Clint Carpenter, Director of Operations


On October 18th, the federal government reaches it’s borrowing limit, or debt ceiling as it is called. Basically, if that ceiling isn’t raised, the government cannot pay its bills. This has never happened - the U.S. has never defaulted on its obligations because congress can usually come to an agreement on how to raise it.


Economists say a default would cause a lot of problems, things like a jump in interest rates, severely diminished reputation of the full faith and credit of the U.S. government now and in the future, as well as delayed checks for social security recipients and U.S. armed services members. Running out of money could damage treasury bills, considered the safest asset on the planet, and could weaken demand for the U.S. dollar, potentially giving other currencies a run at the globe’s preferred currency.

Congress knows it needs to raise the limit, but partisanship has never been stronger - Republicans are vehemently opposed to many of the spending bills Democrats have proposed and plan to pass without bipartisan support.


The debt ceiling is often used as a tool to reach agreement, but this deadline is rapidly approaching at a time when these bills are reaching final stages. On Wednesday, Senate Minority Leader McConnell indicated that he may offer a short-term ceiling extension which could ease this pressure. The markets have already responded positively to that.


We’ll be watching this closely, along with the rest of the world, especially as we get further into October, which is traditionally the most volatile month of the year.


Kris Venezia, Market Analyst


September is historically not the friendliest month for the markets. You couple that with some hiccups in the global economy and you get some losses like we had in September.

The frustrating part for us is there are still several items we have to monitor that we will probably not have answers for in the near term.

As Clint touched on, the debt ceiling has become an issue to watch.

We will have more information on Friday when the next jobs report comes out, but unemployment is higher than expected at this point in the economic recovery. There are several factors analysts believe is contributing to this. The frustrating part here is that there are a lot of jobs open and there are people unemployed, but for some reason, the job growth is coming at a slow pace.

We have discussed this in previous commentaries, but supply chain issues are continuing to be a pain for many companies. Covid outbreaks and restrictions in parts of the world, like Vietnam, are causing problems. Transportation with ships across the Pacific, unloading those ships and then getting trucks to transport items in the U.S. are all slowed down.

The boosted unemployment benefits have stopped. The form of stimulus ending could have a slightly negative impact on consumer spending.

Consumer sentiment with the economy is still low compared to pre-Covid times. Surveys seem to indicate that part of the issue comes from consumers who are concerned about Covid. Other concerns that come out of surveys include politics. Republicans are less happy with the economy in 2021 than they were during the Trump administration. There are consumers who also say they are worried about inflation.

Finally, inflation is putting a drag on investors appetite for risk. There are numerous factors contributing to inflation. They include higher commodity prices and higher wages, among other things. Commentary from business executives has led us to believe inflation will stay hot into 2022. The hope earlier this year was that inflation would cool off late in 2021 into 2022.


Kris Venezia, Market Analyst


One of the things we like to do is review and pay attention to company earnings. Obviously, we keep tabs on revenue growth and profits but an important part of the process is we get commentary from businesses. Executives take questions from analysts on various topics impacting their company.

In this latest earnings period, one item I have kept an eye on is the supply chain. We know there are issues with global supply chains because of Covid and how different officials in different region have reacted to the virus.

There are a wide variety of items affected right now with supply chains. One I care about involves golf. Callaway had announced that restrictions in Vietnam would impact golf clubs. They came out this week and said they are finding production outside of Vietnam and are calling this disruption "short term," but we'll see.

For people who do not care about golf, different foods, cars, furniture and clothing are all facing various supply disruptions. Coffee, for example, is harvested in Brazil and outbreaks and bad weather have impacted those prices. Ford, Toyota and GM are among those who are slowing down production because they cannot get enough chips for their new vehicles. VW, BMW and Mercedes executives have all warned these disruptions could last into 2023. Clothing and furniture companies are dealing with several difficulties in their supply chain. Production of items in parts of Asia, like Vietnam, has been strained. It's tough getting cargo ships unloaded quickly at docks in California with shortages of labor and a backlog of ships. There's a shortage of labor in the trucking industry which strains that aspect of transportation. You put all that together and it puts pressure on Costco, GAP, Wal-Mart, Dollar General, Nordstrom and other retailers and clothing manufacturers.

The most frustrating part of all this is that we do not have a idea of when the situation will improve. It is unclear when the labor market will improve to meet demand in areas like trucking and dock workers. It's hard to gauge what other countries and officials will do to combat the spread of COVID.

The supply chain puts pressure on companies themselves by hurting profit margins. But it also hits us, who buy things, because companies are put in a position to pass on some of those higher costs to the consumers.


I will make a point that given what we are seeing, if you are planning to do any holiday shopping for the end of the year, you are going to want to get that done early. Supply chains are on track to be extremely strained later this year. If your kid wants a Turboman for Christmas, you will want to get that sooner rather than later. That's a Jingle All The Way joke. It's a 90's classic.


Daryl Eckman, President


We are starting to get phone calls. We got a number of phone calls about what we think about the Biden administration.


There will always be some sort of political risk or discontent with the president. If it's a Democrat or Republican, there will be frustration with some people over who the president is.

Our job is to keep our eyes on what is important and avoid giving into emotional bias that can come up with politics.

We have been making some adjustments to the portfolios because there is a Democrat in the White House and Democrats have the majority in Congress. Democrats have more of a sway in the budget process and right now a multi-trillion-dollar budget is being negotiated.

We cannot get emotional about politics and have it influence investment decisions poorly. If you are frustrated with the political environment, give us a call. We can walk through and discuss some of the historical factors with the stock market and politics.


We have also spoken about trends with different presidents and different political parties in power in the past. You can read through that information by clicking here.


Clint Carpenter, Director of Operations


I’d like to touch on some of the more negative economic data we’ve been seeing lately, mostly pertaining to jobs. Last week we had a pretty big miss - economists had predicted that 750k jobs would be created in August, and we ended up with only 235k. If we really lean into this and analyze it, we can pretty easily blame it on the Delta variant - because we can see the weakness in restaurants and bars, which are a perfect proxy for how the overall labor market is faring. The restaurant industry had been powering the economic recovery and now it’s actually shedding jobs. Pronounced declines in the number of restaurant reservations, as Kris has touched on before, show us that this is not just a worker shortage problem, it’s a demand problem.

There’s some silver lining in this, however. If we think service sector jobs are suffering because consumer demand is down, it means this isn’t necessarily a trailing off of the economy as a whole, but just this one consumer-driven industry. On the brighter side, the Bureau of Labor Statistics has released other reports recently that show us the so-called “job-finding” rate has increased for the second month in a row, the jobs numbers from both June and July were recently revised up to the tune of 130k jobs, overall unemployment declined from 5.4% down to 5.2% and UNDERemployment dropped further, from 9.2% to 8.8%. Wages also rose in August, and that wage growth was skewed toward the lower paying sectors - a big positive for income distribution and consumer spending going forward.

So, I know we’re all sick of talking about COVID and the Delta variant, but it’s having clear impacts on our economic data and we have to sort through it all and consider it all when we we’re analyzing how the economy is performing and whether it’s systemically in trouble or just situationally set back for the time being. The next few jobs reports will be instrumental in the market’s opinion - as the impact of back-to-school and the end of federal unemployment insurance take their effect on employment.


Kris Venezia, Market Analyst


​I have done this in the past and I will do it again. I want to discuss consumer spending trends. A really important part of this recovery and how we invest depends on what people decide to do with their money.

While the economic recovery is progressing, spending has not met investors expectations in many areas. According to JP Morgan Chase, which monitors and puts out data on spending tracking their cards, airline spending is still down more than 30% from pre-Covid times. Restaurant spending is still down about 5% from pre-Covid times. There is a similar story with hotel bookings as they are still not at pre-Covid levels.

The data also shows us that airline spending has fallen in the last month. Southwest Airlines also confirmed this, executives at the company announced that travel bookings had dropped. They said customers are being more cautious booking flights and cancellations have ticked up. When we monitor restaurants, since the beginning of the year, the recovery was going at a rapid pace. The restaurant recovery has now stalled, with spending staying flat over the last month.

Going into the summer, investors were expecting a huge recovery in restaurants and airlines and hotels and casinos. The spending has not met investors expectations. It's why if you look at stocks in those areas, you'll notice, on average, probably a 10% decline from their high's this year.

The one area where spending is way up is clothing. Fashion brands have had an amazing summer, with luxury companies like Capri Holdings, which owns Kenneth Cole, reporting great quarters. Levi's has also enjoyed a good several months, probably helped by the fact that waist sizes may have shifted since last March.

The last item which is a little frustrating is how data shows us money still isn't moving around in general like what would be expected. We use data called velocity of money to examine that. The Fed of St. Louis has data out showing that the velocity of money is still extremely low. It has stayed low since last March. The money supply right now is very high thanks to government spending and the Fed. Yet, despite all the money out there, it's not moving. The data tells us that people are keeping money parked in their bank accounts and saving money, rather than going out to spend it on vacations or on goods.


Daryl Eckman, President


China has been in the news a lot lately. We have heard how China has been treating Hong Kong, and the neighboring countries around there in that region are on alert about the behavior from China.


The current U.S. administration is starting to introduce funds to try and get semiconductor makers to move their production to the U.S. We know that a lot of production of semi-chips are done in parts of Asia. The Biden administration is hoping to entice companies, with money, to start making these products in America.


We had been thinking about putting more money towards emerging markets, like China, but we have been holding back on that because we have not felt all that comfortable in the direction China is moving. We have been looking outside of the U.S. more with investing. We speak with people at Capital Group and others and we have found they are less positive on China than they were in the past.


Clint Carpenter, Director of Operations


It's a little disappointing to see China crackdown like they have. They have large tech companies like Alibaba and Tencent which have products that are very widely used all over the world.


It's been interesting to see China attack this industry with how successful it has been. It's hard for us to get good information out of China because they keep their cards so close to their chest.


The Chinese economy is so large and there may be opportunities there, so we are not abandoning ever investing in China, but we are paying close attention to what leaders there are doing.


We will always go to where the opportunities are, so if those opportunities are not in China, we have no problem shifting funds elsewhere.


Kris Venezia


The concern that I have as China's policy develops is what happens to U.S. companies operating in China.


Nike, Apple and Starbucks all are manufacturing or selling products in China. The country has a huge economy that many American companies want to tap into.


It could be a much larger problem for the markets and global economy if U.S. companies start getting burned by Chinese policies.


There is nothing imminent on that front, but we will continue to monitor the behavior out of China and adapt if we need to.


Clint Carpenter


In previous market commentaries, I mentioned that we’d touch more on the details of some of the spending proposals coming up in the legislature as they became more concrete.

This week, the Senate passed a $1 trillion infrastructure bill. It had bipartisan support with only 30 no votes. The bill authorizes funds for the rebuilding of freeways, roads and bridges, the modernization of public works systems and public transit networks, investments in passenger and freight rail, electric vehicle charging stations, and sizable outlays for investment in internet access and modernizing the electric grid. A majority of the money will come from unspent COVID-19 relief aid, including unemployment insurance aid that some states halted and returned to the federal government. The House will vote on the bill next, but Speaker Pelosi has said they’ll only take it up once the Senate has passed the other more partisan spending plan.

This other spending bill will come in the form of a budget resolution, all but ensuring a party-line vote. The budget plan is a massive and ambitious investment in social programs and climate policy, coming in at a price tag of $3.5 trillion dollars. It includes spending on paid leave, child care, extensions of certain tax credits, expansion of Medicare benefits to include dental vision and hearing, as well as reduce the Medicare eligibility age, extension of Affordable Care Act subsidies, and several incentives geared toward environment sustainability.

The proposal would not raise the debt ceiling, instead the Democrats say they’ll pay for it through corporate and individual tax reform, including increased IRS enforcement of existing tax law.

This bill is tricky because it will require every Democrat to vote yes, and some of the more moderate Democrats, like Joe Manchin and Krysten Sinema, have already signaled their disapproval of the size. Senate Democrats have about a month to get the work done before the house returns, ready to vote.