You’re Fired! You’re Fired! Overstated...

In the words of Pre-President Donald Trump, “You’re Fired”.  And with the stroke of a pen, or maybe it was the delete key on an old Intel Inside PC from the year 2000 or 2007, your taxpayer funded Bureau of Labor Statistics, or BLS, or economic and markets tables, eliminated 818,000 jobs in America.  Jobs that the investment team has warned for over 8 months that weren’t real but being reported by the BLS.  Jobs that overstated the true strength of the US economy. Jobs that many politicians and economists were cheerleading for as a sign that the current administrations economic policies were for lack of a better term, “killing it”.  Jobs that the Federal Reserve was basing their “higher for longer” interest rate spew on.

Here’s the link to our prior YouTube video on this subject at the first of the year.    https://www.youtube.com/watch?v=nZxHp9HR__8 It’s title, which I have to thank Nathan in our compliance department for checking off on at the time was: Stock Market News, Government BLS Job Data: Bullish of just B—LS—t?  Back then we. Like most of the times we do, we were coaching our followers and investors, to NOT, I repeat NOT 1- place undue important on government economic data, 2-waste much time discussing government data releases around the dinner table or at cocktail parties, and 3 – make hasty investment decisions that should be measured in at least quarters and years, based on these headlines.  Why? Because as we have just seen, the data is almost never real, at least the initial data releases.

Because the data and numbers the BLS releases, even with over 2000 employees and near $1 billion annual budget, while fictionally precise, are near 100% in- accurate and essentially fake.  As I said back then, I mean no BLS employee ill will by this statement.  But, the BLS charter, funded by taxpayers is to be the principal fact-finding agency for the U.S. government in the area of labor economics and statistics.

Functionally, the BLS collects, processes, analyzes, and disseminates data to the American public, The problem for investors relying on this data to make any kind of investment decision is the data is virtually always inaccurate when first released.  Horribly inaccurate.  And we are not talking by a few hundred or thousand jobs in a country of 160mm jobs. We are talking by 10’s if not 100’s of thousands of jobs monthly and annually.  We can send men to outer space and reuse rockets multiple times now.  We can make an F-35 lighting fighter jet designed and built by Lockhead Martin have the cross-section radar image the size of a bee, but our federal government can’t even get a reasonably accurate count of how many people in the US are working.

Viewers, all the following job data comes from some great work done by analysts on the Zero-Hedge website.  They have been writing about this topic for almost 18 months.  Here’s a link to their most recent article, and while it is full of very negative DNC rhetoric which I will not promote, the data is the data, as it has been for almost a year and a half. The real data has been far worse the our BLS has been reporting and polticians in DC promoting.  Here’s the link. https://www.zerohedge.com/markets/us-jobs-revised-down-818000-election-year-shocker-second-worst-revision-us-history

Investors, just how wrong and how big is a -818,000-job revision? It’s the second largest on record, with just the -824K downward revision in 2009, at the depths of the Great Financial Crises, only bigger.  Here’s that data.

Instead of the strong 230k average monthly job increase in 2023 that the current administration was promoting, the actual number was closer to 130k, or approximately -43.5% less! And to make matters even worse, the -818k jobs that vaporized overnight, “you’re fired”, “you’re fired”, “you’re fired”, or rather, You weren’t hired, you weren’t hired, you weren’t hired,  were in the highest areas of the economy as professional service lost -358k, leisure lost -150k, and manufacturing lost -115k.  The only sector of the economy whose job total was revised up.  Yeap, you guessed it, government workers revised up 1000 jobs.

While almost every economist and political I heard on TV and on financial news, hand waved and pooh poohed this massive job revision away as nothing more than business as usual from our data gatherers and data scientists on taxpayer’s payroll, I do NOT see it the same way as them.  First off if this had been an accounting “restatement” in the public equity markets by a public company, the stock would have likely been cut in half on this news, and the entirety of the senior management team forced to resign. The company would have been reported and downsized and a new group would take over.  Of course for now, that doesn’t happen in any government agency.

Secondly and more importantly for investors, what does this mean for you and your money?  Well, too me it means that the Federal Reserve will start cutting rates in September, just as Jerome Powell just stated at Jackson Hole.  The financial press can now play the metal game of 25 or 50bps, or what path do they take going forward.  They can try to dazzle you with talk of Fed Funds Futures markets, which we have discussed numerous times previously as not predictive at all of interest rates except for the 5-7 days before a Fed meeting.  And now the economist and financial press can get back to the near meaningless spew of the Fed Governors “dot plots” which literally are economist guesses, written in crayon or pencil about what they think rates will be going forward.

Most reporters thought this was the key part of the speech when JP said “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”

However, it was not as I’m concerned. The key line was this “We will do everything we can to support a strong labor market as we make further progress toward price stability.”  Viewers, go watch this part of the speech.  See his emphasis. This is a man who knows the job market is not what the data releases have said.  This is a man who seems willing to now except a slower path back to 2% inflation because the economy is slowing at a faster pace than many seem to understand.  The stock markets initially cheered this speech, led by small caps and interest rate sensitive groups with the S&P 500 closing at a new weekly close on the SP500 at 5634.  However, this is where it starts getting tricky, because as we have previously discussed it is virtually impossible to tell a “soft-landing” from a hard landing until it is too late.

Don’t believe me?  If not, go back in time and look at the SP500 and sector leadership in these 3 years.  1995 (the last true soft landing), 2000 (the dot.com bubble peak), and 2007 (the beginning of the GFC).  Here are the 3 charts of the S&P 500 during those years if you don’t have access to a charting service.

1995

2000

2007

What you will find is during all 3 of these years, during Goldilocks in 1995, during speculation nation in 2000, and even during “the worst is yet to come” 2007, the markets peaked in mid-July, and dropped back toward their 50day mva in early August.  In each year the markets set new highs in August and even in 2007 throughout September.  Yes, no dreaded September swoon which most on TV are bracing investors for this year, in 2007.  In fact, in 2007 the markets made a new ATH into the first and second week of October! Investors, few saw the GFC coming back then, the Fed certainly did not, and the indexes didn’t either. Investors, the Fed is too tight. The bond market knew it weeks ago, and the stock market struggles with it.  We’ve seen this play before.

 

The markets are on edge because they are struggling where we are in the economic cycle.  Are we mid-cycle, which would say stocks have years more of consistent gains ahead. That’s the goldilocks 1995-96 outcome. Are we late cycle? Where stocks would be ok returning to investors for maybe another 6-12 months? Or are we end of cycle, like 2000 and 2007, where stock markets are topping and rotating into safety sectors because they are forecasting a downturn in the economy and earnings in 2025?  The Jobs data that was just revised argues for us being later cycle over mid cycle. We can’t definitively answer that question yet. That said, for now, we continue to have the same 2h that we’ve had since October 2023. Don’t get greedy when stocks are up on spikes and volatility is low.  Don’t panic and sell stocks when volatility spikes and stocks drop.

Our investment team does believe that over the next few years a more active stock management style will begin to reassert itself and be rewarded relative to passive index investing. Since the markets have rallied strongly the last two weeks back to near 5635 and volatility has subsided lower, now is a great time to meet with your financial advisor or planner if you have a relationship beyond just an investment account with them.

Before you panic and resign yourself to a 2000 or 2007 outcome in the 4q24-2025, remember these prior periods before the Fed found QE, quantitative easing and many other programs they used to dull or delay economic and market downturns. During both these prior periods, the markets did not cascade lower from there in a straight line. While the previously discussed 2000 and 2007, the cutting cycles did end in recession, they were pre-QE and characterized by a lack of liquidity. Quantitative easing in significant size has been implemented since then, and you know what that has historically done to tame volatility in markets.

So, if over the years you have found yourself reacting emotionally in your portfolio to Presidential elections and their uncertainty, or when volatility is high like it was in July, now is the time to step back, take a deep breath, give your advisor a call and talk walk through your long-term financial plan.   If you have a good relationship with your advisor, and not just an investment account relationship. Get on the phone and give them a call and see what might work for your longer-term financial plan.  Do if while the fast money was sidelined and now is back finding FOMO into what likely will be a surprising September higher.  Do it when the markets have bounced, and as we messaged last week, right back where we started from. (include last week’s link)

If you are uncomfortable with wider range of possible equity outcomes, the Oak Harvest team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorber “insurance” for a stock portfolio.  Information on this exciting new strategy of ours can be found at OakHarvestFunds.com.

 

Viewers, for those of you who made it this far, I want to give a shout out to the entire OHFG team as last week, USA TODAY, ranked us as one of the Best Financial Advisory Firms 2024. The award is given to top registered investment advisory (RIA) firms in the United States based on two key criteria:

• Recommendations from individuals from among 25,000 financial advisors, clients, and industry experts
• Growth in Assets under Management (AUM) over 12 months and 5-years, respectively

I personally am looking forward to helping us move up this list over the coming years by taking care of our current and future client base. From the whole team here, thank you and have a great weekend.