the FED is definitely taking a lot of flack there was a very bad report out the day after the FED met which should have gotten more media coverage even than the labor market than the jobs report itself and that was when we saw the ism report come out for manufacturing that showed that in the factory sector there are more jobs being destroyed the the reading was lower than it was in September 2008 and that was of course the month that Leman Brothers collapsed and then we got that jobs Friday after it so it's very apparent right now that the FED is behind the ball and that they really do need to play some catchup judging from what Austin gouls be saying though we're not going to get it I don't think that they're going to have a choice by September the 18th I think that they will have to go 50 basis points they can try and talk a mean game but as the data momentum continues I think that they'll be left without a choice at a certain point or they're going to appear to be completely obtuse or insensitive really for a la of better word it's a 50-50 tossup If the Fed was to come out with an emergency rate cut right now it could validate investors worst fears they could say gee the FED thinks things are so bad that they're having to do something that normally would be reserved for happening in the middle of a financial crisis I'm afraid that a minor meltdown in the US Stock Market is not what the FED would consider to be justification for coming in with an emergency rate cut at this point if we start to see contagion into the credit markets completely different story I think think that we will see Fed officials leaning that way in the days to come and of course Powell the content the theme of this year's Jackson Hole is so nebulous the transmission mechanism of monetary policy he can make his speech be whatever he wants for it to be the Jackson Hole speech is its own tool in the monetary policy toolbox so he can have that broadcast whatever he wants for it to be whether it's a fed that's going to be more aggressive but you know what he's got some really close good top lieutenants Christopher Waller being one of them I would be paying attention in the coming weeks again depending on where the data go from here but I would be paying attention to what they have to say even before Jacksonville it was interesting Jim Bullard who is of course no longer with the fed he's now the head of produ business school but he was on the wires today saying that emergency rate cut would send the wrong signal and unless there is a credit event and J Pal's Boogeyman by far is if Bond issuance was to dry and that is actually something that is within the fed's purview the stock market is not but if we start to see credit drying up that is something that could cause the FED to be prompted for an emergency rate cut we did have 10 investment grade Bond sales scheduled for today that I don't believe any of them priced and that's investment grade so if there is Contagion into other markets all bets are off if you think of the fed the FED released its senior loan officer survey today why does it conduct this survey every quarter because it's concerned and always should be concerned about the amount of credit that's being fed into the US economy if one of the main mechanisms of allocating credit the capital markets was to seize up and you would see Bond issuance dry up that is within the feds perview and it wouldn't take that long we had a record 41 days in late 2018 which prompted the Powell to Pivot and what happened in those 41 days not a single junk bond was sold so that will definitely get him acting if we start to see days after days after days with no issuance in the market if you're studying the data in its revised form for goodness sake we had 192,000 net job destruction in the three months ended September the 30th 2023 so we're definitely there if you're looking at the revised data of course that's not what Powell tends to site when he's at podiums and what have you but no even job creation of 114,000 given we know that immigration has gone up as much as it has has now raised the bar you must be creating 175,000 200,000 jobs a month in order to not have in order to absorb the population growth and the growth of the workforce into the labor market if we stop hitting those goals and again the unemployment rate is at 4. 3% the underemployment rate is at 7. 6% and this is off of a base that started with five there are more Americans working full-time jobs and part-time jobs at the same time there's an overabundance of data that justifies 50 basis points the reporter asked Jerome Powell that question when he was at the podium and he could not come up with an answer as to where he felt inflation was going to be coming from and that is the biggest problem right now if you look at true flation Tru flation it's got a 97% correlation true inflation gave us the raw data back to January of 2012 that means it's almost perfectly aligned with headline CPI it was at 1.
54% that means that future cpis are going to be printing below the fed's 2% Target and that's something I believe remember this is Jerome Powell Esquire he's a trained lawyer so he follows other data sources and I promise you he knows that the inflation Beast has been beaten down to a pulp and now we're actually in a very precarious situation as the chief Economist at ADP said a few days ago if Powell is looking for inflation he's not going to find it in wages and that is the most Insidious form of disinflation that exists is wage disinflation that's the real risk right now and by the way the FED does not have tools to fight that do you have food prices Falling For Heaven's Sake I mean Excuse me yes outright deflation in real time in food Americans are buying less food you've got home prices that are turning very hard rents are coming down we only had 47% of the new apartments that were coming out of the construction pipeline in the first quarter even rented out that means 53% were not rented so the largest input to inflation is going to come down and come down hard it's going to be very problematic for policy makers to begin pondering in this environment because they waited for so long it's been since last July that they've waited and rates are higher than they've been in years and years they're going to have some explaining to do in terms of why they didn't go in why didn't you go in July 2024 when the tea leaves were all right there for you to read unless there is kind of an Immaculate Conception type of moment for this economy and we see stocks just go rip every risk asset in the world if that was to come flying back and Corporate America was to stop doing things like oh I don't know Intel took an8 and a half billion dollar loan and oh and then they said hey we're going to lay off 20,000 people so if you can get Corporate America to stop cutting jobs as aggressively as they are you're going to have a better chance but right now Corporate America is they've got their machete out we've seen more CEOs replaced in the last six months we've seen 1,00 CEOs replaced why are they being replaced so they can replace workers with AI or get rid of them and that's exactly what Corporate America is doing right now we're hearing it every time we hear an earnings call it's also you know if you want to get your stock to pop what do you do fire people if the S&P 500 was down 3% the the emerging market msci index was was down 4. 2% the Mexican peso got destroyed any proxy anything that is tangentially attached to the carry trade is being absolutely pummeled and in addition to that what people are not talking about which is highly relevant is that the bank of Japan cut its quantitative easing program in half the bank of Japan has quietly been pumping money into the Global Financial system the Global Financial system loves liquidity it loves any source of liquidity when you take that away and they're the last of the micans they're the last Central Bank that had been engaged in quantitative easing when you cut that in half boy markets are not going to like it nobody can quantify the size of this the bigger risk the much bigger risk is risk parody low there are certain strategies that are underlying the stock market that if they start to unwind in addition to the carry trade unwinding that's when you start to see kind of a Cascade effect and then you see potential for there to be disruption in the credit markets so I think one of the Hallmarks of the current earnings season is you're hearing so many companies miss the Topline and you can do all kinds of accounting magic with your bottom line and play all kinds of games to make your profits to make your bottom line work but we are seeing one company after another miss their top line that is how recession manifests that is how you see a recession it's when companies sales are declining and that is exactly where we are today and that is how recession bleeds up from Main Street to Wall Street it's when you have things begin to go wrong during earning season and we're seeing the red flags now until the FED lowers interest rates historically speaking Equity markets do not correct that is history until the yield curve completely un inverts which by the way it did for a hot minute today scared the Dickens out of the market but until the yield curve moves into positivity Equity markets do not tend to correct we could theoretically whip saw around here we had stocks up a day last week the NASDAQ 100 was up 5% in one day 5% the NASDAQ was down I think to day three and change but still we had a day last week that the NASDAQ and that's exactly what 2000 looked like if you go back and look at the stock charts of the year 2000 prior to the market finally falling out of bed you had tremendous volatility in markets and I think that that's why we're seeing own volatility go long volatility be ready because if you're not already in it you're going to miss the move and that's exactly what happened at the open the vix went spiking to the highest degree since the 9s and that's why you have to be positioned in order to take advantage take profits when all of a sudden risk assets correlate and completely fall out of bed I think the only thing that sort of behaved today was gold it's critical to look at the history of gold because even in disinflationary deflationary moments if there's a financial crisis gold tends to outperform and you're also seeing people pile into gold people in China central banks around the world are buying as much gold as they can get their hands on so this is typically the stuff of you know Neil how's forth turning type thing people are trying to buy insurance because they feel like they've been living in a drought for so long that their house might burned down that's when gold really shines is when you're using it as a protective mechanism for the rest of your portfolio we know that there are a lot of margin calls being triggered right at the beginning of the pandemic we saw gold underperform not for long but it definitely underperformed because if you're holding on to this stock or this asset class and you get that Margin Call you're going to raise liquidity where you can and I think that that's why we've seen gold behave relatively better than other asset classes I think you need to be really careful when you're looking at home price data it usually reflects the world as it was 3 months ago and kind of where we were coming into the peak spring selling season a few months ago and there were a lot of hopes and aspirations at the time sellers were a little bit more reasonable and realistic in their approach to pricing their homes since then I would say it's a little bit of a different world people in the world of residential real estate are surprised surprised right now that they're seeing inventory build as rapidly as it is so you're now you've got kind of a running count in the background of the number of American cities where inventory is higher than it was in 2019 and that's going to become very problematic fairly quickly which is why you had more of a reaction to the consumer confidence data than you did to the housing price data the housing price data is not problematic enough for the FED because we know that housing is weakening enough that a year from now we're going to talk about the risks of shelter disinflation and how heavy that could weigh on inflation coming down as quickly as it will be once we're starting to reflect falling home prices and that's that's where we're had it given the rapidity with which we're seeing inventory build the flip side of it is I think a lot of us consumers are hoping they're going to be okay it was interesting American's view of the broad economy and about how businesses are going to be doing in the coming year have absolutely collapsed but they're still kind of saying but for me I I think things might be a little bit at risk but still okay we're in kind of the The Sweet Spot where if my neighbor loses his or her job we're in a recession and I think most Americans and I think most polls are telling you right now that the majority of Americans think that we are in recession not heading for one and I'm talking about mainstream polls 52% 56% of Americans think that we're in recession but that okay as long as you're just talking about your neighbor but that old adage is if your neighbor loses his or her job you're in recession if you lose your job you're in a depression and so we're not there yet job losses aren't widespread enough yet but we're getting there and specifically because CEO CFO confidence is not improving it's just kind of stuck in a Range that means we're not quite finished cutting costs so this next earning season we're going to see yet another round of layoffs coming out of corporate America and I think that we might be at the point where this is starting to affect more than just your neighbor what we're seeing is in a word momentum and we're seeing layoff announcements arrive in months that are not typically April shouldn't have had more layoffs announced than January and yet that's what we saw in 2024 that was unusual on a seasonal basis and when things begin to fall off their seasonal normal patterns you always see joblessness rise in the summer you know Detroit shuts down its Auto factories for a few weeks and so you see a little bit of seasonality there and a little bit of weakness into July these are all things that we expect but it's the broad nature of the layoffs that we're seeing it's when a logistics firm in Humble Texas on a Thursday afternoon via text they learned that their company that was owned by private Equity is closing and you're not getting your paycheck on Friday and it's only going to affect 2,000 employees it's when things like that happen which just happened that you start to say there's cracks in the edifice that are not just your normal EB and flow of the business cycle in any given year I think that too many people on social media it's so much fun to let's have a good solid hour of bashing let's bash the J pow pinata because it's so much fun it's so much fun to liken him to his predecessors Janet Yellen was afraid of going up on the hill she didn't want talk to anybody in congress she didn't want to talk to anybody period Ben beraki was also it was pretty shy and he wasn't politically shrewd uh Allen Green span different story he liked to talk to people on the hill mainly presidents he loved the Limelight so J pal is the exact opposite of all of these people you know it's a matter of public record by law but he has been to see more Congress people on both sides of the aisle than any of his predecessors so he's been very active in speaking with people in Congress about what are your constituents seeing feeling and it's not to be political it's actually to be the opposite of political he was pointedly asked two press conferences ago you know if the data weakened materially enough such that there's a justification for going in September will it stop you that that is the fomc meeting that precedes the election and it's rare that J pal goes off script when he's up at that Podium after the Fed meets but kind of a Dark Cloud crossed his face and he said every meeting is live every meeting is live politics won't change that so he's a different animal and if we see as we saw kind of as 2007 turned into 2008 we'd seen little baby steps in the unemployment rate and it was inching up a tenth at a time slow slow slow slow slow and then boom came early 2008 and you saw big moves in the unemployment rate if that's where we are in the July and the August employment reports could certainly see him having that first break cut arrive in September in environments like these when you basically have the year 2000 and the Year 2007 walk into a bar hook up one night stand you've got just as much stock market overvaluation as you do over indebtedness well you know Corporate America household balance sheets are just a Terrain wreck it's not Mortgage Debt but right now the average American family is paying more in non-mortgage debt interest than they are in Mortgage Debt interest extraordinary times that we're in right now when you have this kind of a dynamic you know that markets are overvalued it's just something innate you ignore most charts except the one that says the top 10% of the stock market is now more concentrated than it's been at any time since and you say you innately say since 2000 but that's not the answer anymore now it's since 1929 so now you have my attention you simply have my attention do stocks care no no it's not until the FED actually lowers rates no jawboning no we're going to taper quantitative tightening and none of that when the FED actually lowers interest rates some stock jock on a trading floor says oh bleed the FED things are in recession and that's the only time you're going to get the attention of a stock CH it's like oh bleep and then it happens and then it doesn't matter if consumer confidence falls out of bed and CEO confidence doesn't pick up none of it matters until somebody says get me an economic calendar the FED just lowered rates What's Happening Here in the economy how is that justified because until then you're going to stay long it's just the way it's always worked historically If the Fed lowers rates in September and then the stock market does what it's always done when the FED Cuts rate and falls out of bed they're going to say he's trying to throw the election it's by Design and J pal will probably be like or the unemployment rate went up boom you know the unemployment rate in May was already at our year end Target of 4.
