VIPs

• The spread between the 5-year note and 30-year bond fell below 100 basis points over the last week, hitting 85 bps in yesterday’s trading session; after the 1990, 2001, and 2007-09 recessions, the 100 bps level served as a demarcation line from early to middle/late cycle
• As firms battle wage pressures via M&A activity, U.S. deal counts have reached successive records in Q2 and Q3; the October-to-date deal count is tracking to 2,200 by the end of the month, which would be the fourth highest on record behind September, June, and August
• As a z-score, the Outlook Gap, or spread between CEO and Consumer Expectations, looks to be coming down as it usually does when expansions mature; however, rising wage pressures remain an opposing headwind that is making consumers relatively more optimistic

Joel Spira was aiming for mood lighting. He created an industry. It was the late 1950s, and not only were Americans buying tons of new homes, they were hosting dinner parties with mood music. To Spria’s thinking, the right lighting would further enhance the ambience. Objective identified, he commandeered his apartment’s spare bedroom and set out to complete the moody mission. At that time, lighting control was a complicated and expensive affair, requiring bulky rheostats that used a lot of energy and generated a great deal of heat. Spira’s 1959 emergence from his lab with a solid-state dimmer that could replace the light switch in a standard residential switch box radicalized the lighting scene. His company Lutron was the first to mass-market the dimmer and has never wavered on its undertaking to innovate within the space — the firm’s product lineup has expanded from two products to more than 15,000.

Business cycles work on mood lighting too. Growth momentum burns the brightest coming out of recession and cools as the cycle matures from early to middle to late phases. The forward view from the C-suite also is sunniest early on as productivity and cost saving initiatives drive the outlook for corporate earnings. Not every cycle follows the same script — some, as in the current one, are hyper-compressed, which is evident in the yield curve.

Yield curves steepen at recovery’s outset and flatten as when the expansion begins to exhaust itself. For completeness, the end of cycle signal surfaces when curves invert. To be sure, we’re not there yet. That said, the spread between the 5-year note and 30-year bond fell below the 100-basis point (bp) mark over the last week in decisive fashion. The 5s30s curve tested the 100-bp threshold on September 22 and 23, snap-steepened back to the 112 bps on October 5, and then compressed sharply to near 85 bps in yesterday’s trading session.

For what it’s worth, there’s something about the 100-bp level that marks it as a milestone in cycles. After the 1990 recession, when 5s30s went sub-100, it moved the expansion from early to middle/late. After the 2001 recession, 100 was a demarcation line between early and late. After the 2007-09 Great Recession, 100 divided early/middle with late. It’s not definitive if we are mid-cycle or late cycle, but it’s pretty clear that we are no longer in the Kansas of the early phase.

That brings us to a refresh of a concept we can observe but once a quarter, the Outlook Gap, which compares the spread between the expectations of CEOs and consumers. It peaks early in economic recoveries and grinds down as expansions mature before bottoming into the next recession, echoing the yield curve’s path. We depict the Gap in today’s left chart using our favorite normalizer — the z-score, or deviation from the mean adjusted for volatility (blue line).

The compression of the current cycle driven by the temporary nature of the pandemic suggests the duration of the yield curve flattening and Outlook Gap narrowing might be shorter than in the past too. At a minimum, the fourth quarter-to-date 5s30s curve is flagging mid-cycle. We would anticipate a similar construct for the Outlook Gap once the autumn quarter figures print. One factor that’s made consumers relatively more optimistic than company heads is rising wages.* Whether it’s small, medium or large companies, anecdotal evidence from business surveys corroborate the trend.

*The one caveat we’d place on that last note, with a hat tip to QI Canadian friend David Rosenberg, is that the latest University of Michigan print showed households’ assessments of the job market at an 8-month low. We won’t know the long term damage exacted by post-pandemic automation acceleration for some time.

Many firms are battling wage pressures via the merger and acquisition (M&A) channel. U.S. deal counts have vaulted to successive records in the second and third quarters (yellow line) as the most accommodative financial conditions on record underpinned this dynamic. The Goldman Sachs U.S. Financial Conditions Index remains ridiculously easy (green line).

As of this writing, the October-to-date deal count is tracking north of 2,200 for the full month. This would land it as the fourth highest on record behind September, June and August of this year. If financial conditions start tightening in a more persistent fashion, conviction would rise for calling a top in M&A, signs which are emerging.

Yesterday, Bloomberg ran a story titled, “Short-Dated U.S. Rate Volatility Spike Follows Fed Pricing Shift.” The U.S. dollar swaption volatility surface revealed that short-dated volatility on front-end rates indicated a hawkish re-pricing of Fed rate hike expectations. Over the last week, the short end of the swaption curve moved from pricing one hike by the end of next year to two, with about half a hike priced into the June 2022 Fed meeting. In addition, 6-month volatility on 2-year rates hit the 60-bp mark, the highest since March 2020.

Rotating the dimmer switch, the compression in the yield curve is pointing to a further fading of the Outlook Gap. A turn in financial conditions would reinforce the shifting mood and signal a top in M&A activity. We would add that Bloomberg one-year forward U.S. recession probability moved off its maximum bullish setting of 10% to 15% in October. All told, these factors imply a less friendly investment environment for risk assets in coming months.

VIPs

• U.S. retail sales surprised to the upside in September, seeing a 0.7% MoM gain vs. the -0.2% consensus while July and August saw a combined 0.4% upward revision; in response, equities rallied led by cyclicals, while Treasuries sold off with higher yields in 10s than in 2s
• Real retail sales, excluding food services and deflating with the CPI for commodities, saw volume gains of 0.4% MoM in August and 0.2% in September; thus, price increases drove roughly 60% of August’s headline retail sales increase and 75% of September’s advance
• Little notice was given to the downside in October’s NY Fed Empire State Manufacturing report, which saw new orders, employees, and hours worked all fall; meanwhile, UMich’s Survey of Consumers saw sentiment fall to its second-lowest level since 2011 in October

Great advertising slogans should leave a permanent imprint that immediately conjures the product. “M’m! M’m! Good!” Campbell Soup, of course. “The Breakfast of Champions” should out Wheaties on the brain. “Just Do It” is to Nike as “The Quicker Picker Upper” is to Bounty paper towels. And we all know what America runs on – “Dunkin.” In the 1970s, the tag line “How do you spell relief?” became synonymous “R-O-L-A-I-D-S.” Rolaids, an American brand of calcium and magnesium-based antacid, is produced by Chattem. Invented by American chemist Irvine W. Grote in the late 1920s, manufacturing originated in Chattanooga, Tennessee under one of Chattem’s forerunner companies, which produced the brand for Warner-Lambert, which, in turn, merged with Pfizer in 2000. Ask a Gen X-er the question, and the seven-letter answer will roll off the tongue. Anyone who answers “R-E-L-I-E-F” was born too late to have ever had their brains ingrained.

Investors who were born yesterday – or for the sake of argument, this past Friday – spelled relief with six letters: R-E-T-A-I-L. U.S. retail sales defied the gravity the consensus believed would exert on September spending. The 0.7% month-over-month (MoM) gain significantly surprised the -0.2% Bloomberg consensus and surpassed all but three of the 68 estimates in the survey. When you add in the net 0.4% upward revision to July and August combined, all the new news was the equivalent of a 1.1% print hitting the tape.

This fundamental upside induced a textbook response with equities rallying led by cyclicals, especially the consumer discretionary sector. Treasuries sold off in bear steepening fashion with higher yields in 10s than in 2s. Real yields provided more lift to the 10-year yields vis-à-vis inflation expectations. These moves bolstered optimism for consumer spending, which accounts for a mere 69% of U.S. GDP.

With deference, you’ll have to pardon us for waxing skeptical. It’s time for a check of the R-E-A-L-I-T-Y kind. U.S. retail sales are reported in nominal dollars. These values are the product of the price (P) and quantity (Q) of goods sold in a given month. However, the Census Bureau does not disaggregate the P and the Q. To take out the guess work, one must wrap numbers around the variables to determine if retail’s gains were driven more by inflation than volume.

Today’s left chart depicts MoM changes in real retail sales excluding food services & drinking places to get a purer read on goods spending. The CPI for commodities was used to deflate the retail series. Volume gains occurred in both August, at 0.4% MoM, and September, at 0.2% MoM. In both months, however, prices added 0.6% to the dollar value of retail sales ex-restaurants & bars producing nominal gains of 1.0% and 0.8%, respectively. Simply stated, prices accounted for about 60% of the August increase and more than 75% of September’s advance.

Properly contextualizing the inflation-adjusted performance, the last two months of the third quarter (0.6% combined) did little to reverse the four-month losing streak from April to July (7.3% combined). This doesn’t sway us to grab the retail bull by the horns. Moreover, we think there’s still more dust to settle after March’s supercharged, stimulus check spending spree that saw a 10.0% volume gain.

Shifting to the right chart brings a longer-term perspective by illustrating the longer-run path in real (inflation-adjusted) retail sales over the prior expansion, from 2010 to 2019, through the COVID-19 flash recession, and finally, the post-pandemic recovery/expansion (yellow line). The trend line (in green) acts as a “fair value” indicator. Deviations above and below fair value reveal whether retail sales data are “rich” or “cheap,” thus distinguishing the phases of retail sales’ recovery.

The involuntary phase began with last spring’s shutdowns and ended after the subsequent reopening in December 2020 when the yellow line fell back to the green line. The second voluntary phase started after fiscal stimulus was pumped into the household sector in January and again in March, blowing a massive sugar-high spending bubble through the end of 2021’s first quarter. The second-quarter fallback and modest showing to end the third quarter still leave the level of real retail sales 2.7% above trend.

The last chapter of normalization has yet to be written casting doubts on the durability of Friday’s flurry of optimism. Little notice was given to the downside in October’s Empire State manufacturing report. New orders, the number of employees and work hours all fell as did prices received even as prices paid rose and delivery times skipped to a fresh record high. Moreover, the Langer Weekly Consumer Comfort index continued its slide which started just as summer was ending. Most notably, the mood of those who are employed full-time fell for a fourth straight week.

Corroborating the narrative was University of Michigan consumer survey head Richard Curtin, who flagged the Delta variant, supply chain shortages and reduced labor force participation rates in October, all of which sent sentiment to the second-lowest level since 2011 and dimmed the outlook for consumer spending into 2022. Per Curtin: “When asked to describe in their own words why (buying) conditions were unfavorable, net price increases were cited more frequently than any time since inflation peaked at over 10% in 1978-1980.” With consumers expecting to rise 4.8% in the coming 12 months, the highest since 2008, premature bullishness could send, dare we say “irrationally exuberant” investors reaching for those Rolaids.

VIPs

• Per data from the Association of American Railroads, intermodal trailer traffic, a proxy for truck output, downshifted from double-digit expansion to contraction from June to October; a driver shortage, as well as a lack of chassis at ports, are impeding trucking industry growth
• Every month since March has seen average weekly hours in truck transportation at or above prior record highs; despite the PPI for truck transportation posting YoY prints in the teens since April of this year, the S&P 500: Trucking continues to post elevated annual returns
• Rail traffic has been down YoY since September, driven by intermodal containers rather than traditional rail carloads; however, given the S&P:500 Railroads has posted double-digit YoY gains since August 2020, investors seem to view any slowdown in activity as temporary

Space, the final frontier
These are the voyages of the Starship Enterprise
Its five year mission
To explore strange new worlds
To seek out new life
And new civilizations
To boldly go where no man has gone before

On September 8, 1966, Captain James T. Kirk and crew did just that in the inaugural episode of Star Trek: The Original Series. During its initial run, it was nominated for the Hugo Award for Best Dramatic Presentation multiple times, winning twice. Believe it or not, on June 3, 1969, the Sci-Fi series was canceled by NBC after three seasons and 79 episodes. Canceled or not, the cult lives on. Just yesterday, William Shatner made headlines as the oldest person ever to go to space, care of Jeff Bezos’s Blue Origin rocket. He and three other astronauts hit a maximum velocity of 2,235 mph and reached a height of 347,539 feet on their 10-minute trip to the cold, black beyond before touching back down on the blue marble in West Texas.

Beam me up, Scotty. One of the Star Trek’s innovations was the transporter room, a teleportation chamber that decomposed cells and reassembled them in another place almost instantaneously. In 2021, teleportation is still a thing of science fiction. Not even Jeff Bezos with his $190.6 billion in net worth can conjure up a home teleportation device on his e-commerce empire; a quick search for “teleportation” on Amazon.com yielded only books.

Right about now the supply chain wishes it had some of Blue Origin’s rocket-science escape velocity and/or the luxury of a teleportation device. Yes, “supply chain” is trending. It has shown up in our missives more often recently, search interest is rising rapidly on Google Trends and Bloomberg reported yesterday that supply-chain chatter hit a record high on earnings calls.

With this in mind, we decided to take a look at the trucking and rail industries more closely. Enter today’s charts du jour. Each one looks at similar metrics for each sub-group of the transportation sector. Volume of activity is depicted using rail traffic from the Association of American Railroads (AAR). Pricing trends are illustrated through the U.S. producer price index (PPI). Financial market performance is portrayed by the S&P 500 sub-industry stock price indices. All series are normalized with year-over-year (YoY) comparisons.

The path of trucking activity has taken a noticeable step backward so far in the second half of this year. Intermodal trailer traffic on America’s railroads, a proxy for trucking output, downshifted from steady double-digit expansion to contraction from June through October (yellow line). Granted base effects account for some of this swing into negative territory, but not all of it.

A shortage of truck drivers picked up in the September Institute for Supply Management (ISM) Services survey is one impediment to the trucking industry operating at more productive capacity levels. A Business Insider deep-dive interview from this Tuesday with a veteran California longshoreman provided perspective from the truckers’ point of view. It noted that truck drivers have complained about the lack of chassis at ports. This factor limits the number of shipping containers that can be carried out of the yard. It leads to slower growth in the trucking business not just in California, but across the distribution chain as well.

The multiple strains on trucking capacity have seen drivers working record long hours per week. In every month since March 2021, average weekly hours in truck transportation were at or above past record longs in this corner of the transport sector. All told, pricing pressures have become well entrenched since then and sustained at unmatched inflation rates that have persisted in the teens since April of this year (red line). While there has been a step back in equity performance, annual returns remain elevated (blue line).

Switching to rails, the picture looks similar. Rail traffic through modes also was down versus last year in September and so far in October (orange line). However, this was due to intermodal containers and trailers and not traditional rail carloads. Pricing power has picked up, but is not extreme (green line). Stock performance has been a stalwart, posting double digit YoY gains in every month since last August (purple line).

AAR noted that most of the disruptions facing the U.S. supply chain today began due to forces outside of railroads’ control. Despite external challenges, railroads have kept traffic moving, particularly through the nation’s busiest rail hub in Chicago. After the White House convened a meeting with supply and logistics execs, AAR applauded freight railroads’ partners newly announced expanded service hours to ease congestion near the Ports of Los Angeles and Long Beach. “This move will capitalize on the long-standing 24/7 railroad operations and available capacity to accommodate additional containers at intermodal rail yards serving those key West Coast ports.”

It doesn’t take the captain of a starship to understand it will take time to resolve supply chain issues. However, both of today’s graphics tell us that investors are viewing any slowdown in activity as temporary (and maybe putting more weight on things like base effects). That is why equity performance for both trucking and railroads hasn’t cratered with the slippage in rail traffic. It has been supported by increased pricing instead.

VIPs

• The second and third quarters of 2021 saw CPI for toys post positive YoY prints for the first time since Q4 1996 and Q1 1997; California PMI Supplier Deliveries Index should continue to surge into Q4, with Chapman University expecting times to slow at a record high rate
• Cox Transportation recently announced that shipments have declined by nearly 5% as a result of supply chain issues; coincidentally, the only bright spot in August’s job openings data was in trade/transportation/utilities, with all other major sectors seeing declines
• In the NY Fed’s Survey of Consumer Expectations, household income growth and spending expectations both turned negative in August and September; this poses downside risk for real consumer spending, with the consensus at 2.1% and 4.2% for Q3 and Q4, respectively

October is leaf peeper season in the Northeast. If you get caught between an autumn leaf weekend and New York City, we recommend a detour to Springfield, Massachusetts, especially if your progeny has an affinity for reading. Right off Interstate 91 North is The Amazing World of Dr. Seuss Museum, honoring local native Theodor Geisel, a.k.a. Dr. Seuss. The two-story complex features family friendly, interactive exhibits exploring Dr. Seuss’s Springfield roots. Opportunities abound to experiment with new sounds and vocabulary, play rhyming games, and invent stories – all in line with Geisel’s revolutionary role in how we learn to read. It also replicates Geisel’s studio and living room – with the furniture and art materials he actually used – and features never before publicly displayed art, family photographs and letters as well as the original Geisel Grove sign which used to hang in nearby Forest Park. You can even find Theophrastus, the toy stuffed dog Geisel’s mother gave her son when he was a wee one.

Speaking of toys, October also marks the month we plan ahead to stuff stockings and fill the space underneath the Christmas tree. We know Halloween is a few weeks off, but this year especially, it doesn’t hurts to start early. Retailers have already made a mockery of “Black Friday,” which now encompasses the full month of November. Costco has their Christmas trees out and lit up earlier and earlier each year on the main floor.

Spoiler alert: Not all toys come from Santa’s North Pole workshop. The U.S. Toy Association, which represents 950 toy firms with a U.S. footprint, has members that sell three billion toys a year, 85% of which come from China. The not-for-profit trade association founded in 1916 represents businesses that design, produce, license, and deliver toys and youth entertainment products for kids of all ages.

#ShopEarly4Toys. On September 21, the Toy Association warned that the shipping crisis in California could affect many of its members going into the all-important holiday shopping season. In a virtual event with the Port of Los Angeles, the Toy Association discussed the negative impact the logistical challenges are having on toys sold in the U.S., then spoke directly to consumers (bolding ours):

“Get out and buy toys now. Right now, toy manufacturers are doing everything in their power to ensure a good supply in stores for the holidays, but we just don’t know what’s going to happen down the road as we get closer to Christmas.”

The Toy Association’s PR resulted in coast-to-coast coverage from media outlets such as Good Morning America, Los Angeles Times, KTLA and the New York Post. We call it raising inflation psychology by inciting a buy-now mentality. Though the Association may have its constituents in mind, alerting the masses coincided with a regime shift for retail toy pricing. In the second and third quarters of 2021, the CPI for toys posted back-to-back (positive) inflation readings for the first time since 1996’s fourth quarter and the first quarter of 1997. The interim period was 24 years of deflation (light blue line).

Pushing a buy-now mentality suggests toy producers give credence to the idea that higher prices will have some measure of staying power. With most of the imported toys entering the U.S. through Pacific Coast gateways, the California purchasing managers’ index (PMI) provides a direct look at the scale of bottlenecks. We’ve all heard how many container ships are backed up in San Pedro Bay, near the ports of Los Angeles and Long Beach. The lower frequency quarterly California PMI Supplier Deliveries index continued to surge in 2021’s fourth quarter (purple line). Chapman University, who compiles the data, indicated that delivery times are expected to slow at the highest rate ever recorded, a very Grinch-like supply chain, indeed.

As if on cue for the holiday show, Cox Transportation announced that the bottlenecks are so rife, they’ve caused shipments to decline by nearly 5%. Per Cox: “This supply & demand dynamic we’re witnessing along with the cost of fuel and other factors has caused the average cost of a shipment (not the same as rates) to spike to a +31.4% change.”Cox added that ocean freight is not included in its data. Is it any wonder that the only bright spot in August’s job openings were in trade/transport/utilities? Aside from this exception and “other services,” openings fell in all other sectors and geographic regions.

Buying toys is one thing. Challenging broader purchasing power is another altogether. That’s exactly what the New York Fed’s Survey of Consumer Expectations revealed this week. Household income growth expectations and consumer spending expectations, both adjusted for the jump in inflation expectations, turned negative in August and September (red and yellow lines). This Grinchly guidance suggests downside risks for actual consumer spending (blue line) might be closer than they appear. The consensus for real consumer spending remains complacent, with sequential quarter-over-quarter annualized gains for the third quarter and fourth quarter reading 2.1% and (a faster) 4.2%, respectively.

You’re a mean one, Mr. Grinch. You really are a heel… That “heel” may be in for a disappointment. More expensive toys mean less under the tree for the Grinch to steal. Is that what this holiday season has in store? No sense disappointing Cindy Lou Who. The context of inflation risks and the subsequent near-term hits to purchasing power could generate the opposite of a Santa Claus rally for consumer discretionary stocks.

VIPs

• ADP’s September jobs report saw businesses with 500 or more employees gain 390,000 jobs vs. 178,000 for smaller businesses; the 212,000 difference was the fourth largest on record, and reversed the trend of smaller businesses seeing larger job gains over the prior 12 months
• Per Vistage, 63% of surveyed CEOs are lifting wages and 21% are offering hiring bonuses as a labor retention method; meanwhile, the NFIB reports a net -14% of small businesses seeing higher earnings this quarter, well off June’s -5% high and February 2020’s pre-pandemic -4%
• Since 1993, the MOVE index of implied U.S. Treasury volatility has had a -0.63 correlation with the Russell 2000; should tapering become a reality in November, more short duration rate volatility could kick in as fast money starts wagering on the timing of the first rate hike

When I was younger, so much younger than today
I never needed anybody’s help in any way
But now these days are gone, I’m not so self assured
Now I find I’ve changed my mind and opened up the doors

Help me if you can, I’m feeling down
And I do appreciate you being ’round
Help me get my feet back on the ground
Won’t you please, please help me?
Help me? Help me? Ooh

The Beatles “Help!” released in 1965 runs just two minutes and eighteen seconds, but packs in 267 words, making it one of the most lyrically dense hits of the era. There are only a few seconds in the song where somebody isn’t singing. While not John Lennon’s intent, The Beatles sped up the tempo to make it more radio friendly. Have a listen. You’ll see what we mean. Marketers have also demanded “Help!” over the years. In 1985, Ford applied the ditty to sell cars, a Beatles first.

“Help!” is reserved for more than your listening pleasure; it drives the economy forward. Recruiting fresh help expands businesses’ headcount and is intended to boost productivity, especially for small and medium businesses where labor is a relatively greater input into final output. Recent trends suggest large corporations are winning the battle to sign on talent, while establishments down the size scale are significantly more challenged.

Per ADP’s September National Employment Report, large businesses (500 employees or more) added 390,000 private sector jobs; that compared to the 178,000 gain for small and medium-sized concerns. While this divergence is not typical, the 212,000 gap of large over small/medium qualified was the fourth largest on record. For perspective, the differential was flipped favoring small/medium hiring over large in the prior 12 months ended August 2021.

Vistage validates. The world’s largest executive coaching and peer advisory organization for small and midsize business leaders’ quarterly CEO confidence index expands on the labor issues ADP flagged. Third-quarter results indicated that more than two-thirds of CEOs said that hiring challenges are impacting their ability to operate at full capacity. That’s called a revenue problem. Vistage expanded: “The pressure to retain existing workers is intense as more than a quarter of CEOs report decreased retention rates since the beginning of the year. Replacing a lost worker will take longer and cost more than ever…there is a direct correlation between retention rates and revenue.”

Clearly, some of the 0.4 post-pandemic increase in the workweek to September’s 34.8 hours we highlighted in Monday’s nonfarm payroll recap reflects employers extracting as much as humanly possible, and then some, from their existing employees. Of course, there’s nothing free about squeezing blood out of rocks when rocks are in short supply. As Vistage reported, 63% of CEOs are responding to the challenges posed by lifting wages and 21% are tossing in hiring bonuses. Nearly half of small/medium businesses have recently raised wages by 4% or more. With the bottom line being sacrificed to underpin the top line, save for the involuntary shutdown during 2020’s second quarter, CEO expectations for earnings growth fell to the lowest since the last three months of 2012.

The National Federation of Independent Business (NFIB) confirms weakening profits. Illustrated in today’s left chart, a net -14% of small businesses reported higher earnings this quarter (yellow line), a deterioration from June 2021’s high of -5% and an unfavorable comparison to February 2020’s pre-pandemic -4%. It follows that a record high 62% bemoaned few or no qualified applicants (blue line). Moreover, the small business wage curve is steep, with a record 48% raising worker compensation and a record 30% planning to up the ante in the next three months.

QI mentor and NFIB Chief Economist Bill Dunkelberg explained that owners are clearly trying to hire but failing despite immense wage pressures even as “inflation is squeezing profits (the major source of operating capital for small firms) so firms are raising selling prices.”

In a slowing economy, raising selling prices to compensate for falling revenues is akin to hope being a strategy. In a fresh update Monday afternoon, Cox Automotive economist Jonathan Smoke struck a hopeful tone: “It could be October is the bottom for the sales pace.” September’s 12.2-million seasonally adjusted annualized rate (SAAR) was a 16-month low, off by a quarter from last year’s 16.3 million and 29% below September’s 2019’s 17.2 million. And it’s not just rental car providers, commercial fleets and government buyers that appear to have replenished their stocks as sales to this cohort fell 21% over the prior 12 months. The balance of retail sales fell by a deeper 23% to a SAAR of 10.7 million, which was down from 14.0 million in September 2020 and 13.8 million in September 2019.

You don’t need “Help!” to connect the dots that higher prices induced by rising wages risk not only a slowing economy but amplified rate volatility. Since 1993, the MOVE index of implied U.S. Treasury volatility (red line) has a -.63 correlation to the Russell 2000 stock index (green line). We know the MOVE has moved off its September lows. If the terrible taper becomes a reality November 3rd even as DC brinkmanship heightens further, more short duration rate volatility could kick in as fast money starts wagering on the timing of the Fed’s first rate hike.