Stock Talk - The Fed is Late: Scary Thoughts + Scary Stocks?

Starting point is 00:00:00 Investors, it's Friday the 13th as we release this video, and let's not mince words. It's a bit scary out there. The Fed is late, late to start cutting interest rates. They were late to raise rates, and now they're late to cut rates. Many developed nations, central banks have already cut rates multiple times. With the leading trend center on the way up and down, yep, the central bank to our neighbors in the north, Canada, already having cut rates a few times by a total of 75 basis points. The $64 trillion question with the T is, are they too late like they were in late 2000 and late 2007?

Starting point is 00:00:36 That, I don't know. Inflation has dropped since the summer of 2022 when it peaked at over 9% per year here in the United States. While some prices are still advancing like auto and home insurance, many others like used car pricing, meet at my HEB and gas you put in your internal combustion engine if you still have one of those are deflating year over year. Fortunately for investors, the Fed seems stuck in their slow-moving academic, economic past and has refused to see the rapid slowdown in real economic growth and rapid loosening of the job market this summer. Investors, with the help of the jobs data research from Zero Hedge, we first covered the massive overstatement in the BLS jobs data almost eight months ago.

Starting point is 00:01:19 We followed that up pre-Labor Day holiday with this video entitled, You're Fired, You're Fired, You're Fired. and I put a link in the description below for you to watch after this one. Before we continue, I'm going to give a shout out to the entire Oak Carbis team because USA Today ranked us is one of the best financial advisory firms for 2024. The award is given to the top registered investment advisory firms in the United States based on two key criteria, recommendations from individuals among 25,000 financial advisors, clients, and industry experts, and second, growth in assets under management over the last year and five years, respectively.

Starting point is 00:01:56 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. With the Labor Day holiday weekend, we skipped a week. But during this stretch, three more significant jobs data releases were made that emphatically backs our case that the Fed is late. First, the Joltz job openings report came out on September 4th with a number of job openings in July tanking to 7.673 million the lowest openings in three and a half years. That's down almost a half a million jobs in one month and before what is likely to be a worse number in August. Take a look at Zero Hedges graphic on this data. The worst part of the news here is the collapse in construction job openings to a four-year low, a little under 250,000. This is bad news as construction hiring is usually a leading indicator of economic sentiment.

Starting point is 00:02:47 And secondly, there's a significant multiplier effect in the U.S. economy from whole building and the construction industry. The day after that released, on Thursday, September 5th, ADP released their private payrolls number, showing only 99,000 jobs being created. This is the smallest gain also since 2021 coming out of the COVID lockdowns. This data series, which has been more accurate to the ultimate revised BLS data, was supposed to come in at a decelerating 140,000 jobs. Somewhat hilariously, many media outlets told their viewers to ignore this weakness, saying, and I quote, only a few sectors reported actual job losses, only professional and business

Starting point is 00:03:28 services declined by 16,000 jobs, while manufacturing lost 8,000 jobs, and information services declined by 4,000 jobs. Never mind, folks, that those are nearly the highest paying jobs in the United States. They were replaced by gains in government jobs, health care jobs, and education back-to-school hiring. Finally, on Friday, September 6th, our taxpayer-funded BLS group, released their August payroll data coming in at 142,000 jobs under the forecast of 162,000. Meanwhile, previously reported jog games for July were revised down from 114 to 89,000, while gains from June were lowered from 179 to 118,000. The overstatement and the negative revision trend for the job market has continued over the last 18 months.

Starting point is 00:04:16 Investors, we covered my final point here on the job markets multiple times over the last year. What's that? It's the BLS data double and triple counts workers and jobs if they are working part-time and if they're working second and third jobs. Updating these stats per EJ. Antony, I drop a link to this article in the description below. As a summary, in August, the U.S. lost 438,000 full-time jobs with the entire gain coming from, part-time jobs. The number of part-time jobs rose 527,000 in August, while the number of people forced to settle for part-time work rose from 4.2 million to 4.8 million year over year. Year over year, BLS data shows that the U.S. lost over a million full-time jobs while adding 1.06 million part-time jobs. Far from killing it as many in D.C.s want us to believe into the election, the economy is weakening and weakening

Starting point is 00:05:12 fast. What does this mean for you and your money? Well, obviously, it now means the Federal Reserve will start cutting interest rates next week. The financial press and the economists are playing that mental game of 25 or 50 basis points or what path or dot plots going to take going forward. They can try to dazzle you with the talk at Fed Funds Future Markets, which I discussed numerous times, had previously no predictive power except over the five to six days before the Fed meets, which will be in as you're viewing this. If Powell stands by his Jackson Hole speech and tagline, we'll do everything we can to support a strong labor market as we make further progress towards price stability, they should, and I will say should cut by 50 basis points. However,

Starting point is 00:05:57 for investors, this is where it's getting tricky, because as I previously discussed, it's virtually impossible to tell if this will be too little, too late, and how an investor differentiate a soft landing from a hard landing until it's too late in the markets. The three most relevant time periods that previously look like this are 1995, which is the last true soft landing, 2000, which is the dot-com bubble peak, in 2007, the beginning of the great financial crisis. What you will find if you go back and study all these three periods were during Goldilocks, 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 towards their 50-day moving average into early August.

Starting point is 00:06:43 In each year, the market set in new high in August, and even in 2007 through September, 3rd's quarter summer seasonality, which we appear to be in right now, seasonality, which is particularly visible during election years. Once again, take a look at Steve Sutton-Meyer's tables from Bank America Securities and the data. The first is monthly seasonality of all years going back to 1928. Second table is the monthly seasonality during election years only. You can see that both September and October have historically been down during presidential election years, followed by a strong seasonal rally in the election.

Starting point is 00:07:18 into the inaugural ball late in January of the next year. Here are all the fine details from Suts Group for those who want to do more research on their own and pick their own adventure or chart their own path. The markets have been on edge since mid-July because the Fed is too tight for a slowing economy and a slowing job market. Investors are on edge because they are struggling with,

Starting point is 00:07:40 are we in an economic cycle that is mid-cycle, which would say stocks have years more of consistent gains ahead. That would be the Goldilocks. 1995-96 outcome? Or are we late cycle, where stocks would be okay returning investors positively for maybe another six or 12 months, or are we near end of cycle, like 2000 or 2007, where stock markets are topping and rotating into safety sectors because they are forecasting a downturn in the economy and in earnings in 2025. The employment data argues for us being later cycle over mid-cycle. However, we can't definitively answer that question yet. That's

Starting point is 00:08:18 said for now, don't get greedy when stocks are up on a spike and volatility is low, and don't panic and sell stocks when volatility spikes and stocks drop. Professors, if you want to hear our team's real-time thoughts on these topics, tune in to our September live stream, which takes place on September 19th, which is a Thursday night at 6 p.m. Byself, Troy and Charles will be discussing these topics. Our investment team believes that over the next few years, a more active management style will begin to reassert itself and be rewarded relative to passive index investing. If however, over the years, you've found yourself reacting emotionally in your portfolio to presidential elections and their uncertainty, and when volatility is high like it has been in

Starting point is 00:08:57 July and it is now, it's time to step back. Take a deep breath, give your advisor a call to talk and walk you through your long-term financial plan. If you are uncomfortable with a wider range of possible equity outcomes, the Oak Harvest Investment Team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorbers for a stock portfolio. If you want more information on this new strategy of ours, go to oak harvest funds.com. For myself, from everyone here on the investment team,

Starting point is 00:09:26 have a great weekend. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without much. notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy

Starting point is 00:10:00 or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involved the risk of loss and past performance is not indicative of future results.

Stock Talk - The Fed is Late: Scary Thoughts + Scary Stocks?

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