Yeesh. That was my one-word reaction to this morning's jobs report from the Bureau of Labor Statistics. I am writing this before the market opens, but, of course, equity futures are up... because. The Democrats managed to ram through a stimulus package without a single Republican vote, but today's brutal jobs report is further evidence that -- as much as they may be eye candy for this go-go stock market -- stimulus packages simply do not work.
The brutality of the jobs report -- the Employment Situation Survey only showed 49,000 jobs added in January versus a consensus estimate for a gain of 105,000 jobs AND showed a net negative revision of 159,000 jobs from the preliminary November and December reports -- puts another line under the situation we are facing in 2021.
It's Stagflation, man. Even in the midst of the disappointing payrolls figures, average hourly wages increased a few pennies in January and are nearing the $30/hour mark. So inputs of labor would seem to be easier to find --especially in manufacturing, retail, construction, and even healthcare (in the middle of a pandemic?) and other sectors that showed monthly declines in total employment in January -- but the cost of labor is rising. Adam Smith just rolled over in his grave.
But matching supply to demand requires the assumption of efficient markets, and the U.S. labor markets are about as inefficient as any on earth. Despite all the advances in technology that have rendered Help Wanted ads useless in 2021, the U.S still faces a market where labor force skills and the competencies required by employees are incredibly mismatched.
We are going to see employers have to pay up for qualified employees, which, perversely, limits the number of employees they can hire. So there aren't as many newly-minted conspicuous consumers as there would have been in prior economic cycles.
The evidence of this is everywhere. The surge in home values in 2020 is one indication. Money is free, so it is easy to get a mortgage, but it is harder to find employees to build new homes, so supply is not sopping up excess demand. Bam! That's Stagflation, bro!
The stock market is -- except for GameStop (GME) , apparently -- on its little free-money high these days. It is really the bond market that feels the impact of Stagflation first. I saw the statistic yesterday that the U.S. Treasury yield curve had steepened to its greatest spread (the difference between 3-month and 30-year Treasury yields) since 2015.
This is going to continue. That's good for banks, with their classic borrow short/lend long business model, but it is really bad for those who have to use the bond markets to borrow long and lend short.
Gee, who could that be? I am looking at you, Robinhood! This flood of retail money into the stock market has been unleashed with a torrent of cheap money. But yield curves ARE important. We have to understand that what is good for Jamie Dimon is not necessarily good for Vlad Tenev, the Robinhood guy.
So, I made a decent profit on the ProShares Ultra-Long long-dated US Treasury ETF (UBT) that I had mentioned in an RM column in Q4, but I closed that position weeks ago. Now, it is time to take the opposite tack. In this case, that means buying (TBT) , ProShares UltraShort long-dated Treasury fund.
I can't think of a more feckless, less fiscally responsible group than those who currently populate Washington, DC. They are destroying the creditworthiness of the USA and that is not fully comprehended in a 10-year US Treasury note yield of 1.16%.
There is no use crying about it... buy some TBT and set your portfolio to profit from Stagflation.