Market Brief – Friday 6/7/19

American investors never see a recession coming and today should be a strong lesson as to why. For the past few days, the financial media has been preparing for a weak nonfarm payroll number by saying the Fed will be forced to ease at an upcoming meeting if payroll numbers are weak. Since investors believe the Fed is all powerful and can manipulate the markets any time they want, investors literally bought into this story by buying stocks.

When looking at trading volumes, the picture doesn’t show strong buying demand, but it does show rapidly rising stock prices. When stock prices rise on low sales, which trading volumes represent, it means the dealers are marking up stock prices to incite investors into buying stocks. When stock prices rise on bad news, it validates the financial media’s position that the Fed will cut rates and that stock prices will continue to rally. Even if the Fed does cut rates, and it is unlikely they will, there is at least an 18-month lag before the cuts will hit the real economy.

When you understand the monetary lags and the blatantly misleading information published by the financial media, you realize investors are being conned into buying stocks near their all-time highs as well as paying a marked-up price for the privilege! When the recession inevitably hits, investors will be left wondering for the third time in twenty years how they, their financial advisors and professional money managers couldn’t see it coming. In the end, investors only care about one thing – seeing stock prices rise.

Wall Street completely missed the market as May Nonfarm payrolls came in at +75k, which missed expectations of a +175k print. The prior two months were revised lower by -75k jobs, meaning today’s report showed a net gain in payrolls by a big fat zero. The BLS birth-death model, which estimates the number of self-employed jobs created, came in at +204k, which means the actual number of jobs created in May was -129k, and when factoring the declines from the prior two months, the actual number was -204k.

When adjusted for the birth-death model, the average number of jobs created over the past twelve months is 114k, six months is 98k and three months is -28k. These numbers don’t represent a strong labor force or a strong trend in hiring. When the tariffs slowing kicking in, as well as the monetary lags, payrolls reports should continue to fall and at some point, contract.

Wage gains also disappointed as average hourly earnings increased +0.2% against expectations of a +0.3% gain. On an annualized basis, average hourly earnings increased +3.1% against a +3.2% expected increase. Average hourly earnings continue to lag behind rising consumer prices, which means consumers have less money to spend in the real economy.

In overnight trading, German Industrial Production fell -1.9% MoM in April against expectations of a -0.5% drop. On an annualized basis, German Industrial Production fell -1.8% against expectations of a -0.4% drop.

Stocks rallied on light volume in early trading while Treasury yields fell across the board. Ten-year Treasury yields are about to break down, which based on past market history, says stock prices are about to collapse. Keep an eye on the bond market as it is almost always correct.

Consumer credit rose a sizeable +$17.5 billion in April courtesy of a surge in credit card debt to the tune of +$7 billion, both of which are the highest numbers since last November. Student loan and car loans hit new all-time highs as consumers take on more debt. The recent uptick in the money supply data has now been confirmed.

Stocks closed the day higher on light volume as investors are now banking on the Fed to rescue them from any potential risks in the market. Treasury yields were unable to hold on to their lows for the day but still closed lower.

After yesterday’s surge over its 100-day moving average, investors resumed shorting agricultural commodities despite a tweet from President Trump stating that a deal with Mexico will also include increased purchases of our crops.

Physical gold is attempting to break through resistance around $1,245/oz but continues to find sellers at that price level. Emerging Markets stocks are not confirming the recent rise in gold, which suggests the recent rally is an attempt to lure investors in.

For those who think the Fed will ease at their meeting in a couple of weeks, keep in mind that consumer confidence is correlated to the stock market. When consumers are confident, they tend to spend. With stocks about 2.5% short of their all-time highs, the Fed really doesn’t need to do anything as they already talked investors back into the market.