I Love The Smell of Capitalism in the Morning

Our oldest daughter lives in NYC, and on Tuesday she sent a picture of her “I voted!” sticker. I couldn’t ask. I knew. Even if I didn’t want to admit it, I just knew.

You would be so proud of me. I mean, clearly, I have failed as a father – but that ship sailed years ago. You would have been so proud of me for my restraint. She is a brilliant, hardworking, and gainfully employed citizen contributing to society without a single penny of support from us. She has earned the right to vote any way she chooses…so I celebrated that. I chose to focus on the fact that she is politically engaged, just like we tried to model for her. She is educated on the topics, just like we tried to teach her.

You would be proud of me because as a mature and evolved adult, I celebrated and supported her engagement in the most basic but crucial of all American civic duties the best way I know how…


Thank goodness I was in the heart of Texas on Tuesday. I love the smell of capitalism in the morning. Smells like…victory. I took this picture out of a client’s window that day.


Be still, my beating heart…


On Monday, I ate lunch at Campisi’s, where Jack Ruby plotted the revenge murder of Lee Harvey Oswald. Not so ironically, JFK had traveled to Dallas to negotiate peace between liberals and conservatives. Maybe today isn’t so unique? But for some reason, liberals vs conservatives feels so different than capitalists vs socialists.

Somehow, that Italian meal was only the second most memorable meal of my trip because Yardbird served me this as lunchtime lobster mac and cheese…


I named him Mamdani, and the capitalists ate him for lunch.

Last Week This Morning

• 10T: 4.09%
• 2T: 3.56%
• SOFR: 3.92%
• Term SOFR: 3.96%
• ISM Manufacturing PMI: 48.7 vs 49.5 expected
• ISM Services PMI: 52.4 vs 50.8 expected
• October Challenger Job Cuts the highest in 22 years
• UMICH Consumer Sentiment hit 3.5 year low

I Don’t Miss Non-Farm Payrolls

We’ve missed the second monthly jobs report, and I think it’s refreshing! Like me knowing how our daughter voted, everyone knows the initial print is garbage. Unlike my restraint, the market can’t help but react.

ADP took their ball and went home once the government shut down and stopped sharing their data with the government. Last week, they showed a gain in private payrolls of 42k, more than expected and a reversal of the last two months of negative prints.

Unfortunately, ADP’s chief economist warned those gains were concentrated in a few industries and not to overestimate the rebound.   “The most concerning trend would be that drop in leisure and hospitality, because that points swiftly back to the consumer and how healthy and resilient the consumer will be,” ADP Chief Economist Nela Richardson said. “That recovery is tepid, and it is not broad-based.”

The biggest knock on the ADP jobs report is that it over-represents large firms. Gusto, a payroll company that focuses on smaller firms, came up with their own jobs report. It showed a 6k loss in jobs last month.

Revelio Labs has its own measure of jobs, and it showed a 9k loss last month.

You getting the picture yet?

E&Y’s Gregory Daco loves the Conference Board’s Labor Market Differential, which measures “jobs plentiful” minus “jobs hard to get”. It’s hanging in there, but the margin for error is tiny.


The SF Fed released a report that showed a growing challenge of part-time workers moving to full-time work.


The labor market, not inflation, will dictate Fed rate decisions in 2026.

Fed-Speak From Last Week

• Daly: "I thought it was appropriate to take another bit off the policy rate."
• Cook: "We are at a moment when risks to both sides of the dual mandate are elevated. I view the latest reduction in the fed funds rate as another gradual step toward normalization…So there’s a lot to look at. There’s a lot to anticipate with the December meeting coming up.”
• Hammack: "I remain concerned about high inflation and believe policy should be leaning against it,"…"After last week's meeting, I see monetary policy as barely restrictive, if at all, and it's not obvious to me that monetary policy should do more at this time."
• Paulson: “For me, the bottom line is that I simply don’t see the type of conditions, especially in the labor market, which seem likely to turn tariff-induced price increases into sustained inflation.”
• Musalem: "Monetary policy is somewhere between ⁠modestly restrictive and neutral, ‌and it's getting close to neutral in terms of financial conditions."
• Jefferson: “The current policy stance is still somewhat restrictive,”… "What do these still-developing labor and price effects mean for monetary policy? The short answer is that it is likely still too soon to tell."

Rates

I’ve been saying for years that the average spread between Fed Funds and the T10 is about 125bps. We’re stressing to clients that just because the Fed cuts in December doesn’t mean you should expect the T10 to fall. That is already priced in. In fact, in order for the T10 to fall you really need the market to price in more cuts over the next year, not simply realize the actual cuts.

I cited this stat in a meeting last week and a very savvy client asked, “is that any different if we strip out surprise tightening and easing cycles?” Makes sense…if the Fed is about to transition into a long pause mode, where might the T10 settle?

So we ran some numbers and it’s about 95bps.


With the forward curve putting Fed Funds at 3.08% at year end 2026, that implies a T10 of 4.03%. Pretty close to the actual level today of 4.10%, right?

Using that, here’s a rough approximation of the implied T10. The T10 doesn’t go below 4% unless four more cuts are realized.


I continue to believe the 2026 path for floating rates is very binary. Let’s assume the Fed cuts in December:

• The job market hangs in there and one or no cuts in 2026 (3.5% FF and 4.45% T10)
• The job market rolls over and the Fed cuts a lot in 2026 (<3% FF and mid to high 3%’s T10)

The Week Ahead

Markets closed Tuesday for the observation of Veterans Day. Thank you to all the veterans for their service and to their family members that support them.

Maybe some economic data, maybe not? Maybe the government opens back up, maybe not? Maybe I can watch an NFL game on YouTube TV, maybe not?