due to the big budget fight in Washington D.C., the Strategic Petroleum Reserve (SPR) will not start being significantly refilled until the fall or later, despite the SPR being depleted by over 200 million barrels by the Biden Administration last year.
Interestingly, the Energy Department’s first attempt to refill the Strategic Petroleum Reserve or SPR failed after its ask of companies to sell crude oil between $67 to $72 per barrel failed. The Energy Department is now making another attempt by trying to buy up to three million barrels of cheaper, sour crude.
Contracts are expected to be awarded on June 9th for the second attempt to buy crude oil for the SPR. The bottom line is if the Energy Department will not pay market prices to refill the SPR, it is not expected to receive many proposals.
Good Inflation News
There is going to be good inflation news in June and especially July, since the Consumer Price Index (CPI) rose 0.9% in May 2022 and 1.2% in June 2022. In other words, the annual rate of the CPI will be collapsing below 4% in June and 3% in July when the CPI is announced, since big monthly inflation surges will be eliminated for the annual CPI calculations.
The lower CPI will help market rates move lower and increase the gossip when the Fed will cut key interest rates. Officially, the Fed wants the annual rate of inflation to decline to its target of a 2% annual pace based on the Personal Consumption Expenditure (PCE) index before cutting key interest rates.
I am now in the camp that the Fed will start to cut key interest rates at the December Federal Open Market Committee (FOMC) meeting.
Coffee Beans: The Place to Bee
In 2021, China produced almost 500,000 tons of natural honey – the most in the world, even though its natural properties are being contested by several national and intranational watchdogs scanning for syrup additives.
Turkey, Iran and Argentina place second, third and fourth, respectively, with neither country crossing the 100,000-ton threshold. Source: Statista. See the full story here.