In the wake of the recent “Red Wave” election results, one might be wondering if there are any restraints on the incoming administration. Republicans will control the White House and both the House and Senate. The Supreme Court is controlled by conservatives who have expressed an unprecedented view of the “Unitary Executive”. In some regards those concerns may be justified and we are likely to see a White House that is unrestrained relative to history. But when it comes to the economy, this administration will still have to answer to a higher authority: the bond market.

The Postpandemic U.S. Immigration Surge: New Facts and Inflationary Implications, a new working paper from The Dallas Fed answers an economic question that has become a highly political one. Has the significant rise in unauthorized immigration exacerbated inflation? The answer, according to a team of economists led by Anton Cheremukhin, is no, nor has it been disinflationary. In summary, they conclude, “Contrary to the popular view, we find little effect on inflation, as the increase in supply was largely offset by an increase in demand.”

Oil is always the unknowable variable to those assessing the global economy. Perhaps the US and the Saudis will convince Israeli leadership not to attack Iran’s energy infrastructure in the near future, but from my perspective such an event is only a question of when, not if. And when it does happen, it will not be an event, but part of a paradigm shift that could change oil markets permanently.

Stocks, Bonds, Oil, and Gold are all liquid markets that should impart some directional wisdom, but currently, the messages they are sending are not just inconsistent, but contradictory.