The Song Remains The Same
Great Ones, I had a dream. Oh, yeah … a crazy dream.
A dream that today’s August nonfarm payrolls report would offer some direction … some hope … some indication of where the economy was headed and where the Federal Reserve’s monetary policy would go.
Oh, what a dream that would have been…
Alas, what we got was this so-called “Goldilocks” jobs report that Wall Street is apparently completely enamored with. What Wall Street often forgets about Goldilocks is that, in the original, she’s never seen again … and in some versions, the bears eat her. Just saying…
So let’s take a gander at this not-too-hot, not-too-cold jobs report, shall we?
According to the Bureau of Labor Statistics, the U.S. economy added 315,000 jobs in August.
The unemployment rate ticked higher to 3.7%, and average hourly earnings rose 5.2%.
Economists, meanwhile, were expecting 318,000 new jobs, a steady unemployment rate and slowing wage growth.
Clearly, economists got none of that.
Still, the numbers were just ever so slightly below expectations, leading Wall Street to positively interpret the report as neither too hot nor too cold … you know, just like the last bowl of porridge that Goldilocks stole.
The problem here is that the bears always come home. Always.
Have y’all paid enough attention to the Fed to know what its main goal in raising interest rates is? I mean, we all know it’s to reduce inflation. But do you know how the Fed expects to do that?
Federal Reserve Chairman Jerome Powell has said that wage growth is the biggest contributor to continued inflation.
The thought goes like this: Wages rise, thus increasing labor input costs and increasing prices … which leads workers to seek higher-paying jobs … which leads to labor input costs rising … rinse and repeat.
If Powell is right — and he certainly believes he is — then job growth somehow has to continue to steadily rise, but wages need to stay flat. If you have one unemployed worker for every one job opening, this is pretty easy to accomplish. But in the U.S. right now, there are two open jobs for every one unemployed worker. That’s a problem.
The other problem is that inflation continues to drive prices up in the meantime, increasing food, gas and rent prices and leading workers to seek out higher-paying jobs to make ends meet. The evidence for this is staring us right in the face in today’s jobs report with that 5.2% jump in hourly earnings.
This sounds like a vicious cycle, Mr. Great Stuff. Where does it end?
It ends when average wage growth, job growth and rising prices even out and settle down. Remember that whole Econ 101 thing about supply and demand?
Well, since the Fed can’t directly control supply, it has to affect demand. And it’s doing so by raising interest rates to make acquiring money more expensive. And by making easy money harder to get, it is driving up prices in hopes that this will decrease demand.
Now, here is where we get to the real problem with the Fed’s plan. Because of COVID-19, the U.S. lost about 1 million workers. I know it’s not exactly 1 million, but it’s close enough.
Add to that anyone who retired during the past two years and anyone who decided on a lifestyle change — and you have a very interesting labor situation right now.
It’s no wonder there are two open jobs for every one unemployed U.S. worker. Our available labor force just took a pretty significant hit. And there’s nothing the Fed can do about it.
So the only option left for the Federal Reserve is to keep raising interest rates at a brisk pace and hope the recession it’s causing isn’t too bad or too deep.
But you don’t have to take my word for it. Here’s Michael Arone, the chief investment strategist at State Street Global Advisors:
In other words, this Goldilocks jobs report still has us tasting porridge and testing beds. It’s not too hot, and it’s not too cold. It’s just right enough to make us comfortable until the bears get home.
The song remains the same, Great Ones. Don’t let your guard down. I’m not going to get all fearmonger-y on you now — we have Jim Cramer for that — but there is one other teensy little problem you should probably know about.
According to my colleague Mike Carr, $20 trillion in U.S. household wealth is invested in a total scam.
See, Mike’s been everywhere, inside the Pentagon, on Wall Street. He’s seen it all. He also explained to me how America’s favorite investment is robbing our people blind.
In his new video, Mike exposes this scam once and for all … while revealing a conservative, low-risk “replacement” strategy that can cut your risk to the bone, while delivering better returns than investing directly in stocks.
And now for something completely different, it’s time for your Friday Four Play!
No. 1: The Lululemon Song
In yesterday’s discussion on strip mall jewelry chains, we briefly mentioned the inflation crosswinds affecting retailers right now: The higher-income folks are still spending, albeit maybe a tad less than usual. The lower-income shoppers, on the other hand, are done shopping, frankly.
So it was no surprise that Lululemon (Nasdaq: LULU) reported glowing earnings … probably because Lululemon’s “athleisure” yoga pants and workout shorts are already inflated to the max.
The company’s earnings destroyed analysts’ expectations with room to spare. Sales rose 28.8% year over year for Lululemon, as those with dough blow it on Lulu clothes, while those without the dough … do not.
For some reason I really want donuts now.
I’d say donut touch those — not if you want to keep fitting into those Lululemons.
No. 2: Living Loving Ford (She’s Just An Automaker)
Dude, you could’ve gone with “Ford Sticks,” if it’s a Zeppelin kinda day.
Forgive me for being flustered, but Ford (NYSE: F) just did the unthinkable — and no, it’s not bringing back less-gaudy front ends on the F-150. Ford reported sales that … get this … were in line with analysts’ estimates. I’m just shook, let me tell you.
To be clear, Ford’s sales dropped 4% from July to August, but that’s still up 27% from August 2021. Andrew Frick, Ford’s vice president of sales, chimed in:
“Conquesting” “Competitors?” What the frick? Don’t go full conquistador on me now, Ford.
Still, as long as Ford can keep its production on track, maybe investors will get another in-line quarterly report next time — wouldn’t that be something?
No. 3: How Many More Times?
Can you reuse a rocket engine?
No … seriously. How many times?
Rocket Lab USA (Nasdaq: RKLB) is trying to figure that out now, and the company just successfully fired up and tested a recovered rocket engine.
Oh. Neat? I guess?
You guess?! This is the technology that space nerds have been dreaming about for ages. Imagine the amount of waste that could be reduced if you were able to recover and reuse rocket engines. Just imagine it!
You can actually watch the engine tests right here. If Rocket Lab’s developments continue, it’s the first step in more sustainable space travel … or at least a way to save cash via reusable engines.
RKLB saw a brief 14% rally yesterday that’s already come way back down to Earth by now. Poor Rocket Lab, burning out its fuse down here alone….
Will the company ever be profitable? Will Rocket Lab ever make a fully reusable rocket? We’re off to a good start, but I still think it’s gonna be a long, long time…
No. 4: Turn The PagerDuty
On a long and lonesome highway, east of Wall Street, you can listen to PagerDuty (NYSE: PD) reporting earnings — sending out a double beat.
You can think about the revenue … up 33.6% from the year before.
Hehe, you said “duty.”
That’s what you took out of this? Jeez.
Believe me: Your thoughts will soon be wondering … the same they always do. When you’re trading risky tech stocks, and there’s nothing much to do. PagerDuty stock didn’t feel much like rising … even though its earnings grew.
All we’re missing now is the sweet sax riff.
Yeah … and all PagerDuty’s missing is a rally for its double-beat-and-raise quarter, which gets rarer and rarer by the day. PD got a brief 8% pop that was completely erased by today’s sell-off.
Seriously, what gives? You walk into the earnings confessional, strung out from the quarter, and you feel analysts’ eyes upon you as you’re shaking and you hodl. You pretend it doesn’t bother you, but you just want to explode…
What do you think, Great Ones? If you have thoughts on any of today’s topics — and I know you do — write to us at GreatStuffToday@BanyanHill.com.
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