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Market Reaction To Jobs Report Confirms My Hypothesis – Ep. 180

  • Today we got the Non-Farm Payroll report for the month of June
  • Remember the last 2 reports were quite weak and everybody was hoping for a rebound in June to prove that April and May were a fluke and not a new trend
  • In fact the Fed talked about that in their last FOMC meeting minutes
  • The consensus was for 180,000 jobs to be created and the range went from a low of 130,000 to as high as 235,000
  • The consensus average of that range was 180,000
  • The actual number came in at 287,000, over 100,000 jobs above the consensus
  • Now we did revise down the really bad number from May, and made it even worse
  • Initially that number was 38,000 jobs and now we know it was just 11,000 jobs
  • So about 70% of the jobs disappeared
  • I have a good feeling that the reason June’s number is so high is that it’s just wrong, and we’ll see what kind of revision we get to it next month
  • Remember, a good chunk of these numbers are jobs that the government assumes were created without evidence, based on the birth-death model
  • I would suggest that far fewer businesses are actually being formed than the government believes
  • In fact, its possible that more business are shutting down than are hiring
  • Given the economy and the minimum wage, those business that are starting up are hiring fewer people than start-up historically hire
  • I think these guesstimates are wildly optimistic and skewing all the numbers
  • Unemployment rate, which was 4.7 last month and expected to notch up to 4.8, instead notched up higher to 4.9
  • Private payrolls which were expected to rise by $170,000 jumped by $265,000
  • But last month they revised a $25,000 gain to a $6,000 loss
  • Why did unemployment move up? Because the labor force participation rate notched up from 62.6 to 62.7
  • Obviously not all the people who re-joined the labor force could find jobs
  • Average hourly earnings were expected to rise by .2%
  • Again they disappointed; they rose by just .1%
  • Overall, a mixed picture, but the headline number, the 287,000 vs 180,000 consensus
  • That’s normally the number the market trades off
  • And that is exactly what happened – as soon as the report came out we had a big jump in the dollar index and we had a big selloff in Gold
  • Gold started out largely unchanged, went down about $22 on the news
  • Silver sold off, it was down about 40-50 cents
  • That was the knee-jerk reaction: strong dollar, weak gold, weak silver
  • Why?
  • A strong jobs number means the Fed is more likely to raise rates, right?
  • Rate hike is coming, good for the dollar, bad for gold
  • But what did I say on Wednesday’s podcast?
  • I said that it didn’t matter what the jobs number was
  • That gold was not going to go down, and if it was a weak number, I expected a big rally in gold
  • But I also said that a strong number would not hurt gold
  • Earlier in the year, a strong number would crush gold
  • I said that what’s going on, and based on the latest FOMC minutes, I don’t care what the jobs number is
  • The Fed is not going to raise rates
  • Jobs have nothing to do with it, Jobs are the excuse
  • The Fed can’t raise rates now because of the fragility in the banking system, all the things that were revealed by Brexit
  • The market is sensing that and that’s why within the first hour gold reversed all of its losses and finished the day up about $5.60 at $1365.40
  • The highest close of the year on a day when we had a huge beat in the Non-Farm Payrolls
  • Silver had an even more impressive reversal; it rallied over $1
  • Stocks really broke out; the GDX was up over 30% today to close at $30.54
  • Not quite the highest close of the year
  • Many silver and gold stocks hit 52-week highs today, some hit 2 or 3-year highs
  • The overall stock market was also up just under 80 points; the Dow was up 250
  • We have now recovered all of the post-Brexit losses
  • The Dow now back up around 18,000
  • The foreign markets have done so much better, particularly the markets I’m involved in
  • Particularly the stocks we own – we are so far above where we were before Brexit
  • We didn’t just catch up, we went way beyond
  • But if you listen to the news tonight, they are going to say the market rallied because of the strong jobs number
  • That’s not why the market rallied
  • The market rallied because the strong numbers did not produce a reaction in the bond market
  • In fact, the bond market, after a knee-jerk spike up in yields reversed and the 10-year ended up with a decline
  • The 30-year closed at 2.1 – a new low for the year
  • The reason the stock market went up is because the strong jobs number does not mean the Fed is going to raise rates
  • It doesn’t matter what the jobs numbers are, the Fed can’t raise rates and that’s what the markets are sensing
  • They sense the Fed can’t raise rates, which means more air in the bubble