Annex Wealth Management SWOT podcast for Monday, October 6, with chief economic strategist Brian Jacobson on fourth-quarter strengths, weaknesses, opportunities, and threats. Strengths: a soft payroll print that the Fed is treating as fine. Nonfarm payrolls rose only 29,000, which would have looked weak in past cycles, but it drew little reaction. The Fed is between meetings and has already said the cumulative improvement in the labor market is enough; its focus is inflation. The old rule of thumb that the economy needed roughly 100,000–125,000 jobs a month to hold unemployment steady is outdated. With slower immigration and an aging workforce, the breakeven pace is closer to zero. Unemployment edged from 4.1% to 4.2% and is still bouncing in a narrow range—nothing the committee treated as a break in the story. Weaknesses: higher mortgage rates and stuck housing. Yields have moved up for reasons other than inflation fears. Five- to thirty-year breakeven inflation rates have been fairly stable. The drivers Jacobson cites are heavy issuance (a federal deficit around 6% of GDP, plus corporate bonds to fund data centers), markets repricing a Federal Reserve that is signaling further hikes, and decent growth that itself pulls rates up. Borrowers—homebuyers, car loans, credit cards—are competing with that supply of debt, so housing affordability is worse. People who took higher rates a few years ago expecting to refinance are still waiting. The 3% “golden handcuffs” still lock many owners in place, but job changes, another child, divorce, downsizing, or health issues are forcing some moves anyway, and fewer households still have those 3% loans. Opportunities: yields that make fixed income useful again. The same higher rates that hurt borrowers pay savers. Jacobson frames it as a transfer from net debtors to investors. For many clients, current yields are high enough to raise the fixed-income allocation. Yields can still rise, but holding an individual bond to maturity maps out the coupon and the return of face value, assuming no default. Mutual funds diversify with less capital and a hired manager; building a portfolio of individual bonds usually takes a larger amount. Practical places to buy: bank CDs (bond-like), TreasuryDirect, or the fixed-income inventory inside a brokerage account. Bonds, he repeats, are not boring anymore. Threats: stress in French government bonds. French yields rose after a budget whose growth assumptions did not look credible. Debt-to-GDP is roughly in line with the United States, maybe a bit lower, but France does not issue its own currency. It is inside the eurozone, has long broken the bloc’s deficit and debt rules, and its plan to get the deficit back toward the required path was not taken as credible. Spending cuts are meeting student protests and riots, and room to raise taxes is limited. The France–Germany yield spread has widened to levels not seen in a long time. Markets are starting to price a bit of “Frexit” risk. Jacobson does not put it on the scale of the old Greek crisis, but he flags it as something to watch.
