hello my friends today is September 7th and this is Market's weekly so this past week was a pretty red week in markets we had notable declines in all major Equity Market indexes now last week we were wondering if we would just blast off to new all-time highs or if we would double top and it looks like we have the answer today let's talk about three things first we have to talk about the most important data point the past week the non- Farms perils print but let let's also talk about a number of other indicators that suggest a weakening US Labor Market secondly let's talk a little bit about Australia and Canada two countries that are similar in some key respects but on the one hand the Bank of Canada has cut rates for the third time the past week but the Reserve Bank of Australia has yet to cut rates at all let's talk about what might be driving that difference and lastly so a few days ago president Trump floated the idea of a US Sovereign wealth fund and now reports are indicating that team Biden is running with the idea let's talk about why a US Sovereign wealth fund is a ridiculous idea okay starting with the labor market now before we get into the really big non-arm's per print let's talk about a number of other surveys on the labor market that together are SU suggesting that the US Labor Market is decelerating pretty quickly first let's look at jolts jolts is basically the number of job openings in the US now we can see during the pandemic area job openings absolutely surged as companies scrambled to find workers and were increasing wages rapidly to try to entice people to join their company but over the past year you can see that the number of job openings has steadily declined and the most recent jols print was lower than expected separately let's look at the Challenger report the Challenger is another survey where they ask a whole bunch of companies about their intentions when it comes to hiring and firing workers one thing that stood out to me in the most recent Challenger survey is this that uh the hiring tensions of companies are the lowest it's ever been according to the survey but at the same time though note that whereas firing and intentions picked up a bit the past month they are seasonally where you would expect them to be one thing that stood out to me though is the firing intentions for Tech now it looks like there really is a white collar recession where white collar workers are having a harder time getting jobs than blue collar workers are reverse from the way it's been the past few years another popular survey is the S&P PMI index where they survey a whole bunch of companies when it comes to say uh their judgment on business conditions hiring and so forth now the most recent Services PMI shows that serviceses companies in the US continue to expand now that is of course in line with what we saw in the GDP data where the most recent second quarter of GDP was revised upwards from 2. 8% to 3% companies continue to expand however though in the most recent PMI survey they also know that the hiring component is the week as it's been in 3 months now the last survey that I want to look at is the fed's beige book now the FED actually has a very very extensive intelligence gathering operation where they talk with businesses big and small throughout the country to kind of get a sense qualitatively what the businesses are doing now according to the latest beebook survey companies are not really um firing anyone but they're also not really hiring anyone and they continue to you know view business conditions as pretty uncertain so they're not really sure what they should be doing now taking all this data into account it's painting a picture that whereas we don't have a lot of companies firing people and again that's consistent with uh the weekly job unemployment claims not really spiking but also they're not really hiring a lot of people so they are moderating uh their plans but continuing to expand expand that brings us to uh the most recent non Farms perils print now the headline print was a bit softer than expected but still showed over a 100,000 jobs created last month what stood out to me looking into the details was the unemployment rate declined from 4. 3% to 4.
2% which is really good news because often times when we see an increase in the unemployment rate it tends to continue to increase and sometimes rapidly now again the labor market to be clear is slowing but not yet sending recessionary signals when we have a recession we don't create 100,000 jobs a month we lose 100,000 jobs a month and we see GDP contract rather than expand at a 3. 0% annual rate but we are heading into a direction where it is possible in the coming months we could slow enough to tip into recession now the Equity Market seems to be looking at all this labor market data and becoming increasingly concerned of a potential recession in which case uh Equity prices usually go down sometimes by a lot the interest rate markets are looking at this and pricing in pretty significant fed cuts um we had important fed speakers on Friday and they seem to be open to the idea of larger than expected Cuts uh but not right away and so the market right now is pricing in a 25 basis point cut it's September and probably larger Cuts in November or December and that could happen depending on how the data evolves at the moment though um I think it really is just whatever other data uh brings so let's watch that closely in the coming weeks okay the next thing that I want to talk about is Australia and Canada two countries that are similar in many respects but have had very different montree policies so Howard similar well first off again they are English-speaking countries that are you know share of Ang Heritage like the US and they are similar in size with Canada being a bit bigger now some of their policies though are also very similar so both countries have had tremendous amounts of migration the past few years uh notably from India where in one year their population increased by almost 3% almost en entirely from migration uh both in Canada and in Australia and these countries are again heavy in resource extraction and also home to tremendous tremendous surges in home prices and like the rest of the world they also experienced High inflation so we've talked about Canada before over the past few years we saw uh CPI in Canada surge but over the past year also come down significantly and so much so that the uh Bank of Canada cut rates from for the third time last week no surprise looking at their inflation numbers they're very close to 2% and they've also been seeing notable rises in their unemployment rate now overall Canadian GDP continues to grow but that is often masking a per capita recession where the GDP is merely growing because you're adding more people on a per capita basis GDP in Canada has been shrinking uh for a few quarters and so many people are feeling squeezed but thankfully though the rate cuts are helping a lot of people because a lot of mortgages in Canada are renewed every few years in a sense it's kind of like having a floating rate mortgage and as interest rates go down more and more Canadian families are able to renew their mortgages at um levels at or lower than let's say the five and six% they would be at not too long ago now moving to Australia even though there are similar macro factors uh The Reserve Bank of Australia actually hasn't cut rates at all in fact not too long ago there were Whispers of further rate hikes now looking into the inflation data in Australia it's clear that the Reserve Bank of Australia is not cutting because inflation remains high at 3. 9% again much higher than their inflation Target looking into the components of inflation similar to Canada a big part of their inflation is driven by rents where when you increase the population significantly of course that creates tremens of demand for housing and all sorts of other services like hospitals education and so that also drives up services inflation so in a sense similar to Canada their inflation is largely the result of their macroeconomic immigration policies now strangely though why has the um inflation come down so quickly in Canada but not as quickly in Australia now one reason for this that's being floated around is that um the interest rates in Australia actually did not increase as aggressively as they did in Canada looking at the policy rates for the two countries you can see that you know the Bank of Canada raised rates super aggressively and has begun cutting them whereas The Reserve Bank of Australia didn't rise didn't hike rates as much and just kind of kept it there and it's possible that they did not raise rates high enough another possibility is that um Canada being much closer to the US again tremendous amounts of Supply chains and so forth maybe it's just easier to get the supply side down uh but I think it's pretty interesting to see how these two countries have um similar in many respects but such different uh Pathways when it comes to monetary policy and right now the market is thinking that maybe the RBA would cut later on but uh obviously when inflation is at 3.
9% uh you probably shouldn't be doing that um okay the last thing that I want to talk about is the idea of a US Sovereign wealth fund now this idea has been floating around by President Trump a few days ago and now there's a Bloomberg article suggesting that there are influential people in the Biden Administration who are actually uh trying to put this together now this is a really strange idea because well first let's think about why countries usually have Sovereign wealth funds let's look at for example Norway which has a tremendous tremendous Sovereign wealth fund of more than $1. 5 trillion now um why does norori have a sovereign wealth fund well the the country owns a whole bunch of oil and the the government sells that oil and it earns a whole bunch of money and what do they do with that money well they decide to just put it in the Sovereign wealth fund that in turn invests in stuff throughout the world uh with the notion that you know eventually one day this oil is going to run out or maybe we transition into to economy that requires less oil so right now we have this windfall let's be responsible and invest this money so that future generations of Norwegians uh can benefit from it so this ginormous ginormous Sovereign wealth fund of Norway what do they do with what do they invest in well actually if you look at their largest Holdings again they hold equities fixed income real estate uh clean energy stuff looking at their Equity Holdings uh their largest Holdings now to to get this is a Norwegian Corona to get that into Dollars divide by uh 10 point something 1011 so basically the largest Holdings are basically Max s stocks so and to be clear they've done very well with Max s Holdings so the Norwegian Sovereign wealth F has a bunch of oil money buys a bunch of US Stocks buys a bunch of us treasuries as well in real estate throughout the world but it makes sense obviously they have a lot of extra money now another common way that people have a sovereign wealth fund is that their country earns a lot of money through trade now let's look at the case of china as we all know China is the workshop of the world Chinese businesses are very good at manufacturing things and they sell stuff sell to countries throughout the world and they earn more uh in foreign currency uh than they import so they export more than they import and so they have all this foreign uh money largely dollars left over so what do they do with all this foreign currency well the Chinese government invests it now a lot of it is in things like treasuries kind of safe assets but we also know that the Chinese government has been investing this throughout um projects throughout the world say in Africa through things like the belt and Road initiative uh in part to build political Goodwill but also in part to diversify their exposure to the US government so they have a lot of extra money that they earn through trade and then they go and they invest that elsewhere now look let's look at the US um does the US have tremendous amounts of Natural Resources absolutely except that it does not belong to the US government or at least the US government is not exploiting it so there's no huge oil fund oil revenues that the US government has what about does the US earn a whole bunch of foreign currency from their overseas exports actually it doesn't the the US is famous having a current account deficit so every year they import a lot more than they export so that's money flowing out of of the country uh to the tune of hundreds of billions so obviously the US government does not have excess money to invest so where would the money for a sovereign wealth fund come from well it would probably come from the same place all US government spending comes from they would just print a bunch of treasuries and use that to Finance The Sovereign wealth fund now reporting from from Tim Biden suggests that the rationale for having a sovereign wealth fund is to invest in strategic things be it resources or Cutting Edge technology and basically help in the geopolitical great power competition now that that's kind of strange to me because it seems like the US government is already doing that right every year uh the US has a tremendous fiscal deficit a lot of that goes into things like defense and subsidies to all sorts of um industrial projects so in a sense the US is already spending a lot of money um achieving those very same goals the defense department obviously uh invests in all sorts of private sector companies to try to get uh technology and so forth now how is having a sovereign wealth fund different from let's say just what we're doing right now appropriating money through Congress and I think the key difference again remember the US doesn't actually have extra money to invest it would be just another way to have more government spending except outside of the purview of Congress right now if you want a comp if you have a company or if you are special interest and you want to get money you have to go and Lobby um your congressman and maybe Congress passes legislation and basically prints treasuries to finance your um your handout if we would have if we were to have a sovereign wealth fund now going forward special interests or whatever uh companies that want to have government money maybe they won't have to go through Congress maybe they can go through um whoever is governing The Sovereign wealth fund instead in a sense it would give um the executive or however uh The Sovereign wealth f is governed access to a piggy bank that they can then Dole out to their friends or maybe even to things that they think are important so it's seems like a US Sovereign re fund doesn't make sense unless you want to have more government spending outside of the purview of Congress basically without um checks and balances so to me that that seems like a bad idea and a way to circumvent our or um political system so hopefully there will not be any Sovereign wealth fund and to be clear the US does not need one if you have the reserve currency whenever you need to buy something you you do it the way that the government already does you just print TR iies all right so that's all I've prepared thanks so much for tuning in if you like the video remember to like And subscribe and of course if you're interested in hearing my thoughts check out my blog at fed guy. com or learn more about macro markets uh on my online courses at Central b101.
