Stocks fell Friday after a weak jobs report added to speculation about the Federal Reserve’s plan to taper its bond-buying program. September was the slowest month for job growth this year, with just 194,000 jobs added compared to consensus estimates for a half-million, signaling a slowing of the labor market recovery. Inflation concerns pushed long-term interest rates higher, with the benchmark 10-year yield rising to 1.61% after adding 15 basis points on the week. But the three major stock market indexes finished modestly higher for the week, recovering from steep early losses after the U.S. Senate agreed to raise the debt ceiling for at least a few more weeks.
The debt ceiling is one that comes up every now and then despite the fact it will always be raised once again. The markets act as if something catastrophic could happen and that the US will default on its obligations. It is a form of complacency where unlikely events are ignored until they get close enough that they need immediate attention.
Why do markets react violently to an issue that will never really happen?
Future Wealth’s View
George Carlin once observed “Tell people there is no invisible man in the sky who created the universe, the vast majority will believe you. Tell them the paint is wet, and they will have to touch it to be sure”. It is the concept of rationality that in many ways frustrates our pursuit by making irrational mistakes about reality. If the US defaulted in full and stayed in default, the value of companies, banks, other governments, individuals and the world economy would be decimated. Rational thought would suggest that the event would never occur.
Much like the desire to “touch the paint”, it is our need to give into street cred to the way the world appears to us now versus a more longer term view of our future. Which is why you see people driving alone with a face mask but yet jump on the gas to run a yellow light. In the end, we all have to admit that there are possible limits of reason when it comes to comprehending the world within our own heads. Which is where having a certain amount of humility ultimately pays off.