Thursday, February 3, 2022

Morning Note: Jobs Anomaly -- And -- Rings Familiar

ADP's private payrolls report was a shocker this week; showing a loss of 301k US jobs. Expectations were for a 180k increase. Clearly, all of those anecdotes about closed coffee shops, etc., during otherwise peak hours, for lack of available workers (read Omicron, and perhaps confident workers) explains the anomaly that has an economy that sports a record 11 million job openings losing jobs at a clip that is exceedingly rare outside of recessions.

It'll be interesting to see how markets react to tomorrow's BLS jobs report (the one everybody watches, and trades off of). On the one hand, if it too reflects this unique momentary labor setup, you'd think traders would look past it and remain focused on the bigger, longer-term picture (whatever their interpretation of it). 

But let's say that under these uber-volatile conditions one felt compelled to play a "surprise" loss of jobs in a given month, would one play it on the long or the short side?

Well, clearly the stock market's messy January was all about fear that the Fed was going to have to end their easy ways soon -- and in grander fashion than was previously discounted -- to catch up to present-day inflation. Again, job losses of the magnitude displayed in ADP's report scream economic slowdown. In which case the Fed would not be the least bit compelled to tighten up on monetary policy. I.e., could spark a rally.

On the other hand, considering the reality underlying ADP's jobs number, one could argue that what in some spots is akin to a self-imposed lockdown, it merely, and momentarily, quells demand, only to see it ramp back up (in "reopening" fashion) in coming weeks/months, while further fanning the flames of inflation in the process. Thus pressuring the Fed to actually do something about it. I.e., could be trouble...

Good thing we're long-term thinkers/investors!!

Reading from an excerpt to a Bloomberg interview with a Bridgewater (world's largest hedge fund) executive yesterday was like reading our own thesis. I.e., this will ring very familiar:

"(Bloomberg) -- Commodities are the most underused hedge
against inflation as the economy expands and prices rise, said
Bridgewater Associates executive Karen Karniol-Tambour.
“You’re looking at assets that are going to do well as the
economy grows and inflation pressures are strong,” Karniol-
Tambour, the firm’s co-chief investment officer for
sustainability, said Wednesday in a Bloomberg Television
Karniol-Tambour said she likes metals and carbon credits
because they’re exposed to both cyclical strength and new
measures aimed at combating climate change.
She also said the Federal Reserve will struggle to contain
inflation, even if it decides to boost rates five times this
year. Excess liquidity has led to rich valuations in technology
stocks and cryptocurrencies, and U.S. stocks are some of the
least attractive relative to other equity markets, she said.

“U.S. stocks in particular are some of the most susceptible
to liquidity removal,” she said. “Valuations just look a lot
better in a lot of other countries.”

With a handful of markets shuttered for the Lunar New Year, Asian equities leaned red overnight, with just over half the markets we track closing lower.

Europe's red across the board this morning, with all 19 bourses we follow trading lower as I type.

US stocks are struggling as well to start the session: Dow down 242 points (0.67%), SP500 down 1.15%, SP500 Equal Weight down 0.46%, Nasdaq 100 down 2.27%, Nasdaq Comp down 1.78%, Russell 2000 down 0.56%.

The VIX sits at 22.79, up 3.17%.

Oil futures are down 0.40%, gold's down 0.41%, silver's down 1.72%, copper futures are down 0.62% and the ag complex (DBA) is up 0.28%.

Among our 39 core positions (excluding cash and short-term bond ETF), 10 -- Viacom/CBS, AMD, XME (base metals miners), KBE (banks), AT&T, Verizon, DBA (ag futures), XLF (financials), XLU (utilities) and XLP (staples) -- are in the green so far this morning. 

"Invariably, investors who disregard where they stand in cycles are bound to suffer serious consequences."  --Howard Marks

Have a great day!

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