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We have said that "GOOD NEWS IS BAD NEWS" from a markets perspective... A bad employment number, which showed movements to "STAGFLATION" ,should have been good for bonds and bad for stocks... Bonds started to rally to lower yields, and then reversed to close near the 200 day moving average... This morning Bonds are continuing their downward path as 10 year treasuries are now above the 200 day of 1.34, and are challenging the recent high yield close of 1.38... Seasonals tell us that over the last 10 years, after the end of August, the average year in the post crisis development (2010-2019) experiences a 24 basis sell off from August month end to the Christmas holiday... August ended at 1.31, so that would challenge the 1.60 level... Not today's trade but as bonds speed to higher yields, stops will be triggered...

Rates... Today we get the beginning of the 120 billion of treasury supply... We also expect to get 40-45 billion of corporates in this holiday shortened week... Rates opened higher in yield and have challenged 1.38, but bounced for now . 10 year EGBs (European Govt Bonds) are higher in yield this morning from 4 to 6 basis. 30 year Bunds have broken support at positive 13 basis, and are now at .17. 10 year treasury futures are through some stop levels and are close to 133... We see support on treasuries near 1.43, which according to some mortgage friends, expect to see some convexity selling...

Tapering... Has the Fed missed their window?.. It could be. With Friday's weak headline number, (still shows strong wage growth), the idea of a September tapering is gone...we give it a 10% chance at most... So we now look at the November 3 meeting as the likely tapering target... With December 15, after that... We give November a 60% chance, with December at 30%... This assumes a rebound number on October 8. But what happens if we have another weak number?... Many are saying that last Friday was the fluke number compared with the over 1 million of jobs created in July... How about if July was the fluke number?... Federal employment benefits are now over... And many expect a big jump in employment... But people have moved away, and some are still scared of the Covid workplace... Many companies are either closing a number of days a weak, or just have shut down because they can't find employees... Jolts numbers tomorrow will show over 10 million jobs available..But many are not factoring in the supply chain issues... Many think they will be resolved by year end... What happens if it takes 2 years?.. BMW, Mercedes, and VW said this morning at the Munich Auto Show that the global chip shortage could continue for a "few" years. Gm and Ford have closed factories even though the number of cars is the lowest we have ever seen at our local dealers. The longer tapering is put off, we think that rate rises get put out further, which the long end will not like... Hence , a bear steepening going on the last few days...

Fed... Uncertainty... Powell is likely to get reappointed this week... Some say Biden has made the decision... We will wait and see... We favor Powell over the other talked about candidates as it will keep uncertainty lower... But as Jim Bianco said on Friday with Jon Fero, "7 Fed Governors have built in 4 rate increases in the middle of 2023, while 5 Governors have zero rate increases built in at that time"... There is no consensus at the Fed right now... And that uncertainty is not good and shows a lack of leadership... We have 8 Fed speakers this week... Three Dovish speakers, Two mixed, and 3 Hawks... None will move the market... But if and when Biden announces his choice, there will be some movement...

Equities... A correction is coming... We have not had a 5% correction since the election... And September is one of the worst months for equities... The rationale for buying equities now is a weak one...But markets will continue to go higher as long as inflows continue at the current pace.. The current reason for buying is that investors are comparing equities to bond yields and then determine equities are a better choice...Barron's had an article that asked if a correction is coming... They answered not now.. Mike Wilson of MS, disagrees vehemently . We think it is time to take some risk off the table... Right or wrong... We look at the tax plans being discussed in the current infrastructure... From massive increases in capital gains, to levies on stock buybacks ( a potential put on equities). There is also talk of "mark to market" rules requiring billionaires to pay taxes on unrealized capital gains, potentially raising hundreds of billions from about the 600 richest Americans... That seems like an awful idea... Does one get money back if the mark to market goes in the opposite direction?

The saving grace from risk off right now is the ability of corporate bonds to come to market with insatiable demand... Expect another 40-45 billion this week and the potential to raise close to 60 billion in HY and Junk...

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