Ah, September — cooler weather and fall leaves (depending on your locale), and a month associated with stock market uncertainty. Many corporations, as well as the US government itself, have their fiscal year end in September. That’s when everyone needs to square up and make sure that they are telling the truth, so to speak. Sometimes surprises happen. Sometimes a very awkward October follows.
In September 2019, there was a liquidity event in the US that went under the radar for the most part; just know that the Fed has been pumping billions of dollars into our banks for quite a while before Covid came along. The overnight lending rate on the repo market shot up to almost 10% from about 2%. When this happens it seems to give the picture that maybe banks don’t quite trust one another for lending, which I would guess is probably never a good sign.
It has also become obvious in recent months that the performance of the stock market is not indicative of the ‘real economy’ humming underneath. So who knows — maybe a market crash, maybe an economic crash for the rest of us, which admittedly, is an odd thing to consider them separately.
In the US, we have a contested election coming up soon with a divided country. There is a little country called China that has made it obvious that it wants to take over the world, much of the global economy is in shambles, there is a stubborn pandemic, and China has been dumping US debt steadily for quite some time, while also amassing gold.
What happens may come down to whether President Xi Jinping, (or however we are officially referring to him now), truly wants Donald Trump to win the Presidency or not. There are no shortage of articles online that seem to indicate that Xi wants Trump in the Oval office another four years; however I would beg to differ. I tend to think that a Biden presidency would be more focused domestically, and the trade war with China would likely go on the back burner. China would like nothing more than breathing room and not worrying about what Trump is or isn’t going to do any given day.
China is a very large US debt holder, at over $1 trillion. Although it could hurt them as well, China certainly has the ability deal damage to the US economy by an increased dumping of their holdings of US dollars, or selling them on a secondary market.
President Xi certainly doesn’t like that Trump is an unpredictable fellow; however Xi does like being bullied by Trump, because he can then blame his country’s woes on Trump, as well as standing himself up as the strongman.
As China has increasingly global aspirations, their leadership doesn’t mind a president that seems to be withdrawing from the world stage, because it potentially gives them a gap to fill. Wherever the US exits stage left, China is waiting in the wings to fill the void. Their favored next president is simply not a straightforward guess.
Regardless of who may win the presidential election in November, last I checked September and October come first. Even if China does nothing with our debt, and regardless of who appears to be ahead in the polls, there are far too many variables for even the best economists to keep track of in terms of what the hell is actually going on with our economy, and what it could possibly take to stabilize it.
What will happen remains to be seen; however with the state of things, and knowing what September sometimes brings, I would not at all be surprised if we have some tumultuous months ahead in ‘the economy’ — whatever that means to you.