Making Hay Monday - August 26th, 2024
High-level macro-market insights, actionable economic forecasts, and plenty of friendly candor to give you a fighting chance in the day's financial fray.
Charts of the Week
The above visual displays Market Vane’s survey of the percentage of investors who are bullish on the U.S. stock market. If you look at the past instances when it has hit the upper band, stocks experienced deep corrections soon thereafter. When it has broken below the lower band, those were excellent times to be an aggressive buyer of U.S. shares. Accordingly, the current reading strongly suggests this is an opportune time to be cutting back on equity exposure. As previously noted in these pages, there are other cautionary signals such as intense insider selling and valuations that, by some measures, exceed even those seen in early 2000, at the peak of the biggest bubble in U.S. stock market history.
* * *
There is a loud chorus of die-hard believers in the economic soft-landing thesis dismissing last week’s disturbingly large downward revision to what had been previously reported as robust job creation. This applies to net jobs created in the twelve months ending in March. It was the deepest negative adjustment since the Great Recession. The main excuse being trotted out about why it doesn’t matter is due to the unquestionable surge in illegal immigration. The logic is that the downward revisions are not so much a function of weak hiring but, rather, as a result of a spike in the number of workers seeking employment. Bloomberg’s crack economist, Anna Wong, isn’t buying the alibi, however. One of her persuasive points is that about two-thirds of the retroactive cuts to net new jobs were in white-collar positions. It is extremely unlikely that illegal immigration impacted this segment.
A Haymaker observation is that it’s also improbable undocumented workers accounted for the majority of the remaining one-third of blue-collar hirings that disappeared (and were enthusiastically celebrated at the time of their initial release). Moreover, there were over one million private sector hires wiped away by this revision, compared to the headline downward adjustment of 818,000 for the year ending last March.
A substantial share of the hiring that has occurred over the last year and a half, or more, has been due to governments — local, state, and federal — adding to their payrolls. Healthcare has also been a major contributor to job creation. Further, one of the most meaningful has been the government’s birth-death model. There is little doubt it is materially overstating new hiring and understating dismissals due to a dramatic spike in business failures. The birth-death model is continuing to assume new business formations, not closures; the real-world data strongly suggest the opposite.
*Corrected (Note: we mistakenly attributed the chart to Quill Intelligence, QI Research, by whom the chart was shared with us. The error was ours.)
“In gold terms, the S&P 500 is exactly where it was in August 1971. The significance of that date is that it was the moment when President Richard Nixon severed the dollar's link to gold.” -Bloomberg’s John Authers, as relayed by Jesse Felder
The (Potentially) More Precious Precious Metal
Champions
Any reader that has been even loosely tracking Haymaker editions, and the predecessor newsletter, the Evergreen Virtual Advisor (EVA) is aware of our long-standing bullish stance on gold. That has also extended to the gold mining stocks which have been broadly ignored, if not despised, for most of the last dozen years.