MARY REICHARD, HOST: Coming up next on The World and Everything in It: the Monday Moneybeat.
NICK EICHER, HOST: Back at the end of March, just as COVID had begun to squeeze the American economy, new claims for unemployment benefits hit a completely unprecedented level: almost 7 million Americans filed.
The long-time average had been in the neighborhood of a quarter of a million. The highest-ever pre-pandemic number recorded was about 700,000. So thinking about 7 million—that’s 10 times the previous record high.
In the weeks since March 28th, the number of new claims for jobless benefits continued at historic high levels, but with 7 million as a starting point, it dropped consistently week-after-week with the exception of July. Now the number has settled back to about 1 million. Still about four times higher than the pre-COVID level.
Those receiving continuing benefits—not new claims but continuing—that number reached a peak of 25 million Americans the week ending May 9th. For three months, the number has tapered down, falling by more than 10 million, to where it sits today at 14.5 million.
Pre-pandemic, to give you a comparison, the continuing-benefits figure was largely below 2 million. So, we still have a long, long way to go on the jobs front.
Financial analyst and adviser David Bahnsen joins me now. David, good morning to you.
DAVID BAHNSEN, GUEST: Good morning, Nick. Good to be with you.
EICHER: David, new report on sales of durable goods, up more than 10 percent.
Durable goods are just what they sound like: big-ticket items designed to last a long while, not your typical consumer goods. Durable goods sales is a strong predictor of future economic growth. So that’s a positive.
EICHER: But paired with that, David, my eye fell on a closely watched sign of business investment that grew almost 2 percent July over June and maybe as importantly not the percentage increase but the real level is now very close to where we were back in February. Non-defense capital goods, this is a supply-side indication…
BAHNSEN: Oh, it’s huge, yeah.
EICHER: Yeah, a very good sign.
BAHNSEN: It’s huge. Basically the business investment metric that I’ve talked with you quite a bit about that we’re watching so closely is so far continuing to outperform our expectations. I continue to have concern as to where the number will end up going. But there’s no question that new goods orders, durable goods orders are all bouncing back. Of course they were bouncing back off of levels that were extremely low. But they are getting back to pre-COVID levels even on an absolute basis. And the reason it’s so important is because from a sustainability standpoint you need to have business investment that is going to be leading the way to new activities, new ventures, new technologies, new productivity that will be the economic engine in the future.
EICHER: I want to ask about the Federal Reserve news. Basically to say it as briefly as possible, it looks like zero interest rates as far as the eye can see. No more sort of preemptive strikes by the Fed to try to head off price inflation—by which I mean no interest-rate rises to try to put the brakes on inflation. Can you explain the central-bank policy announcement?
BAHNSEN: Yeah, I believe very strongly that they haven’t announced anything whatsoever. This is a total repeat of what everybody has to have known to be the case for 12 years now, if not longer. But it’s OK, though, because it’s also never going to happen. The Fed is incapable at a will of just merely by stroke of a policy whim creating 2-and-a-half or 2 percent inflation, for that matter.
All the Fed can do is create asset price inflation by putting excess reserves on the side of bank account shelves where it finds its way into the stock market or into real estate or other risk assets.
So, I think what the Fed has done this week is doubled down on an honesty about what they see their role as, which is a role they didn’t elect. It was elected for them by politicians and, if I can be totally honest, it was elected for them by the people. The people demanded all kinds of programs. The politicians gave it to them. We don’t have the money for them and now we’re looking for the Fed to figure out a way to pay for it. That, to me, is the story of what’s happening in the American economy and it’s going to take decades for it to play out.
EICHER: I want to end on politics, now that the conventions are over, strange as they were—virtual conventions—and I do find polls interesting. But I’m more interested in how investors read the polls. You’re really good at sussing out what the financial markets are saying about the political horse race both for the White House and the Congress. What’s your sense now as the campaigns begin in earnest?
BAHNSEN: Yeah, I think that you’re right that with the conventions done that now you really enter official campaign season.
But, you know, to be honest with you, I believe that we’re going to have a lot of volatility in the months ahead because I think it’s going to be a tight election. And the part that I am most surprised by is that there’s not a lot of measurement in the market right now for the perception of or the expectation of enhanced volatility after the election.
And I really do believe we have a pretty good chance of an uncertain outcome on election night. And I would think that if you’re going to have a couple weeks or, God forbid, a couple of months of recounts and maybe lawsuits and contested results, I would think that would cause the market to have a lot of elevated volatility post-November 3rd. But we’re not seeing that priced in the options market right now.
So, perhaps the market doesn’t really buy it. But, you know, it’s going to be a closer election than we thought it was going to be a month or two ago. It’s still certainly an advantage Biden, but I think there are a number of reasons to think that President Trump has a path—and more important to me from a vantage point of markets—I think that there is plenty of reason to think that the Republicans could keep the Senate, which really neutralizes a lot of market concerns.
EICHER: David Bahnsen, financial analyst and adviser. Thank you.
BAHNSEN: Thanks so much, Nick.