Jobs Increase and Stocks Sell Off (WTF!)

Nonfarm payrolls rose 256,000 in December and the unemployment number decreased. This is good news for the economy but the stock market got whacked. As I write this all major indexes are down by more than 1.5% with the Russell 2000 leading the way down 2.65% to 2,179.

Those people preaching that the small caps would benefit from falling interest rates weren’t wrong, exactly. Small caps do benefit from falling interest rates, but despite the Fed cutting the rate it charges banks, real interest rates went up.

The Fed cut rates three times, but the real economy doesn’t care. The average 30-year mortgage rate was at 6.25% in October. It is now at 7.01%. People trying to get the 60% Zillow price increase on their house from the Covid surge are out of luck.

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Here is the deal with jobs versus one year ago which I took from Mishtalk.com:

Nonfarm Payrolls: +2,232,000
Employment: +537,000
Full-Time Employment: +434,000

Most of the new jobs are part-time. People get fired and they can’t live off the $300 a week unemployment so they take up driving for Uber. Heck, unemployment benefits in Connecticut are just $75 a week. Imagine paying $15,000 a year in property tax and getting $3,900 a year in unemployment.

The other job increases have come from education, government, and health care which were up 113,000 in total. These have risen in line with the need to care for new immigrants. It’s a government giveaway.

That said, nonfarm payrolls have been trending down for two years. The unemployment rate has been essentially flat for the past six months at just over 4%. All of these numbers are subject to substantial revisions.

The real stickler is that all of the new employment for the past several years has gone to non-native-born Americans. The employment level for native-born is below what it was in 2019. The BSL charts are here: https://fred.stlouisfed.org/series/LNU02073413.

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So yes, the government doubled the price of housing by printing money and cutting rates, vastly increasing the national debt to unsustainable levels so that it has lost control of the debt markets.

This was all done to import Democratic voters which in turn increased the size of the government creating jobs to support those immigrants which also increased the debt. And according to government numbers, those immigrants then took your job and capped your wages.

For the market, the rise in employment means that the Fed has no room to cut interest rates. The stock market is down with technology, financial services, and real estate leading the way. If you have a lot of debt or benefit from selling houses you are in a bind.

Buy Gold

On the other hand gold and silver are up along with gold, natural gas, and other commodities.

This current economy and political situation raises a lot of questions. Will Trump do mass exportations? Forty percent of California housebuilders are illegal immigrants. Who will rebuild L.A.? Will wage increases drive inflation? Or will AI apps reduce wages?

Can the DOGE team reduce the size of the government, balance the budget and drive down interest rates or will inflation rebound and the Fed pivot to raising rates?

What I do know is that with so many moving parts and cross-currents there are bound to be severe market distortions — which is great. I love it when markets overshoot either to the top or the bottom. It gives us investors and traders the ability to make lots of profits.

That said, the most likely scenario is one of rising inflation, rising rates and monetary dilution. You should own gold, silver, and energy in this scenario, at least a little bit. I’d also fade the S&P500.

sp500 chart