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Hello, Goodbye

Updated: Jul 20, 2023

Last week, the unemployment rate dropped from 3.5% to 3.4%. The last time the unemployment rate was this low was in 1969. Additionally, job openings rose to 11 million in December, sending the ratio of vacancies to unemployed workers up to 1.92 from 1.74 in November and 1.81 a year ago.

So the unemployment rate went down, but the number of job openings went up? The only way a situation like that comes about is because American workers can't make ends meet with just one job, so they've been forced to take a second one. Accordingly, the private sector quit rate, which is a sign of workers’ confidence in being able to find a better job, dropped to 2.9% in December from 3% in November and 3.3% a year earlier.

In a question-and-answer session at the Economic Club of Washington on Tuesday, Fed Chair Jerome Powell basically shamed any investors who believed the Fed's recent inflation projections were too high, and he cited last week's job report as evidence that he was right.

Unfortunately, the wage-price spiral about which he expressed concern is a Keynesian farce. Inflation isn’t caused by wages; inflation is caused by Congress spending money and the Federal Reserve printing money. It’s called debt monetization. As the great Milton Friedman argued, wage-price spirals are “the external manifestation of inflation, but not its source... the inflation arises from one and only one reason: an increase in a quantity of money."


  • The share of Americans who say they live paycheck-to-paycheck climbed 3% last year, a likely reflection of the growing strain on household budgets. Some 64% of US consumers— 166 million people— were living paycheck-to-paycheck at the end of 2022. What’s more, most of the newcomers to the group were people earning more than $100,000 a year.

  • Our base case is that household savings buffers from the pandemic will soon be exhausted, thereby continuing to squeeze spending. We have been talking about revolving credit since last May, and the situation has only worsened:

  • Short on cash, 401k plan participants are taking hardship withdrawals at record rates. According to Fidelity, 2.4% of 401(k) participants took hardship withdrawals from their retirement accounts last year, up from 1.9% in 2021. That represents the highest share of hardship withdrawals ever recorded at Fidelity. Vanguard also saw a record 2.8% of the five million participants in its 401(k) plans take hardship withdrawals, up from 2.1% in 2021 and a pre-pandemic average of approximately 2%.

  • According to Fitch Ratings, the percentage of subprime auto borrowers who were at least 60 days late on their bills climbed to 5.67% in December— a major increase from a seven-year low of 2.58% in April, 2021 and the largest print since the 2008 financial crisis.

Looks like we’ve got a huge number of families that are living paycheck to paycheck, running up expensive credit card debt, ransacking their retirement accounts and about to get their cars repoed. Lovely.


Over the short term, stock market performance can disconnect from financial and economic reality, but they always catch up with each other. We believe we’re currently experiencing one of those short-term disconnects and that the most recent bounce is still occurring within the confines of a bear market.

There are several factors contributing to that phenomenon, of course, but one may have to do with the explosive rise in 0DTE option trading. 0DTE options are those with zero days to expiration, and their big advantage is that they do not require margin to be posted because they are not held overnight. According to Goldman Sachs, they have risen from 10% - 20% of total S&P option volume in 2018-2021 to well over 40% in the last year.

That’s a lot of leverage that’s been added to the market. Sometimes that works out well; sometimes not. For now, it’s making for extreme and unpredictable intraday volatility.

Regardless, it’s not what drives the value of financial assets over the long term, which is why we continue to approach markets with caution. However, it is significant to note that there are a lot of credible bulls out there:

Tom Lee from Fundstrat:

Ned Davis Research:

Ken Fisher of Fisher Investments:

And last, but certainly not least, Jim Cramer:

They say Hello, we say Goodbye. That’s what makes it a market. However, we do heartily consider their analyses; we’re simply assigning a lower probability to the likelihood that orderly disinflation will occur back down to the Fed’s 2% target without a recession, something along the lines of 25%.

Therefore, it will come as no surprise that we continue to recommend energy stocks, commodities (especially oil), cash and alternatives with volatility-reducing characteristics. That may seem tired after reading it over and over here in Insights for months, especially as Exxon Mobile (XOM) hits a new all-time high today, as money markets have already hit 4% yields, and as we continue to generate one-year structured notes with double-digit yields, but in our view, we’re not done here.

At any rate, in addition to your asset allocations, you might just consider your current financial advisory situation. I like our firm’s value proposition of being able to offer extremely nimble portfolio management in markets like this. …Because we're usually right, but not always. 😉

Click here to invest with Chad.

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