Growing Dependency on the US Government and Fed

Stocks are climbing, once again setting new all-time record highs.  President Biden unveiled his $2 Trillion infrastructure proposal.  The plan calls for roughly a $250 Billion investment each year over the next 8 years, so it won’t necessarily have an overwhelming shock to GDP growth in the near term.  Since the plan also calls for an increase in corporate tax rates from 21% up to 28%, there will be a reduction in GDP to offset some of the benefit of the planned infostructure investment.  So far, stock investors seem thrilled with the plan.  However, I anticipate stock investors will eventually realize that this will reduce corporate profits, which will have an adverse impact on stock prices.

Initial Jobless Claims, which measures the number of Americans filing for first time unemployment benefits, increased 61,000 over last week’s report, coming in at 719,000.  Overall, there are 18.2 Million individuals receiving some type of employment benefits.  Given this number, there is great concern over what will happen in our US economy when the additional Pandemic Relief benefits are eventually allowed to expire.  Our economy is growing dependent upon the Federal Reserve and the US Treasury Department to help stabilize and stimulate growth.  Without such support, our economy would not be where it is and would certainly spiral into a deep state of despair. 

Mortgage bonds have yet to break out of the current trading range.  The longer term expectation of for rates to continue to rise.  We will maintain a locking bias.