(New York)

One of the big risks for the current market regards the economy. The big fear is that the Fed may raise rates too quickly, which could bring on a recession that would in turn sink stocks. However, there is another risk to the economy that is not as well understood. That risk is one of a labor crunch that curtails economic output. Demographic shifts mean there will be a shortfall of 8.2m workers over the next decade. As Barron’s puts it, the implications are broad and easy to explain: “Oil and gas stay in the ground because there aren’t enough workers to extract it; homes aren’t built because builders can’t find enough laborers. In Maine this winter, the state couldn’t find enough people to drive snowplows”.

FINSUM: We think this is a just another reason why inflation and rates are not going to rise significantly. While workers are short, wages aren’t rising that fast, and if economic production also stays weak, then we just don’t see a bond bear market coming. Stocks are another story, however.